The Federal Trade Commission’s move to block the merger of DraftKings and FanDuel was the straw that broke the camel’s back causing the two daily fantasy sports giants to scuttle the deal.
“FanDuel decided to merge with DraftKings last November, because we believed that this deal would have increased investment in growth and product development thereby benefiting consumers and the greater sports entertainment industry,” FanDuel CEO Nigel Eccles said in a statement Thursday afternoon.
“There is still enormous, untapped market opportunity for FanDuel, and we will continue to execute our strategy to grow our business and further expand the fantasy sports industry.”
DraftKings CEO Jason Robins said it was the right thing to do.
“We believe it is in the best interests of our customers, employees, and investors to terminate our agreement to merge with FanDuel and move forward as a separate company,” Robins said in a statement.
The FTC blocked the planned merger—which could have been completed last month—saying that combining the two companies would create a company that dominates more than 90 percent of DFS play in the U.S.
The two companies challenged the FTC ruling in court, filing papers that argue that the FTC’s ruling “reflects an unnecessarily rigid and uninformed application of the antitrust laws to an underdeveloped, nascent industry, and largely ignores rigorous economic analysis that has demonstrated unequivocally that prices are not likely to increase as a result of the transaction.”
The companies argued that the merger would actually create savings for players by making the companies more efficient and reducing redundant costs.
However, the FTC noted that the two companies are each other’s only real competitors.
“This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel,” FTC Bureau of Competition acting director, Tad Lipsky, said last month.
The companies challenged the FTC ruling both in an administrative court and federal court, where the FTC received a preliminary injunction to block the merge.
The FTC was joined in the move to block the merger in federal court by the offices of the attorneys general in the District of Columbia and California.
Eccles outlined what he thinks is a bright future for FanDuel, even if the merger fell through. The company just unveiled a daily fantasy game based on golf tournaments and said the company plans to unveil a season-long fantasy product for the upcoming NFL season. He stressed—as the company has to the FTC—that daily fantasy sports is simply part of the larger fantasy sports market.
“Daily fantasy sports is a subset of that bigger market, and our mission is to convince that 57 million that daily fantasy sports is a better way to play,” Eccles told Recode. “If we can get 10 percent of that 57 million, then we have a huge business, so that’s our focus.”
Despite the rosy outlook from the companies, experts noted that neither company has yet reached profitability.
“The timing of the withdrawal from the merger appears to indicate that there is more behind the decision than cost savings,” Rachel Hirsch, an attorney for Washington, D.C.-based firm Ifrah Law, which specializes in FTC investigations, told ESPN.
“Perhaps these companies were worried about the information that would be revealed at the preliminary injunction hearing and how that would tarnish their brands. Win or lose, at the end of the day, image is everything to these companies, and they couldn’t afford adverse witnesses or data that could permanently impair their chances of recovering from a failed merger. One thing is for certain—after a failed merger, it will no longer be business as usual for one or both of these companies.”
