The long-awaited merger of FanDuel and DraftKings has happened. The top two daily fantasy sports websites have been rumored to be in merger talks for months. Despite the expected merger, ESPN reported that the Federal Trade Commission might look into the merger, because the two companies control more than 80% of the DFS gaming market between them.
Beset by mounting legal and lobbying costs, the two DFS companies decided it made the best sense to join forces. The merger allows the two daily fantasy sports companies to slash costs on lawyers and lobbyists, while ending the advertising war which might have damaged the business in the first place.
Jason Robins to Be CEO
Jason Robins, the chief executive officer of DraftKings, is expected to be the CEO of the merged company. Robins said in a prepared statement that the merger presents "growth opportunities and an accelerated path to profitability."
Robins said, "We have always been passionate about providing the best possible experience for our customers and this merger will help advance our goal of building a transformational global sports entertainment platform."
Nigel Ecclas to Be Chairman
FanDuel CEO Nigel Eccles will be the chairman of the merged DraftKings-FanDuel. Details are still limited. DraftKings is based in Boston, while the Scottish-owned FanDuel is based in New York City.
The press release said both companies expect the merger to be complete by the end of 2017. FanDuel and DraftKings once were bitter rivals, but the circumstances of the past year have driven the two together, as they faced mounting challenges from state attorney generals and legislatures.
FanDuel and DraftKings Rivalry
Fourteen months ago, FanDuel and DraftKings were riding high. Both were becoming billion-dollar companies and attracting investments from top media and financial groups, such as NBC Sports, Fox Sports, and a variety of venture capitalists. Even the Disney Company was discussing a billion-dollar investment.
Fueled by corporate money, the two DFS sites engaged in an escalating ad war. Both sites' advertisements bombarded the airwaves of sports broadcasts in the summer of 2015, as the two companies sought to expand their customer base in time for the lucrative NFL season.
The advertisements became so seemingly ubiquitous in the US sports broadcasting niche that late-night talk show hosts began to make fun of them. Signs of a public backlash, but DFS gaming also was becoming a mainstream activity for many American sports fans -- especially traditional fantasy sports owners.
Ethan Haskell Scandal
Then the Ethan Haskell scandal happened in October 2015. Ethan Haskell was a DraftKings employee who often posted about his daily fantasy sports grinding activities on his Twitter feed. One week in mid-October, Haskell won $350,000 for winning 2nd place in a FanDuel Sunday Million contest.
That might have gone unnoticed, but Ethan Haskell mistakenly posted the draft percentages for DraftKings players on the same weekend to his Twitter account. Suddenly, DFS players became concerned that Haskell might have been using an unfair advantage, if he had the DraftKings draft percentage data to help him fill-out a lineup. While that information would not give Ethan Haskell information on who to start, it might have given him the knowledge of which players to avoid, so if he hit on players, a smaller percentage of his competitors would have a similar combination.
A controversy started, drawing in media outlets, notable gaming lawyers, and US district attorneys. An internal investigation showed that Ethan Haskell did not have the draft percentages until after DFS competitions began. DraftKings and FanDuel quickly announced policies which disallowed their employees from engaging in DFS gaming.
It was too late. State attorney generals in Nevada, New York, Illinois, Texas, and a host of other states began announcing that daily fantasy sports was illegal in their states. The companies began to withdraw from those states, while insisting daily fantasy sports was legal under the UIGEA law (and not sports betting, in any case).
AG Eric Schneiderman
The challenge from New York Attorney General Eric Schneiderman was the most dangerous legal case for DraftKings and FanDuel. Schneiderman said all fantasy sports was illegal in November 2015, then gave the sites 5 days to cease and desist in New York State. As New York involved about 10% of the gaming activity on both sites, each company filed lawsuits in New York.
Judges decided that the DFS companies and Schneiderman would have their day in court, while they could continue operations in New York. In answer to that second ruling, Eric Schneiderman included a stipulation in his countersuit that demanded DraftKings and FanDuel pay back all the money they won from New Yorkers, plus $5000 per player. A loss in a court room would mean bankruptcy for both companies.
Eventually, DraftKings, FanDuel, and Eric Schneiderman agreed to have the case dropped, if the New York State Legislature legalized daily fantasy sports in the state before a September 2016 court case. New York lawmakers passed such a bill in the summer of 2016, and Gov. Andrew Cuomo signed the bill into law in August 2016.
DraftKings/FanDuel Merger Details
With similar cases playing out across the nation and the need to lobby dozens of state legislatures, it perhaps was inevitable that DraftKings and FanDuel would merge. The two can halve the cost in lawyers fees and lobbying stipends, while greatly reducing the amount of advertising dollars they need to spend.
Financial terms of the "merger of equals" have not been announced. Also, no one has announced what the new company will be named, or where the corporate headquarters will be located. As the details of the merger are announced, this site will continue to update readers.
