FTC Files Lawsuit to Stop the FanDuel-DraftKings Merger

The Federal Trade Commission (FTC), along with the attorney generals of the State of California and the District of Columbia, filed a lawsuit in a federal court to temporarily stop the merger of FanDuel and DraftKings today. Officials at the FTC said the merger would create an illegal monopoly.

Tad Lipsky, Acting Director of the FTC’s Bureau of Competition, siad in a statement, “This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel.”

FTC Calls for Administrative Trial

The FTC’s lawsuit will to stop the deal and to maintain the status quo in the daily fantasy sports industry “pending an administrative trial”. The three agencies also filed a complaint statign that the merger violates Section 5 of the FTC Act (1914) and Section 7 of the Clayton Act (1914).

Mr. Lipsky added, “The FTC is committed to the preservation of competitive markets, which offer consumers the best opportunity to obtain innovative products and services at the most favorable prices and terms consistent with the provision of competitive returns to efficient producers.”

DraftKings-FanDuel Merger

The merger between DraftKings and FanDuel would unite the two largest daily fantasy sports competitors in the United States, which hold between 90% and 95% of the American DFS market. The Boston-based DraftKings is the largest US operator in daily fantasy sports, while the Scotland-founded, New York City-based FanDuel is the second largest.

In the industry’s rise to prominence, the two companies cited a carveout for fantasy sports in the UIGEA law, while noting that one-day fantasy sports contests were games of skill — unlike sports betting. DraftKings and FanDuel were adamant that their form of gaming was not gambling, though many of their practices — such as signup bonuses, 10% rake, and TV commercials — seemed to follow the model of casinos and sportsbooks.

Competition between DFS Sites

It was the market competition which led to the “fall” of the daily fantasy sports industry. From 2013 to 2015, the two DFS competitors waged a spirited battle to see which would become the dominant operator in the country. Both companies gathered investments from some top Wall Street investment groups, telecom companies, and American sports media groups. Both also signed numerous sponsorship deals with franchises and league offices in the NBA, Major League Baseball, NFL, and NHL.

Armed with cash from their major investors, FanDuel and DraftKings waged an ad battle throughout the first two-thirds of 2015. Their advertisements were so prevalent on television sports broadcasts that late-night TV hosts began to crack jokes and do skits to make fun of the DFS industry. The level of exposure caused a backlash against the two companies, though.

State Bans and Regulation Attempts

Since October 2015, the two have faced efforts by state attorney generals to either ban their sites as a form of sports betting. DraftKings and FanDuel had to devote resources to legal battles in New York and Tennessee, while committing money to costly lobbying efforts in dozens of other states. By mid-2016, it became obvious that a merger would halve the costs of litigation and lobbying, while circumventing the need to continue an advertising battle for new customers.

Eccles and Robins on FTC Lawsuit

The two embattled rivals have grown close enough during their merger talks that they released a joint communique on news of the FTC lawsuit. The companies’s two CEOs, Nigel Eccles of FanDuel and Jason Robins of DraftKings, said in a press release, “We are disappointed by this decision and continue to believe that a merger is in the best interests of our players, our companies, our employees and the fantasy sports industry.”