News broke today that DraftKings and FanDuel, the two companies which dominate the daily fantasy sports world, are in discussions about a merger. The possibility of these two companies consolidating raises a multitude of legal issues.
DraftKings and FanDuel Merger: Legal Issues Galore
The most prevalent is whether or not a DraftKings and FanDuel merger would constitute a violation of federal anti-trust laws. The simple answer is most likely. DraftKings and FanDuel represent the two biggest players in their industry, and recent legislation by various states have made the cost of entry for a hypothetical new competitor into the market very high. This proposal’s only faint hope might be that both the Federal Trade Commission and the United States Department of Justice might deem the transaction too small to warrant regulation. That’s still unlikely given the industry’s billions of dollars in revenue.
So even if DraftKings and FanDuel can come to an agreement on a merger, it’s likely either the FTC or DOJ will kill it off. That’s not the only legal issue at stake, however.
FanDuel has agreed to bar entrants from 10 different states, while DraftKings has done the same thing in nine different states, due to concerns from those individual state legislatures about the site’s offerings equating to illegal gambling. Legislators in many states are debating whether or not to regulate the games or how to regulate and tax them.
While that’s going on, both companies are spending their resources to protect their product in the remaining states and advocate for its reinstatement in the states where the games are currently barred. Obviously a merger of the two companies would create a bigger pool of resources that could be drawn from. A combination of these two DFS powers would amplify their clout with other entities that have already demonstrated enormous influence with legislative proceedings as well.
The Pro Sports Leagues
We have seen how the National Football League and Major League Baseball have held enormous sway over local, state and national political bodies. From getting public funding for stadiums to enjoying protection from anti-trust suits, MLB and the NFL are powerful players.
DraftKings already has sponsorship deals with MLB and several of its member clubs, along with the National Hockey League and its member clubs. In addition, the NFL and National Basketball Association are well aware of the added interest that DFS games bring in their product. If these two companies were to merge, the sway that one consolidated corporation would have over the professional sports industry would increase dramatically.
The final legal issue is in regards to what amounts to “insider trading.” Last October, the New York Times reported that a DraftKings employee won a $350,000 jackpot on FanDuel the same week that he inadvertently released some information prematurely. Since that episode, both companies barred their employees from playing DFS on any site, not just the site that employs them.
A merger would most likely not effect that policy, but would theoretically reduce the platforms available to play DFS games on. That could create more of a demand for this type of information. An increase in demand for insider information would likely lead to a stronger call for regulation, perhaps above and beyond DraftKings/FanDuel policing itself.
While the two companies are in talks, the legal issues are undoubtedly being discussed. Whether or not the momentum to merge these two DFS giants proceeds will largely depend on whether or not the investors believe that the legal issues can be overcome.