The daily fantasy sports industry may soon be in for a big change as the long-rumored DraftKings–FanDuel merger approved by stakeholders on Wednesday, according to several reports, is soon to be formally announced.
DraftKings-FanDuel Merger Approved by Stakeholders
As previously reported, the structure of the new joint firm will be divided right down the middle with half of the board of directors coming from each company. Current DraftKings CEO Jason Robins will retain that title with the new company, and current FanDuel CEO Nigel Eccles will be the chairman of the six-member board.
When a formal announcement comes, more should be known about whether or not both web sites will be maintained. Maintaining both sites would be most advantageous for the company, as it will allow for the maximum amount of traffic. Additionally, the question of what name the new combined firm will use should be answered as well.
This merger, if successful, will allow the two companies to combine their resources to build the brand toward profitability and fight litigation. Although the approval of stakeholders is the final procedural hurdle to the companies merging, there is still one potentially derailing legal obstacle that the merger has to face.
Federal Trade Commission Review
With DraftKings and FanDuel accounting for 90 percent of the DFS market, it’s a foregone conclusion that the Federal Trade Commission will scrutinize the proposed merger heavily for potential antitrust law violations.
The FTC may deny the merger or simply put the merger on hold to give the two companies a chance to demonstrate how their merger won’t restrict consumer choice and give the combined firm monopoly power in the industry. Given the sheer size of the market share that the potential joint company would automatically occupy, that may prove difficult.
If the FTC approves the merger, that doesn’t mean that the legal obstacles have been completely overcome. In some states, daily fantasy sports for money are still illegal or legislation to ban the games is being considered.
The Financial State of DraftKings and FanDuel
Getting the games legal in every possible venue is crucial to the long-term success of both DraftKings and FanDuel, whether as separate companies or a joint firm. No new investments in the joint firm are being reported in order for the board to maintain as much equity as possible, so the only hope to increase revenue is to grow the product.
Increasing revenue will be a primary objective for the new combined company. Reports have stated that the companies are operating in the red financially and have fallen behind in their payments to vendors. Additionally, the two firms are facing individual $12 million fines from the New York Attorney General’s Office.
While the news of a stakeholder approval of a merger is a step in the right direction from a business strategy perspective, the merger actually only compounds the legal problems for the two companies. If those hurdles can be cleared and the merger leads to more stability for the new joint firm, it will have been worth the trouble, however.
