— DraftKings (@DraftKings) June 19, 2017
The Federal Trade Commission (FTC) has blocked the merger between Draft Kings and FanDuel. Draft Kings and Fan Duel are the two largest daily fantasy sports providers. If the two companies did merge the new company would control more than 90% of the daily fantasy sports market.
Acting Director of the FTC Bureau of Competition Tad Lipsky said:
“This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel… 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.”
According to the FTC release, Draft Kings is the larger of the two companies. While there are other companies in the daily fantasy sports industry, Draft Kings and FanDuel are the only significant players and merging the two would violate antitrust laws. The FTC argues that the lack of competition would be detrimental to customers as a direct result of the near monopoly.
An administrative trial is scheduled for November 21.
Draft Kings and FanDuel spent a reported $750 million marketing themselves in the fall of 2015 alone. The competition was so fierce at the beginning that when it came time to fight the legal battles in states that questioned daily fantasy sports legality the costs became significant. There was certainly an opportunity to cost to competing against each other for consumers in order to gain first-mover advantages. The legal ambiguity of daily fantasy sports is what prompted the two companies to start working together and lobbying for the approval of daily fantasy across every state questioning it.
The key argument around the merger appears to be how the companies and FTC define the market. The two daily fantasy sports company argue that other companies like ESPN and Yahoo are the biggest competitors in fantasy sports and that the daily fantasy sports only represents a smaller niche within fantasy sports. However, the government argues that the season-long fantasy provided by companies like ESPN and Yahoo are different and not a “meaningful substitute” for daily fantasy sports.