On Monday, Bloomberg reported that the two DFS operators were in talks about fusing the two companies. While investors in both companies are reportedly pressing for a deal, Bloomberg’s sources offered the standard caveats that there was no assurance that a deal would be reached.
Meanwhile, Reuters reported that the ‘merger’ was more likely to be a case of FanDuel acquiring DraftKings. Regardless of how it’s structured, such a merger would likely raise significant anti-trust issues, given the stranglehold that the two operators have on the US fantasy market.
DraftKings CEO Jason Robins has on multiple occasions publicly stated that a merger would be of benefit to both companies, which have been hard hit by regulatory crackdowns since last fall’s ‘data leak’ scandal brought the DFS industry into the crosshairs of state attorneys’ general.
But as recently as last November, FanDuel CEO Nigel Eccles had poured cold water on the prospect of a merger, arguing that he could understand why Robins might seek such a deal but Eccles didn’t se “why [DraftKings] think it would be attractive for us.”
However, the regulatory scrutiny and the immense legal and lobbying fees involved in defending DFS in 50 different states recently led FanDuel’s auditors to express “significant doubt” over the company’s future if more US states closed their doors to DFS operators.
For example, New York remains a key source of revenue for both DFS operators but unless state legislators can pass DFS-friendly legislation this week, both DraftKings and FanDuel are looking at entering the coming NFL season with no access to the market.
Joining forces would allow the companies to share their legal/lobbying burden, as well as prevent another ridiculous advertising war on the scale that the two firms waged last fall in a bid to win market share (at the expense of profitability).