By Brent Kendall
20 June 2017
The Wall Street Journal
WASHINGTON — The Federal Trade Commission on Monday said it would file an antitrust lawsuit that seeks to block the proposed merger of fantasy sports companies DraftKings Inc. and FanDuel Inc., alleging the deal would harm consumers who play daily fantasy contests.
The rival companies each offer daily games in which consumers pay to assemble virtual sports teams made up of real athletes that do battle against other virtual teams. The “managers” of winning teams that amass the best statistics take home cash prizes. The companies make money through entry fees.
The five-member FTC is currently short-handed, with only two sitting commissioners, one Republican and one Democrat. Both supported the lawsuit. The state of California and District of Columbia are joining with the FTC to challenge the merger.
The commission argues the merger would deprive customers of substantial benefits that are produced by DraftKings and FanDuel competing against one another for business.
“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,” the companies said in a joint statement. “We are considering all our options at this time.”
When they announced the merger in November, the CEOs of the two privately held companies, DraftKings’ Jason Robins and FanDuel’s Nigel Eccles, said combining the companies would allow them to innovate more by freeing up money. That, they said, would further efforts to entice more players of season-long fantasy sports leagues and more fans in general to play on their sites.
A few years ago, daily fantasy sports was one of the country’s hottest businesses. It allows players to draft virtual teams that typically compete against one another in a single day, rather than over an entire season as with traditional fantasy leagues. The industry was once forecast to hit $18 billion in revenue by 2021. That forecast has been slashed — as of late last year standing at around $5.3 billion by 2021 — reflecting in part greater-than-expected user burnout and the loss of entire markets because of state regulations.
Several state attorneys general have launched regulatory and legal probes, saying the sites violate state gambling laws. The companies, which deny any wrongdoing, have also faced civil lawsuits from consumers, as well as investigations by the Justice Department. The companies have lobbied heavily to try to persuade state legislatures to explicitly legalize the activity.
DraftKings and FanDuel account for the vast majority of daily fantasy sports players, which they estimate to number around five million. An attorney for FanDuel said when the deal was announced that he expected it to undergo an antitrust review. He argued that daily sites are one part of a broader fantasy sports universe that includes season-long leagues.
The FTC said Monday that season-long sports leagues wouldn’t preserve competition because consumers of paid daily fantasy sports are unlikely to view the season-long contests as a meaningful substitute.
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