FTC Seeks Injunction on FanDuel and DraftKings Merger
The Federal Trade Commission (FTC) and the attorney generals for California and the District of Columbia will file a complaint to prevent the merger of FanDuel and DraftKings while the FTC is reviewing the merger process. FanDuel and DraftKings make up 95 percent of the daily fantasy sports market. The FTC argues the merger would “deprive customers of the substantial benefits of direct competition.”
The companies announced the merger in November 2016, in large part to cut their legal bills. At the time, the companies were focused on changing state laws to legalize daily fantasy sports. The companies were largely successful as FanDuel now operates in 39 states and DraftKings in 40. This is certainly an expansion from 1980 when modern fantasy sports started. A 2006 federal law helped expand fantasy sports when online gambling was banned, but an exemption for fantasy sports was included. Instead of focusing on a season-long competition, the daily fantasy sports make fantasy sports a per game affair. The one-game rosters have made some states view it as gambling, rather than fantasy sports, an issue still ongoing in California and numerous other states. While this is not at issue with this injunction, it will certainly be a factor in the two companies’ decision to go ahead with their merger.
The granting of a preliminary injunction normally terminates a proposed merger because the lengthy internal process causes the deal to break apart. The injunction then could cause a slow death of the merger. Even if the issue is pushed in a court fight, the FTC has racked up several victories as of late, recently preventing the merger of Sysco and US Foods, as well as Staples and Office Depot.
DraftKings and FanDuel will argue their companies are only a small segment of the much larger multibillion dollar fantasy sports market. This market is dominated by ESPN, Yahoo, and others and daily fantasy sports is just a niche of that larger market. The FTC counter is that these two companies are “each other’s most significant competitor” and a merger would prevent any new competitor into the daily fantasy sports market.
An administrative trial is scheduled for November 21, 2017. If the injunction is granted, the merger cannot go through until it is approved by the FTC after the administrative trial. It is almost definite the companies will be competitors for the upcoming NFL season.