The two largest companies in the Daily Fantasy Sports (DFS) industry, DraftKings and FanDuel, are in talks considering a merger. Both companies are privately held, so specifics of the talks have not been released to the media. But it’s well known that prominent investors in the two companies have been pushing for unification for some time and it is thought that these major investors are also involved in the negotiations. A merger would seem to be a perfect match since both companies offer identical products, they are both fighting the same legal battles over legalization and they are both competing against each other.
Institutional size investors for FanDuel include Time Warner Inc. and KKR & Co. The big money backers for DraftKings are Madison Square Garden Co. and the Kraft Group, which owns the New England Patriots football team.
Barely a year ago, both companies had valuations of over $1 billion each, and were raising dollars from investors in venture capital, sports and media. But extensive legal battles with regulators in states that declared daily fantasy sports to be illegal online gambling have caused those lofty valuations to drop by nearly 50 percent.
As a result of individual states objecting to DFS, FanDuel has agreed to end paid games in ten states, while DraftKings has ended contests in nine states. By far, the state with the biggest market is New York and both companies ceased operations as part of a settlement with New York Attorney General Eric Schneiderman in March, 2016. With new legislation for legalization of daily fantasy sports in New York working its way through the legislature, resolution could happen this week, before the legislature breaks for summer on June 16, 2016. If so, local DFS players will be able to compete with the start of the NFL season this fall.
With almost 95 percent of the DFS market being controlled by the two companies, a merger would establish a super company with a virtual monopoly of the industry. If that happens and licensing fees become so prohibitive that only companies the size of DraftKings and FanDuel could afford them, the remaining five percent of the market could be driven out.
Nigel and Lesley Eccles are two of the original five co-founders of FanDuel. The two Irish entrepreneurs, in 2009, patterned the game after an existing game in which players tried to predict the news, all based on fantasy. DraftKings was founded three years later. Since then, the two companies have cornered the DFS market.
As far as the merger between the two mega companies is concerned, there is still the possibility that the deal could fall apart. DraftKings and FanDuel have so far declined to comment.