Abandoned DraftKings-FanDuel merger could spell the end of daily fantasy
ORIGINALLY PUBLISHED: JUL 17, 2017
TORONTO — In its response to a Federal Trade Commission complaint that its planned merger with its chief rival was anti-competitive, DraftKings acknowledged it was “striving toward profitability” and that “there were significant legal and regulatory issues that arose across several states” in the last couple of years that “continue today and into the foreseeable future.”
That chief rival, FanDuel, used the exact same language in its response to the FTC complaint — which is not surprising, since the two main operators in the daily-fantasy sports industry were presenting a united front in their bid to merge. They also both stated that the complaint reflected an “an unnecessarily rigid and uninformed application of antitrust laws,” which is legal talk for calling shenanigans. Those responses were filed in a District of Columbia court less than a week ago.
One day later, the companies announced that the proposed merger was off. If nothing else, spare a thought for the legal clerks who had spent long hours preparing those responses.
But aside from the wasting of a lot of hours and paper in defending, and then suddenly abandoning, their planned merger, the end of the DraftKings-FanDuel marriage, now dead before it even had to be annulled, leaves the nascent daily-fantasy industry with a decidedly uncertain future. It was widely believed that the merger of the two giants in a billion-dollar industry was undertaken in order to ensure survival in a fast-growing business that was roiled by challenges.
So, now what?
The FTC complaint and responses happen to provide a decent bit of background to the industry and its troubles. DraftKings arrived in 2012 as the main competitor to FanDuel, which was founded three years earlier, in what was then the little-known daily-fantasy arena. From the outset, they provided a product that was similar in look and feel to online gambling, in which participants sign up for an account and put money in it that they use to enter fantasy-sports contests. Instead of betting $20 on the outcome of a football game, you could spend a $20 entry fee on a fantasy contest in which you pick a bunch of football players for your team.
The key legal argument is that daily fantasy is a skill game, which meant the laws that prohibit sports betting in the U.S. (and Canada) did not apply. That was all well and good for a while. But, as the FTC complaint notes, “competition between (DraftKings and FanDuel) hit a fever pitch in 2015, when (they) each spent hundreds of millions of dollars on marketing to overtake each other in share of entry fees.”
None of that is much in dispute, as anyone who watched an NFL game or listened to sports radio in the fall of 2015 observed. Suddenly, there was a bewildering arms race between two previously small companies with a seemingly unlimited budget.
But all that attention also got the attention of various lawmakers, and in the years since the companies have seen about a dozen states legalize-but-regulate them, which means taking a larger cut for themselves, while another 10 states have banned them. Many more states are considering some form of legal action.
At the root of the controversy is that original legal argument that daily fantasy, as a skill game, is not gambling. It has always seemed like a fine bit of hair-splitting, but what was interesting is that at the height of the marketing wars, North American pro leagues, while still officially quite opposed to gambling, bought in. The NHL and MLB are investors in and partners with DraftKings, as is New England Patriots owner Bob Kraft, and the list of investors for FanDuel includes NBC Sports and Comcast. It was an early indicator that the attitudes toward sports betting could be relaxing, even if no one wanted to admit this was a form of sports betting.
It’s those changing attitudes that could yet provide the biggest blow to daily fantasy, even as the two companies fight their various legal battles on their own now.
In the relatively short period since the daily-fantasy explosion, the NHL has gone to Las Vegas, the NFL has done the same, and NBA commissioner Adam Silver has gone on record in support of legalized sports betting. Last month, the U.S. Supreme Court agreed to hear New Jersey’s attempt to make sports betting legal in that state. And, you may have heard, a few months earlier a certain former casino owner became President of the United States.
Put all that together and it’s at least a decent bet (sorry) that full sports betting will be legalized within the next few years. People would be able to gamble on sports, and unlike with daily fantasy, they wouldn’t have to pretend they weren’t gambling.
If sports betting does end up legalized, the main reason will be that everyone involved — leagues, broadcasters, governments — finally admit there is too much money to be made to be ignored. But daily-fantasy sports also would have played a role in changing attitudes. Even if those changed attitudes end up killing it.
ORIGINALLY PUBLISHED: JUL 17, 2017
TORONTO — In its response to a Federal Trade Commission complaint that its planned merger with its chief rival was anti-competitive, DraftKings acknowledged it was “striving toward profitability” and that “there were significant legal and regulatory issues that arose across several states” in the last couple of years that “continue today and into the foreseeable future.”
That chief rival, FanDuel, used the exact same language in its response to the FTC complaint — which is not surprising, since the two main operators in the daily-fantasy sports industry were presenting a united front in their bid to merge. They also both stated that the complaint reflected an “an unnecessarily rigid and uninformed application of antitrust laws,” which is legal talk for calling shenanigans. Those responses were filed in a District of Columbia court less than a week ago.
One day later, the companies announced that the proposed merger was off. If nothing else, spare a thought for the legal clerks who had spent long hours preparing those responses.
But aside from the wasting of a lot of hours and paper in defending, and then suddenly abandoning, their planned merger, the end of the DraftKings-FanDuel marriage, now dead before it even had to be annulled, leaves the nascent daily-fantasy industry with a decidedly uncertain future. It was widely believed that the merger of the two giants in a billion-dollar industry was undertaken in order to ensure survival in a fast-growing business that was roiled by challenges.
So, now what?
The FTC complaint and responses happen to provide a decent bit of background to the industry and its troubles. DraftKings arrived in 2012 as the main competitor to FanDuel, which was founded three years earlier, in what was then the little-known daily-fantasy arena. From the outset, they provided a product that was similar in look and feel to online gambling, in which participants sign up for an account and put money in it that they use to enter fantasy-sports contests. Instead of betting $20 on the outcome of a football game, you could spend a $20 entry fee on a fantasy contest in which you pick a bunch of football players for your team.
The key legal argument is that daily fantasy is a skill game, which meant the laws that prohibit sports betting in the U.S. (and Canada) did not apply. That was all well and good for a while. But, as the FTC complaint notes, “competition between (DraftKings and FanDuel) hit a fever pitch in 2015, when (they) each spent hundreds of millions of dollars on marketing to overtake each other in share of entry fees.”
None of that is much in dispute, as anyone who watched an NFL game or listened to sports radio in the fall of 2015 observed. Suddenly, there was a bewildering arms race between two previously small companies with a seemingly unlimited budget.
But all that attention also got the attention of various lawmakers, and in the years since the companies have seen about a dozen states legalize-but-regulate them, which means taking a larger cut for themselves, while another 10 states have banned them. Many more states are considering some form of legal action.
At the root of the controversy is that original legal argument that daily fantasy, as a skill game, is not gambling. It has always seemed like a fine bit of hair-splitting, but what was interesting is that at the height of the marketing wars, North American pro leagues, while still officially quite opposed to gambling, bought in. The NHL and MLB are investors in and partners with DraftKings, as is New England Patriots owner Bob Kraft, and the list of investors for FanDuel includes NBC Sports and Comcast. It was an early indicator that the attitudes toward sports betting could be relaxing, even if no one wanted to admit this was a form of sports betting.
It’s those changing attitudes that could yet provide the biggest blow to daily fantasy, even as the two companies fight their various legal battles on their own now.
In the relatively short period since the daily-fantasy explosion, the NHL has gone to Las Vegas, the NFL has done the same, and NBA commissioner Adam Silver has gone on record in support of legalized sports betting. Last month, the U.S. Supreme Court agreed to hear New Jersey’s attempt to make sports betting legal in that state. And, you may have heard, a few months earlier a certain former casino owner became President of the United States.
Put all that together and it’s at least a decent bet (sorry) that full sports betting will be legalized within the next few years. People would be able to gamble on sports, and unlike with daily fantasy, they wouldn’t have to pretend they weren’t gambling.
If sports betting does end up legalized, the main reason will be that everyone involved — leagues, broadcasters, governments — finally admit there is too much money to be made to be ignored. But daily-fantasy sports also would have played a role in changing attitudes. Even if those changed attitudes end up killing it.
