Benefits of DFS Firms DraftKings and FanDuel Joining Forces

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Wednesday, July 6th, 2016 | Written by Charles Washington

2015 was a controversial year for daily fantasy sports. In the wake of what equated to an insider trader scandal in the world of finance, the public eye began to scrutinize daily fantasy sports betting and calling for investigations into the industry. This has led to a number of states launching investigations, and holding hearings to determine whether or not daily fantasy sports betting should be regulated.

Many people predicted that the big news for daily fantasy sports betting in 2016 would be the introduction of regulations to govern the industry in many states, but it turns out something else may be set to shake up daily fantasy sports as we know it–a merger between the Scottish company FanDuel and the U.S. company DraftKings, which is based in Boston.

A Merger Under Consideration

FanDuel and DraftKings have both caught the eyes of major investors. Currently, Time Warner Inc and KKR & Co. both own stock in FanDuel, and Madison Square Garden and the Kraft Group have stakes in DraftKings. Before the news of the merger, it was rumored that the Disney Company was thinking of investing $1 billion in the daily fantasy sports betting industry.

Based on information published by Bloomberg, it seems that the merger between DraftKings and FanDuel was either requested by key investors, or is being done with their full support.

The Reasons for a Merger

So why would two companies that have both been attracting investors and making big deals with sports teams consider merging? Here are a few of the potential benefits of FanDuel and DraftKings joining forces:

1. Less Advertising Costs

While their sites may look different, FanDuel and DraftKings essentially provide the exact same service to clients and have identical target markets. As a result, they have had to compete with one another heavily. From January to August 2015, FanDuel and DraftKings spent a combined $205 million to run ads on television, mostly in an effort to increase their market shares at the others’ expense. With just one company, FanDuel and DraftKings would be able to slash their television advertising costs.

2. More Resources

FanDuel and DraftKings may be competitors, but they have had to ally with one another to fight harsh regulations and plead the case that daily fantasy sports betting should be legal as a game of skill rather than chance. Currently, both companies are paying lawyers and lobbyists to represent them. If FanDuel and DraftKings were to merge, they could pool their resources and have more money available for legal and political efforts.

Deal or Closer Cooperation?

While there are many benefits that could be derived from a merger between FanDuel and DraftKings, the deal is nowhere near done. A lot of details would need to be worked out to the mutual satisfaction of both companies in order for the merger to be a success. For one thing, one of their CEOs would either have to take on a role with less power, or resign altogether, and industry insiders believe neither FanDuel’s Nigel Eccles nor DraftKings’ Jason Robins is going to be eager to do so.

In the absence of a merger, FanDuel and DraftKings will undoubtedly continue to work in closer cooperation with one another, a situation that has born fruit since the companies pooled their resources while fighting for fantasy sports regulation in New York. As a direct result of their efforts, the New York state legislature finally passed a DFS bill on June 18th which classifies fantasy sports as “a game of skill”, although New York Governor Andrew Cuomo has still to sign the piece of legislation into law.

It has even been suggested that a potential FanDuel and DraftKings merger has become less likely after the New York decision, and responding to whether there was any truth to the rumors in the first place, FanDuel CEO Nigel Eccles (photo) said that such rumors have persisted for at least two years. Elaborating further, Eccles explained:

“.. in the last 12 months we’ve moved from focusing all on growth and competing head on to now working together—on lobbying, on grassroot activities. What we realized last October was that the biggest risk to our company was also a risk to the whole industry. So in the past few months we started to work much closer with DraftKings and also with the FSTA.. I’d also say that I think it’s very healthy that we are working together with DraftKings. I think that’s a much better place to be as an industry.”