REPORT: DraftKings and FanDuel to merge

The two dominant companies in daily fantasy sports, DraftKings and FanDuel are about to merge. The two companies cover up to 95% of daily fantasy industry so the merger will definitely get the attention of federal regulators. Scott Soshnick of Bloomberg says the new company will be under the leadership of DraftKings co-founder Jason Robins. FanDuel’s co-founder Nigel Eccles will be the chairman of the board.

BREAKING: @DraftKings–@FanDuel merging under Jason Robins as CEO, sources say. Nigel Eccles chairman of evenly comprised board #sportsbiz

— Scott Soshnick (@soshnick) October 31, 2016

DFS merger allows for outside CEO if warranted. Combined company likely will seek to raise $ quickly after merger is done #sportsbiz

— Scott Soshnick (@soshnick) October 31, 2016

DraftKings and FanDuel have been discussing the possibility of getting together since January, but it appears that all hurdles including the two companies’ settlements with the New York attorney general’s office have been cleared according to ESPN.com:

This week, DraftKings and FanDuel agreed to separate $6 million settlements with the New York attorney general over deceptive, misleading advertising. In the settlement agreement, (Eric) Schneiderman’s office said it considered the “financial condition of the companies in determining the amount and schedule for the settlement payments.”

And Bloomberg reports that the two companies that it would be better to join forces rather than compete for the same customers are two different entities:

… the new company will likely seek to raise money shortly after the merger, taking advantage of what investors in both companies have said for some time: It makes financial sense for DraftKings and FanDuel to pool their resources instead of spending lavishly competing for the same customers.

Last year, it appeared that daily fantasy was taking off as the two sites were heavily advertising on MLB and NFL games, but then both companies came under scrutiny and had to suspend operation in New York after the state’s AG declared that daily fantasy was gambling and thus illegal. The two companies had said daily fantasy was not gambling and were games of skill. Even NFL Commissioner Roger Goodell had justified the league’s relationship with the industry by stating it was different from gambling.

In addition, Last Week Tonight With John Oliver also looked into the business of daily fantasy and said it looked a lot like gambling:

But even so, DraftKings and FanDuel have survived the hits they took over the last year which included layoffs, slashing its advertising budget, and suspending its college sports games. They have received new rounds of funding over the last few months from investors to help keep them afloat and the new NFL season has also brought in new business.

If the merger is approved, it creates one giant super company that will have a mega share of the daily fantasy market.

[Bloomberg]