FanDuel And DraftKings Terminate Proposed Merger

FanDuel and DraftKings are dropping their plan to merge after criticism from a federal regulator. The Federal Trade Commission said that it would oppose the merger of the two daily fantasy sports giants because of anti-competition concerns. A judge imposed a temporary restraining order on the deal in June.

Modern fantasy sports started in 1980 and have exploded online. Over the past decade, daily fantasy sports have developed into a multibillion-dollar industry. With daily fantasy sports, players form imaginary teams based on real-life players and compete to earn cash and prizes. The scoring is usually determined by how the players perform in real-life games.

FanDuel was launched in 2009. DraftKings was launched a few years later in 2012. They announced the deal in November as a merger of equals. Financial terms of the merger were not disclosed. Each of the companies had been valued at more than $1 billion before authorities began a crackdown on the industry in 2015.

When the merger was proposed, many antitrust experts were skeptical that it would be approved. The FTC was concerned about the merger giving the companies over 90 percent of the U.S. market for paid daily fantasy sports contests. Both companies said the planned merger would not result in higher prices for customers

DraftKings and FanDuel also argued that they are part of a much larger fantasy sports world where large companies are capable of competing with the two. DraftKings has a customer base of nearly 8 million people and is growing more than 30 percent year-over-year, according to its chief executive Jason Robins. The company just begun to expand to overseas markets.

FanDuel chief executive Nigel Eccles said in a statement that the companies “have determined that it is in the best interest of our shareholders, customers, employees, and partners to terminate the merger agreement and move forward as an independent company.”

The merger would have had numerous benefits for the companies. For example, the merger would have allowed the companies to collaborate on the regulatory challenges they face in several states. Authorities in those states consider daily fantasy sports a form of gambling. The companies have argued the contests are determined by skill.

In another legal case, New York Attorney General Eric Schneiderman opened an inquiry into the companies in 2015 after a couple of incidents related to a DraftKings employee were reported in the press. That employee accidentally released information before the start of the week’s NFL games. The employee then won $350,000 on rival FanDuel the same week. The inquiry is focusing on how the companies prevent fraud.

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