DraftKings and FanDuel Consider Joining Forces as Legal Controversies Continue

on June 16, 2016
DraftKings FanDuel merger daily fantasy sports

DraftKings and FanDuel might soon become one unit, as talks of a merger are reportedly ongoing behind boardroom doors. (Image: techcrunch.com)

DraftKings and FanDuel once appeared to be headed towards a bounty of unlimited riches, the two market leading daily fantasy sports (DFS) platforms seemingly unchallenged in the emerging gaming concept that quickly blossomed into a multibillion-dollar enterprise.

Fast-forward to 2016 and the two websites are being swallowed in lawsuits from attorneys general across the country. With millions of dollars in legal fees estimated to be facing the two companies, reports are surfacing that merger discussions are well underway.

Bloomberg is reporting that Boston-based DraftKings and New York-headquartered FanDuel are considering a deal to bring their two customer bases together and effectively become one unified company.

However, the talks are early and no concrete merger plan has been developed.

Monopoly Concerns

Should DraftKings and FanDuel move forward in merging, antitrust alarms will likely be sounded. In the United States, a collection of both federal and state laws can sometime prohibit companies from merging in the name of consumer protection.

Antitrust laws are typically utilized when it involves businesses engaged in products essential to US residents such as certain utilities, education, and health care.

Daily fantasy sports is of course not essential to mankind, but a DraftKings and FanDuel unification would essentially give them a near 100 percent stronghold on DFS. The United States has historically liked competition, and the landmark Sherman Antitrust Act of 1890 made it illegal for persons and businesses to actively try to gain a monopoly on a particular trade or commerce.

Pennsylvania Considers DFS

Daily fantasy sports has been contested in 14 states since those DraftKings and FanDuel commercials began bombarding television sets in 2014. The 14 states are in addition to the five states that have always opposed fantasy sports, Arizona, Iowa, Louisiana, Montana, and Washington.

New York made the most headlines when the state’s Attorney General Eric Schneiderman issued cease and desist orders against DraftKings and FanDuel and threatened the companies with fines potentially reaching $3 billion.

It was a massive blow for daily fantasy revenues considering New York’s population, but a bright spot has emerged in Pennsylvania.

House Bill 2150, the Fantasy Sports Consumer Protection Act, passed the Pennsylvania House Gaming Oversight Committee unanimously on June 15. The legislation would give regulatory power of DFS contests to the Pennsylvania Gaming Control Board.

DFS websites would be required to pay the state a one-time $50,000 fee for the right to offer contests in Pennsylvania, and pay an annual renewal of $5,000. Revenues would be taxed at just five percent.

The legislation isn’t seen as a money grab by lawmakers, but simply a way to regulate daily fantasy sports.

“My number one intent behind introducing this legislation is not to prohibit or hinder anyone from enjoying DFS, but instead to preserve and protect this rapidly growing industry,” HB 2150 author State Rep. George Dunbar said. “Given that many popular fantasy sports contests involve the daily payment of league fees and substantial cash rewards to winning players, I believe it is time for the state to provide fantasy sports contest participants with the same consumer protections currently given to our casino patrons.”