FanDuel, DraftKings Nix Merger Plans

Draft Kings and Fan Duel Sites - Split - Getty - H 2017
Getty Images

The leaders in daily fantasy sports decided to throw in the towel rather than duke it out with hostile regulators.

FanDuel and DraftKings said Thursday they have called off their planned merger, which faced regulatory headwinds after the Federal Trade Commission said last month it would sue to block the marriage between the two leaders in the fast-growing business of "daily fantasy sports."

If they had merged, FanDuel and DraftKings would have controlled 90 percent of the daily fantasy market, regulators complained, though Yahoo and others compete in the business.

In daily fantasy, participants use their budget of faux money to purchase a lineup of athletes in a given sport and they score points based on the performance of their lineups.

Users can enter contests at DraftKings for as little as 25 cents and at FanDuel for $1. Depending on the contest, players can double their money, win $1 million, or just about anything in between. FanDuel and DraftKings pay out about 90 percent of the money taken in for each contest, and their revenue comes from keeping what remains.

Each company has raised more than $350 million, and DraftKings' investors include Fox Sports. The two are also avid advertisers on ESPN, Fox Sports and other TV and radio channels. The valuation of each exceeds $1 billion, though it's unclear if either of the privately held companies are profitable yet.

The pair ran into a buzz saw of negative publicity after reports surfaced that an employee at one site was winning money at the other, though there wasn't proof the employee benefited from any inside knowledge. Those reports led to lawmakers scrutinizing the two internet companies, with some states outlawing daily fantasy sports on the grounds they considered it gambling rather than a game of skill, even while seasonal fantasy sports are regarded skill games.

About 59 million people play fantasy sports in the U.S., though seasonal games are more popular than daily games. FanDuel says it has about 6 million users while DraftKings says it has about 8 million. Fantasy sports — daily and seasonal combined — is a $7.2 billion industry, according to the Fantasy Sports Trade Association.

"Our revenue is growing over 30 percent year-over-year, and we are only just beginning to take our product overseas," said DraftKings CEO Jason Robins while announcing the merger was off. "We look forward to kicking off what is going to be our best NFL season yet."

FanDuel said it conceived the notion of daily fantasy sports in 2009 while at the SXSW Interactive Festival in Austin, Texas. Daily fantasy players watch far more live sports on TV and consume far more sports content in general than do other fans, according to FanDuel data.

"We 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," said FanDuel CEO Nigel Eccles. "There is still enormous, untapped market opportunity for FanDuel, and we will continue to execute our strategy to grow our business and further expand the fantasy sports industry."