5 things to know about a potential DraftKings-FanDuel merger
In the past month, multiple news outlets have reported that the two largest daily fantasy sports companies, DraftKings and FanDuel, are in the process of merging.
The New York Times wrote on Oct. 23 that the companies are “short of cash” and “will need to merge if they are to rebuild the market.” ESPN wrote on Oct. 31 that a merge was “imminent.” And on Wednesday, former Fortune reporter Dan Primack wrote on LinkedIn that a merger announcement “is expected to come within the next week.”
This matches what multiple sources close to both companies tell Yahoo Finance: that the companies are far along in talks to merge, and that an official announcement is coming in a matter of days.
But it’s important to note that as of Nov. 16, there is still no official confirmation of a merger.
For a quick refresher on the recent dramatic timeline of these two companies: In November 2015, New York Attorney General Eric Schneiderman sent cease-and-desist letters to DraftKings and FanDuel, demanding they stop taking paid entries in the state. That launched a legal war and prompted attorneys general in other states to come out with their opinions about whether daily fantasy sports contests constitute illegal gambling in their state.
DraftKings and FanDuel fought Schneiderman in court, which required the two rivals to work together on strategy. In March of this year, the companies settled with Schneiderman and agreed to shut down in New York until the issue played out in the state legislature.
But the companies got a big victory in June when the New York State legislature passed a bill to legalize and protect fantasy sports. In August, New York Gov. Andrew Cuomo signed the bill into law. DraftKings and FanDuel quickly re-opened for paid entries in New York, just in time for the current NFL season, the time of year when the companies attract the most new users and make the most money. One issue remained: Schneiderman’s lingering claim of false advertising against the two companies. That issue was resolved last month, in a $12 million settlement ($6 million from each company). Clearly, legal costs have taken a toll on the private tech startups, which have raised just over $1 billion in combined venture funding.
Now, as rumors about the merger swirl, here are 5 key things for both insiders who play daily fantasy sports and outside observers to know.
1. CEO of the combined company
Sources have long told Yahoo Finance that the biggest obstacle to any merger between DraftKings and FanDuel was the question of who would be CEO of the combined company: Nigel Eccles, who co-founded FanDuel (originally a political prediction platform called HubDub) in Scotland in 2009, or Jason Robins, who co-founded DraftKings in Boston in 2012.
The two entrepreneurs have very different management styles. Eccles is quieter and known to prefer operating behind the scenes. Robins is outspoken, frequently speaks to the press, and has been called “aggressive” by investors. Both of them have pride in having created their company, and neither, understandably, was eager to step down as CEO of a combined entity, sources say.
Now, Primack and ESPN have reported, it appears that Robins (pictured above), of DraftKings, will be CEO, and Eccles (below) will be chairman of the board. That is a stunning reminder of just how quickly DraftKings gained ground on FanDuel, which predated it by four years.
But sources close to the companies have told Yahoo Finance in the past month that an outside CEO is still possible in the near future. If true, it means that the role Eccles is taking, as chairman, might have more job security than the CEO position.
2. A shrinking daily fantasy market
Together, DraftKings and FanDuel enjoy an estimated 96% of the market in “daily” fantasy sports (as opposed to more traditional “season-long,” offered for decades by ESPN and Yahoo). Yahoo (parent of Yahoo Finance), which launched its own “daily” product last year, is a distant third place. Beneath that are a number of smaller players such as FantasyDraft, Draft and Draftpot.
The consolidation of the two largest players shrinks the market, and makes it even likelier that the resulting combined company becomes a big acquirer of smaller players. DraftKings has already done a fair amount of M&A, buying up DraftStreet, StarStreet, and Kountermove.
When the industry was booming, new players kept cropping up; now, after so much legal scrutiny, the industry will compress.
3. Combination of 2 different brands
While DraftKings and FanDuel offer very similar products (the biggest difference being that DraftKings offers more sports), they have branded themselves differently, especially following the dramatic legal scrutiny of their platforms.
Advertising approach provides a useful window to illustrate this. Last NFL season, the companies spent a combined $200 million on television advertising and ran ads that were similar in tone to each other: both showed “regular guys” winning money and celebrating.
For the start of this NFL season, FanDuel rolled out a series of five new TV spots all starring one actor, Pooch Hall from BET’s “The Game” and Showtime’s “Ray Donovan.” DraftKings, on the other hand, ditched its ads with celebrities (it had previously done an ad voiced by Ed Norton) and focused on ads with NFL player ambassadors DeAndre Hopkins of the Houston Texans and Rob Gronkowski of the New England Patriots. DraftKings has also paid social media “influencers” like the Instagram model Sydney Maler through an affiliate program.
4. Recent changes to both products
In the effort to hit refresh after the legal battle in New York, DraftKings, FanDuel, and Yahoo Daily Fantasy all rolled out new features just before the NFL season that place “daily” fantasy into a season-long setting. DraftKings announced Leagues, FanDuel announced Friends Mode, and Yahoo announced the Yahoo Cup—all of them allow users to create private “leagues” that last all season but still involve weekly drafting.
A promo video for DraftKings Leagues teased: “Want to run it all season long? You got it.”
Once DraftKings and FanDuel merge, it will be interesting to keep an eye on what they do with these new segments of their platform and, moving forward, to see if the company moves further into the territory of “season-long” fantasy sports.
5. State-by-state legality is still an issue
Many observers have asked whether a merger between DraftKings and FanDuel might be blocked by regulators concerned about antitrust issues. The two companies reportedly took in a combined $3 billion in entry fees in 2015.
It’s unclear whether the Federal Trade Commission (FTC) would interfere in a merger between DraftKings and FanDuel, but Marc Edelman, law professor at the Zicklin School of Business in New York, writes that the ownership stakes the NBA and MLB have in these companies may pose a problem, since it would give them “shared ownership of a single, dominant daily fantasy sports sports company.”
More importantly, these two companies still do not operate in 10 states: Alabama; Arizona; Delaware; Hawaii; Idaho; Iowa; Louisiana; Montana; Nevada; and Washington. In an 11th state, Texas, DraftKings operates but FanDuel pulled out, after Attorney General Ken Paxton stated his opinion that DFS contests are illegal gambling under state law. So it’s also unclear what the combined company will do in Texas.
Will DraftKings and FanDuel each still have an independent mobile app, or will there only be one? What will the combined company be called?
These are the two biggest remaining questions many DFS players have asked amid news of the merger are about the products and the brand name.
Those questions are still unanswered, since the companies aren’t confirming the merger.
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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite. Sportsbook is our sports business video series.
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