DFS Market Could Be Monopolized With Rumoured Merger
DraftKings and FanDuel, the two biggest Daily Fantasy Sports (DFS) companies dominate a major portion of the DFS market in the United States. The two companies are rivals but were forced to come together during the last couple of years as state attorneys throughout America targeted the DFS industry on the basis that DFS cash games were similar to casino games and should be termed as gambling.
The two DFS providers had argued that DFS games were based on skill and not chance and hence shouldn’t need to be regulated. However constant pressure from numerous states such as Nevada, New York and Illinois forced DFS operators to stop offering cash games.
The pressure imposed by state attorney generals have significantly hurt the performance of the two companies and earlier this year there were talks of a possible merger.
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Analysts have stated that the merger was initially held up due to a couple of lawsuits that the two companies had to sort out. During the last week of October 2016, DraftKings and FanDuel finally came to an agreement of two separate settlements of $6 million each, with the New York attorney general after accessing the financial condition of the companies. Once these settlements are cleared by the New York Attorney general’s office, the merger will be finalized.
The financial strain of the lawsuit has affected the companies. According to the New York Times, the companies have been struggling financially, FanDuel had to cut loose more than 60 employees and both companies are behind on payments to vendors, lawyers and lobbyists. Thus merger will benefit both the companies.
According to a statement from Wall Street, Contest fees of $3billion were earned collectively by the companies in 2015. In July 2015, DraftKings was valued at almost $2 billion but by September 2015, announced a $153 million round of debt-to- equity funding with a venture capital firm called Revolution Growth. FanDuel will also convert a $55 million loan from investors into equity.
A couple of important issues such as the location of the head quarters, the number of office sites, the name of the merged company and the executive leadership were discussed at the last meeting. The discussions also required the merged companies to roughly share the revenue and expenses equally.
As these two companies collectively own 90-95 percent of the market, legal experts wonder if a merger of the two companies would be blocked by the FTC. A number of players also wonder if they will be charged higher rates or receive sub-standard quality of services.
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