The rumours have been circulating for quite some time that a merger between the two biggest players in the Daily Fantasy Sports market – FanDuel and DraftKings, could be on the cards, and on the 18th November 2016, an official announcement was made that the two Daily Fantasy Sports superpowers would become one. The merger however is not expected to be completed before H2 2017, and there are still a number of potential hurdles to overcome, before anyone knows what the new DFS behemoth will look like.
Here we look at the reasons for the merger, and some of the benefits that the new super operator will receive post merger.
Why would FanDuel and DraftKings merge?
FanDuel and DraftKings have previously had what many experts describe as a frosty relationship with respective CEO’s Jason Robbins (DraftKings) and Nigel Eccles (FanDuel) not being over complimentary about their rivals businesses, however it appears that the frost has thawed, culminating with the announcement on 18th November 2016 of an agreed merger.
The two market leaders have worked closely in 2016 to battle against challenges from regulators whilst lobbying for legal clarity in the United States and with both businesses looking at international expansion and de-risking their North American business, it is a logical time for the merger to take place.
With FanDuel and DraftKings covering 90-95% of the Daily Fantasy Sports market, the potential benefits of a merger are clear. Merging would allow the newly formed DFS giant to combine the liquidity of both brands, allowing them to offer even greater prizepools which to date has been a key marketing tactic used to attract and retain customers. The win big off a small investment proposition is an extremely effective way of reaching out to recreational users and being able to promote even bigger prizepools will leverage this further.
Secondly, there will be significant fixed cost savings which at a time when both companies are facing expensive legal fees would be most welcome. The new organisation should be able to operate off a far leaner team with many duplicated job roles no longer being required, and significant savings being made in the platform development and product management.
Another significant financial benefit of the merger could be the decrease in the average Cost Per Acquisition (CPA) of a new player for the new super operator, as there would no longer be bidding between two very strong growth businesses for the same new users and the new operator could dominate the online acquisition space at a cheaper cost than when the competition was stiffer.
Overall there are many logical reasons why the merger makes sense for both operators, who can then focus on growing the game of Daily Fantasy Sports further in North America and Internationally, rather than looking over their shoulders at each other, and engaging in an expensive bidding war for number 1 status.
Further potential hurdles now FanDuel and DraftKings have reached agreeement?
There could be more hurdles to overcome despite an agreement on the merger being met, with potential significant regulatory challenges from either the Department of Justice (DoJ) or the Federal Trade Commission (FTC). The two biggest companies in the Fantasy Sports business category merging will certainly create a monopoly and antitrust regulators may well wish to investigate the merger and whether it is in the consumers interest. Jeff Ifrah, founding partner of Ifrah PLLC who is recognised as a leading for Gaming & Licensing in the U.S. commented that “There are of course good arguments about why such a merger is in fact in the interest of the consumer: pooled liquidity, higher prize pools, etcetera but that has not always been enough to shut down FTC scrutiny.”
The merger itself has now been agreed publicly, but much of the detail is still to become clear, and here at Fantasy Fives we will continue to update visitors as further news is announced.