FanDuel in Search of Funds After Blocked DraftKings Merger

Jul 17, 2017
FanDuel in Search of Funds After Blocked DraftKings Merger

The leading fantasy sports giant, FanDuel, asks help from its investor for more funds. The recent FanDuel funding rounds could have been avoided if the US Federal Trade Commission (FTC) did not block the DraftKing merger deal.

Merging with DraftKings could help fish FanDuel out of the red. However, FTC viewed the merger as a problem to fantasy sports players.

Financial problems

DraftKings and FanDuel will no longer merge

FanDuel has been going through months of financial issues lately. According to a leaked financial document, FanDuel has about $59 million of operational losses in 10 months last year.

Many believe the problem stemmed out of FanDuel and DraftKing’s massive spending on advertising and marketing. Despite being the two major daily fantasy sports providers in the US, the two companies tried to out advertise one another. In 2015 alone, FanDuel and DraftKing spent about $750 million in advertisements alone. American audience can testify to this since local TV was flooded with commercials from both companies in 2015.

The funding round with investors is one of the options that the management is considering. This will be more funds on top of the $350 million that the investors have already given to FanDuel since 2009.

The seriousness of the situation with FanDuel’s finances has led to its CEO, Nigel Eccles, to decrease his company stake to less than 10 percent. Despite this, Eccles is optimistic that the company will weather the financial storm and will eventually break even next year. This is due to FanDuel’s plan on adding more sports to its daily fantasy sports other than fantasy basketball betting and others and releasing a fantasy product that will run for a whole season.

However, the most significant addition to the company’s plan is to step back on its advertising campaign spending.

FTC blockage

Last month, FTC stopped the merger deal between FanDuel and DraftKings due to a danger of an illegal monopoly. If the merger were to pass, the two companies would command about 90 percent of the daily fantasy sports market, which is slowly entering the Bitcoin casino market as is the case with 1xBit.

Players from both daily fantasy sports sites will likely be affected by the merger in a negative way. The merged company may not have a competitive offer or prices to its existing or new players.

Tad Lipsky, acting director of FTC Bureau of Competition, said the merger would remove any substantial benefits that could result from the two company’s competing against each other.

However, FanDuel and Draft Kings are contesting the argument of an anti-competition narrative. The two stated that the merger will benefit the customers from both sites more. Combining the two companies would result in a cost-saving and efficient operation. This would allow both sites to raise the consumer value proposition of their user base.