DFS Merger Faces Challenges with FTC & Revenue Lost
DraftKings and FanDuel planned on a merger to save the two companies from its financial problems. However, the DFS merger faces challenges with the US Federal Trade Commission.
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FTC blocks DFS merger
On Monday, The FTC blocked the proposed merger between DraftKings and FanDuel. The FTC pointed out that the union of the two will negate the benefits that players can get from the direct competition of the two. Once the merger proceeds, the two will have a dominant control of 90 percent of the US daily fantasy sports market. As the regulating body of the fantasy sports company in the country, the FTC looks to preserve a competitive market for customers of the industry.
The FTC also states that the immediate addition of a new fantasy sports operator in the market will not provide good competition benefits against the merger. In fact, the merger will hurt any new competition because of DraftKings and FanDuel’s dominance in the market.
The Attorney General of California, as well as the District of Columbia, is backing the FTC decision. This is a serious impact on DraftKings and FanDuel because of the California market.
Reason for the merger
The two operators are looking forward to the merger to get its finances out of the red. According to financial document that was leaked to the public, DraftKings and FanDuel lost a total of $151 million just last year.
DraftKings, which provides alternative solutions to sports betting, reported a loss of $92 million while FanDuel lost $59 million in 2016. However, the total operating loss that the two experience was very little when comparing it to DraftKing’s loss of $509 million in 2015. This was the year when the two operators released an incredible amount of TV ads.
The merger can save the two company’s finances from the red. At the same time, this will remove a redundancy in the two operator’s employees.
The CEOs from the DraftKings and FanDuel state their disappointment in the FTC decision. Both are looking to ask the federal courts to challenge the FTC decision and block its injunction.
It is possible that the leaked financial documents from both companies will help them in court. Both operators are using its financial issues to counter the FTC decision. Their argument states that the FTC will harm the competitive fantasy sports market in the country by stopping the merger.
For now, DraftKings and FanDuel will continue to operate as individual companies. The two will be going through its private investments to raise enough funds to keep the companies afloat. Both CEO are looking for funding partners as well.