U.S. to seek to block DraftKings, FanDuel fantasy sports merger


Reuters

UPDATE 2-U.S. to seek to block DraftKings, FanDuel fantasy sports merger


(Adds comment from the companies, background on industry)
    WASHINGTON, June 19 (Reuters) - The U.S. Federal Trade
Commission said on Monday it will seek to stop the merger of
DraftKings and FanDuel, because the combined company would
control more than 90 percent of the U.S. market for paid daily
fantasy sports contests.
    The FTC, along with the attorneys general of California and
the District of Columbia, will file a complaint in federal
district court seeking a preliminary injunction to block the
deal, the antitrust regulator said.
    The companies said in a joint statement that they were
considering their legal options. "We are disappointed by this
decision and continue to believe that a merger is in the best
interests of our players, our companies, our employees and the
fantasy sports industry," DraftKings Chief Executive Jason
Robins and his FanDuel counterpart, Nigel Eccles, said in the
statement.
    This is the latest setback for two companies, which have
faced regulatory challenges in several states. They announced
the deal in November 2016 as a merger of equals that would cut
their legal bills. [nL1N1DJ17R]
    Between them, the two companies have 95 percent of daily
fantasy sports, according to data from Eilers and Krejcik Gaming
LLC. DraftKings and FanDuel have argued that they compete
against larger, more powerful companies in the broader fantasy
sports business, like ESPN and Yahoo.
    "This merger would deprive customers of the substantial
benefits of direct competition between DraftKings and FanDuel,"
said Tad Lipsky, acting director of the FTC's Bureau of
Competition.
    The FTC will ask for the preliminary injunction to prevent
the companies from closing the deal while it proceeds with an
internal review to determine if the merger is legal under
antitrust law.
    In practice, if companies are slapped with a preliminary
injunction, they normally terminate a merger because deals
cannot be held together during the lengthy internal process.
    The FTC has won a long list of court fights to stop deals of
all sizes in recent years. Most notably, the agency stopped food
distribution giant Sysco Corp <SYY.N> from buying US Foods Inc
<USFD.N> and prevented office supplies retailer Staples Inc
<SPLS.O> from buying Office Depot Inc <ODP.O>.
    Modern fantasy sports started in 1980 and have mushroomed
online. Participants typically create teams that span an entire
season in professional sports, including American football,
baseball, basketball and hockey.
    Daily fantasy sports, a turbocharged version of the
season-long game, have developed over the past decade into a
multibillion-dollar industry.
    Participants draft teams for a single game, enabling fans to
spend money on contests with a frequency critics compare to
sports betting.
    FanDuel has paid contests in 39 states while DraftKings is
in 40 where successful players win money.
    The companies have a history of aggressive advertising as
they have battled for market share. They cut ad spending
significantly in 2016 and said the combined company could again
expand spending on advertising and customer acquisition.
    The tie-up would reduce costs as both companies separately
fund legal defenses and lobbying for legislation to authorize
fantasy sports in states that have declared it illegal. Without
a merger, the companies may have to go back to outspending each
other to win customers.
    New York'sEric Schneiderman was one of several state
attorneys general who cracked down on the industry in 2015. New
York settled for $12 million and changes in how the companies
market their games, including disclosures about expected
winnings.
    FanDuel's investors include KKR, Shamrock Capital, Comcast
Ventures, NBC Sports and Google Capital. DraftKings' investors
include KKR and others.

 (Reporting by Diane Bartz and Liana Baker; Writing by
Washington Newsroom; Editing by Steve Orlofsky)
 ((Diane.Bartz@thomsonreuters.com; 1 202 898 8313;))

Keywords: FANDUEL M&A/DRAFTKINGS (UPDATE 2)



This article appears in: World Markets , Stocks
Referenced Symbols: ODP , SPLS , SYY , USFD


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