FanDuel: Report Of DraftKings Merger Is “Speculation”

The two biggest names in the world of daily fantasy sports (DFS) are keeping mum about a report claiming the two companies are considering a merger.

Bloomberg, citing those ever-unnamed “people familiar with the situation,” is reporting that DraftKings and FanDuel are currently engaged in talks about combining their operations.

A rep for FanDuel would only say that the company is “not commenting on this speculation.”

[UPDATE: A DraftKings rep similarly states that “These rumors have existed for as long as both companies have been in operation. We don’t comment on speculation.” However, the Wall Street Journal is also now citing its own anonymous sources in a report that repeats much of the same information in the Bloomberg piece.]

The news comes after nearly a year of heavy scrutiny on the DFS market, which saw a number of states questioning the legality of these sites.

The most contentious battle has been in New York state, where Attorney General Eric Schneiderman decided in 2015 that DraftKings and FanDuel violate state gambling laws. Amid a legal battle challenging the AG’s authority and the wording of that particular law, the two sites ceased operating in New York in March 2016.

And it’s not just New York. Before this year of troubles began, only five states — Arizona, Washington, Iowa, Louisiana, and Montana — had laws that made DFS illegal. Since then, Alabama, Hawaii, Idaho, and Nevada have been added to that no-no list for both companies. FanDuel chose to close up shop in Texas after the attorneys general there in Texas determined that DFS is likely illegal. Illinois AG Lisa Madigan also opined that these contests probably run afoul of state gambling laws, though no actions were taken to end operations.

In addition to the loss — even if it’s only temporary — of these customers, the spotlight of the last year has taken some of the shine off these DFS sweethearts. College athletes accused the companies of illegally profiting off their work without permission. John Oliver dedicated an entire segment to DFS and its actual costs for most users. And even the CEO of FanDuel admitted that his company had overdone it with the ad blitz during the most recent NFL season.

Meanwhile, the two companies were spending millions millions, hiring more than 75 lobbyists in 34 states to push for new laws that more explicitly make DFS legal.

As Bloomberg notes, the result of all this negative attention is that the perceived value of these privately held companies has been cut in half over the course of the last year. Thus, investors have been pushing for a tie-up, as DraftKings and FanDuel offer nearly identical products to the same core audience. Each has lucrative advertising, marketing, and sponsorship deals with professional sports leagues and TV networks, so a combined DraftKings/FanDuel would result in a company with a significantly larger customer base that should operate more efficiently and spend less on ads.

Of course, it’s the seemingly too-close relationship between DraftKings and FanDuel that thrust them into the unwanted spotlight in the first place.

Last fall, users called foul after a mid-level content manager at DraftKings made $350,000 in a single weekend playing a FanDuel contest. It was only after that incident that both companies barred employees — many of them selected from the ranks of professional DFS players and pro poker tournaments — from entering contests on the competitors’ websites.