DraftKings & FanDuel losses revealed as FTC opposes merger

IN the same week an Australian tribunal approved the proposed $11 billion merger of Tabcorp and the Tatts Group, antitrust regulators in the United States have sued to prevent a similar deal between DraftKings and FanDuel.

On Monday, the Federal Trade Commission (FTC) filed a suit against the two companies on the grounds that their proposed union would kill any competition in the daily fantasy sports market.

The Commission alleged in an official statement that the completion of such a merger would give the new entity control of around 90 per cent of all DFS activities in the US.

It would also end a long-running battle of oneupmanship over entry fees, prize pools and special promotions, meaning DFS players could be hurt worst of all if the deal is allowed to go ahead.

“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 is committed to the preservation of competitive markets, which offer consumers the best opportunity to obtain innovative products and services at the most favourable prices and terms consistent with the provision of competitive returns to efficient producers.”

As DraftKings and FanDuel executives consider their next move, it has come to light that both companies are haemorrhaging money.

According to tech news site Axios, a 106-page merger document sent to FanDuel investors outlined severe financial losses year on year since 2013.

That included an operating deficit of some US $509 million for DraftKings in 2015, when both firms spent heavily on wide-ranging marketing campaigns.

The document also featured various market valuations and risk assessments.

“The committees acknowledged that the two businesses are volatile, with significant seasonality and regulatory risk, and that both have different seasonal patterns due to differing marketing arrangements and sports coverage, which makes it difficult to measure accurately and compare the businesses at any particular point in time,” it said.

Among the most interesting was a section highlighting how failure to complete the merger could send FanDuel’s market price tumbling.

“If completion of the Transaction does not occur, the value of FanDuel Shares as well as the FanDuel Group’s ongoing business may be adversely affected, including as a result of (i) having to pay certain non-recurring transaction costs relating to the Transaction (including legal, advisory, accounting and other professional fees), and (ii) having to devote significant attention and resources of the management of FanDuel to the Transaction, instead of pursuing other business opportunities that could have been beneficial to the FanDuel Group,” the document said.

Constant references to a “merger of equals” implies that both companies are valued at US $1.2 billion – FanDuel’s fully diluted equity rating for the purpose of the merger.

Our thoughts on the DraftKings-FanDuel merger

Who would have expected the United States to weigh in with a timely dose of common sense?

The FTC has rightly considered the worrying implications of allowing the country’s two biggest fantasy sports betting firms to join forces.

It would create a monopoly, thus ending any sense of competition within the DFS market.

With that goes the need to offer any quality, value for money, or superior customer service.

Why bother striving to create the best possible product when you have a captive audience with no serious alternatives?

DK and FD reps may talk about a bigger and better experience for players, but this is all business.

There is a dollar on the table and they will screw you over to get it – that’s how it works.

The Australian racing and wagering industry may learn that lesson the hard way once the Tatts-Tabcorp merger is done.

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