Powerful Yes, but Dominant? Legitimacy of Blockbuster DFS Merger Under FTC ReviewPublished August 5, 2017 by Lee R
Does the sublimation of the gambling issue in the final federal to DFS merger represent acceptance by omission?
Daily Fantasy Sports DFS seemed to be gaining traction across America with the announcement of the merger between DraftKings and FanDuel, but the wall of resistance that the two giants have recently encountered did not fall like Jericho after trumpeting their merger.
Merger Solves Nothing--Yet
The fact is, since the merger, things do not appear to be falling DraftKings and FanDuel’s way.
To Merge Or..
The status of the merger was plunged back into uncertainty with the announcement by the Federal Trade Commission (FTC) of formal consideration of whether the merger would constitute unfair market domination.
Discouragement from Courts
The courts have not helped: the precedent-setting state of New York actually barred both companies from operating further in the state, with many other states subsequently staying on the fence to stall legal acceptance otherwise facilitating the spread of DFS through the American states.
Shift in Approach
The court’s stifling of expansion served to create short term cash flow challenges for both DFS heavyweight competitors while famously duking it out by trying to outspend each other. Economically, the court opposition posed a stark revenue ceiling threatening the continued profitability of the two DFS heavyweights were they to keep trading the financial blows of their advertising war.
DFS’ Peace Treaty
The solution was a merger agreement announced in November 2016 putting FanDuel and DraftKings under one umbrella that would preserve each brand name. The size of the new conglomerate would take up close to 80% of the DFS market, with slim pickings left to competitor DFS sites such as Yahoo and ESPN.
Peace or Domination?
The merger’s potential slice of pie is the source of FTC concerns of an unfair market.
As for the partisanship factor, one Republican and one Democrat sit on the FTC board, with three vacancies currently on the five man panel. A draw would allow the merger to pass.
The Decision Process
A formal vote in opposition to the merger would result in a filing by the FTC of a lawsuit to halt the merger, with the final decision by the FTC’s chairman the ultimate deciding factor.
Insiders believe that the merger is actually in serious jeopardy—but not because of perceptions of DFS as gambling which DraftKings and FanDuel worked so hard to eliminate.
The Prevailing Anti-Trust Concern
The more salient argument is the greater monopoly concerns, with federal anti-trust laws committed to protecting consumers by vigilantly monitoring for attempts at creation of monopolies through mergers and acquisitions, or the formation of any corporations that appear overly dominant in one market.
Arguments in Defence of Merger
DraftKings and FanDuel have been arguing that despite their operations, and even the merger, it remains relatively easy for any new DFS companies with moderate funding to enter the market.
Evidence against this assertion is seen by many in the February folding due to bankruptcy of Fantasy Aces in February. However, does one startup folding really the fault of the market leaders?
Common sense would indicate that one round of moderate funding would be enough to get the software up to initiate a DFS league, with minimal operating costs. As the league (and business) expanded, the increased revenue from increased buy-in volume would enable the hiring of more staff to support the growth.
The real question then appears to be, regardless of one’s stand on whether or not DFS is gambling: in the age of free advertising, social media and chatboxes, can the projected market share of a merger between DFS market leaders truly prevent smaller and start-up competitors from outreach effective enough to establish their own organic and sustainable patronage? The FTC has taken it upon itself to deliberate and decide forthwith, with the answer potentially arriving as early as next week.
Impact on iGaming
An iGaming controversy based purely on legitimate business considerations instead of stigmas would seem ultimately seem to emerge to iGaming stakeholders as a breath of fresh air.