Daily fantasy sports website DraftKings is abandoning a merger with its main rival FanDuel.
The abrupt announcement comes on the eve of a high-stakes face-off with The Federal Trade Commission, which filed an injunction to stop the merger in June. Scheduling for a preliminary hearing on that case was supposed to get underway Friday afternoon.
Before playing for the same team against the FTC as potential business partners, Boston-based DraftKings and New York-based FanDuel were bitter rivals, spending millions on TV and web ads designed to cut into each other’s customer base. They announced their deal as a merger of equals in November 2016. Financial details of the arrangement were not disclosed, but each company has been valued at more than $1 billion.
In a June complaint, the attorneys general of California and Washington, D.C., joined the FTC in arguing the deal violated antitrust laws. The merger of the two dominant daily fantasy sports sites “would deprive customers of the substantial benefits of direct competition,” according to a statement from Tad Lipsky, acting director of the FTC’s Bureau of Competition.
The companies had prepared to fight that claim in court, arguing in FTC filings that their merger would not raise prices for consumers. Dan Wallach, a gambling law attorney and shareholder with the law firm Becker & Poliakoff, said DraftKings and FanDuel were facing an uphill battle from the moment the FTC filed its objection.
That didn’t stop the firms’ legal teams from trying. They had prepared to argue the relevant marketplace was not daily fantasy sports betting, of which they controlled more than 90 percent of the market, but fantasy sports at large, which includes giant companies like Yahoo and ESPN that run season-long fantasy competitions.
Ultimately that legal ammunition could not convince DraftKings CEO Jason Robins and FanDuel CEO Nigel Eccles to challenge the FTC in court. Both executives issued statements on Thursday about the decision.
“We have determined that it is in the best interest of our shareholders, customers, employees, and partners to terminate the merger agreement and move forward as an independent company,” wrote FanDuel’s Eccles. “There is still enormous, untapped market opportunity for FanDuel, and we will continue to execute our strategy to grow our business and further expand the fantasy sports industry.”
DraftKings’ CEO Robins said calling off the merger “will allow us to singularly focus on our mission of providing the most innovative and engaging interactive sports experience imaginable, forever changing the way fans connect with teams and athletes worldwide.”
DraftKings declined to comment further through a spokeswoman.
The scuttled merger is a setback for the companies, but Wallach, the sports attorney, pointed out that DraftKings and FanDuel have managed so far to survive in a legally murky area between online gaming and illegal gambling. Their ill-fated merger notwithstanding, DraftKings and FanDuel “have been like the cat with nine lives,” he said.
“This is an industry that despite all the turmoil they’ve been under has always come out smelling like a rose,” Wallach says. “I don’t think these companies disappear. Their user base is too valuable to simply vanish or go out of business and declare bankruptcy.”
DraftKings and FanDuel could pivot and become more like traditional bookies, Wallach said. In January, DraftKings won a controlled skill games license from the country of Malta, allowing the company to take bets in Germany, which does not require a separate license for operators already approved elsewhere in the European Union.
Amassing similar licenses in other jurisdictions could be a way forward for the two companies as they return to direct competition with each other, Wallach said. Just last month the U.S. Supreme Court agreed to take up a case that could legalize sports betting in New Jersey.