Fan Duel and DraftKings Discuss a Possible Merger as 2015 New York Bill is ‘Reversed’

July 15, 2016

According to research conducted by Eilers & Krejcik Gaming, the Daily Fantasy Sports (DFS) market is estimated to top $2bn in revenue by 2020. There are a number of operators in this market, however, according to Bloomberg, talks have been taking place between the two DFS leaders; Fan Duel and DraftKings, to discuss the possibility of a merger. Although no details of the potential merger have been confirmed, anonymous sources told Bloomberg that investors in both daily fantasy sports operators have been interested in such a deal for some time.

The merger would unite two of the strongest players in the industry! 

Furthermore, Jason Robins, DraftKings CEO, described the possible merger between his company and Fan Duel as a "very interesting idea" that could provide customers with a better service at a better cost and add value for shareholders. According to Fortune.com; Fan Duel and DraftKings combined would make up an estimated 95% of the real-money fantasy sports market. Competition from Yahoo and CBS Sport however are becoming more of a threat, potentially paving the way for this merger.

As opposed to competing with very similar offerings, the merger would unite two of the strongest players in the industry to create one dominant force in the market, potentially saving millions of dollars on advertising. For instance, during the first week of the NFL season, DraftKings and Fan Duel spent a combined $100 million ($80 million and $20 million, respectively) in television advertising. Furthermore, the merger could prove beneficial in assisting both companies’ attempts at making DFS legal across the United Stated. DraftKings’ solo lobbying efforts to reverse the 2015 New York ruling have already started to pay off.

In late 2015, New York banned DFS for violating gambling laws, ordering operators such as Fan Duel and DraftKings to cease practice; however, in the early hours of June 18th, 2016, a new bill was passed, essentially reversing the decision and bringing clarity to the rules on the matter. The full bill can be found here.

With the aim to prevent the reasons for the 2015 ruling from happening again, the new laws will restrict people under 18 years of age from playing; ensure that the odds of winning are accurately shown; enable players to exclude themselves from future games at any time; and identify players on the websites with high levels of experience. The gross revenues generated by companies in the fantasy sports industry will be regulated by the New York State Gaming Commission and taxed at a rate of 15%, plus an additional 0.5% registration fee.

New York is believed to be the second largest state in the United States, in terms of both revenue and users for both DraftKings and Fan Duel. According to the NY Times, New York is the eighth and most important market to pass legislation to legalize the games, which are under scrutiny in other player-rich states, such as Florida, Illinois and Texas.

Both Fan Duel and DraftKings, alongside other DFS operators are hoping that the legalisation and regulation of DFS in New York could act as a precedent, encouraging other states to follow suit.