By Paul Nicholson
November 21 – The world’s two largest daily fantasy sports sites (DFS) DraftKings Inc. and FanDuel Inc. are to merge into one mega US corporate gaming operator as they battle against regulatory challenges to their business model.
DFS are an evolution of traditional fantasy sports games but played with a cash buy-in and a potential cash win. Players generally choose from a number of games depending on price and cash prizes, they then enter their virtual teams, with the game operator generally making their money by taking 10% of the entry fee.
DFS has largely been unregulated in the US until legislators cracked down on the operators claiming that the games were gambling and needed to be regulated as such.
This has lead to a number of courtroom battles, most notably in New York where they were shut down in March when sued by the state’s attorney general, but were legalised in the summer to recommence operations once a deal was struck. They have lobbied state legislatires hard to have DFS legalised and have been successful in 10 states.
Although the largest player volumes are currently in American Football, both companies over Soccer games on the European big leagues and Champions League and Europe is seen as a major growth opportunity.
DraftKings has launched a UK facing site and suite of football (soccer) games, though they have so far had little impact on the traditional fantasy football games. However, this is an early iteration of the site and they are learning the market. Plus the power of their marketing has yet to be unleashed on Europe.
It is this marketing impact that has been eye-catching in the US with both companies having spent a combined $500 million on advertising and sponsorship of the major leagues.
But the regulatory challenges have lead to advertising cuts which have hit sales across the sports media industry in the US. The Walt Disney Co told investors that a “significant” drop in advertising from DFS oeprators during the quarter ended October 1 had contributed to a 13% decline in ESPN ad revenue.
DraftKings Chief Executive Jason Robins will serve as CEO of the new company, while FanDuel chief Nigel Eccles will be chairman. The new board will comprise three directors from FanDuel, three from DraftKings and an independent director, with the company’s headquarters divided between New York and Boston offices.
The companies were valued at more than $1 billion each and had attracted mainstream sports investment and investors keen not to miss the wave as DFS grew. Investors include Major League Baseball and the NBA, Dallas Cowboys owner Jerry Jones and the New England Patriots owner Robert K. Kraft, as well as major media companies like NBC, Comcast and NewsCorp.
The investors will obviously be diluted but will likely be relieved to see the firms pool resource as they fight for stability in a regulatory aggressive marketplace. Both firms are privately held and no figures have been announced for the deal valuation. Reports say that FanDuel generated $100 million of income in the last year.
“Joining forces will allow us to truly realize the potential of our vision, and as a combined company, we will be able to accelerate the pace of innovation and bring a richer experience to our customers than we ever could have done separately,” said Robins.
A company statement said that both brands would continue to operate in the market. But certainly synergies will be sought as they attempt to stop haemorrhaging cash. FanDuel recently laid off 60 staff and are said to be behind in payments to suppliers. Many of those suppliers and lawyers and lobbyists who have been battling to keep them in the game.
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