If DraftKings Inc. and FanDuel Inc. merge, it would create a daily fantasy sports powerhouse — possibly raising antitrust concerns among federal regulators, legal experts say. Those questions, following months of legal battles at the state level over the companies’ standing, could complicate a deal that appears increasingly likely.
Bloomberg News reported this week that Boston’s DraftKings and New York’s FanDuel are close to completing a merger that could keep DraftKings’ Jason Robins in the chief executive job. This followed ESPN’s report Friday that the companies were in talks for an “imminent” combination.
Both news organizations cited anonymous sources. FanDuel declined to comment on the renewed reports of a deal, while DraftKings rehashed its earlier statement, which said such a transaction “would be interesting to consider.”
The notion of a major consolidation in the daily fantasy sports business has been discussed publicly for months, sometimes by top company executives. In June, Robins told the Globe that a merger was “pretty clearly something that has potential to add shareholder value.”
Industry and legal experts, however, believe regulators might be skeptical of a merger because DraftKings and FanDuel control about 90 percent of the market, allowing it to raise prices without much fear of competition.
“This is a clear antitrust issue, and it’s really a question of whether the regulators care or not,” said David O. Klein, a lawyer who represents several smaller fantasy companies. “And certainly if there’s a competitor out there who has a good lobbyist and wants to make enough noise, it could be a big problem.”
DraftKings and FanDuel have been fierce competitors in daily fantasy sports, in which players assemble online rosters of real-life athletes and score points based on actual game statistics. Contestants pay entry fees that are recycled into prize pools, with the companies keeping a percentage for their operating costs. Prizes in the biggest contests can top $1 million.
The two companies, still unprofitable, raised a combined $775 million from private investors in the fall of 2015 and launched a TV advertising blitz designed to drive new players to their websites and mobile apps. But their products are essentially the same, making a merger an obvious way to quickly reduce marketing costs, experts say.
If they each continue to go it alone, “It’d be this scorched-earth battle until the end of time, that would cost untold tens and hundreds of millions, to battle for supremacy,” said Daniel Wallach, a gambling and sports attorney. “And they’re basically the same company.”
DraftKings and FanDuel also could save on hefty legal and lobbying expenses by joining together. Each company was forced to hire top law firms last fall after New York Attorney General Eric Schneiderman sued them for allegedly violating state gambling law, kicking off a wave of regulatory battles at the state level.
Massachusetts didn’t challenge the games’ legality, but Attorney General Maura Healey enacted a broad set of consumer protection regulations that limited company advertising and banned players under 21.
Schneiderman settled his lawsuit after DraftKings and FanDuel persuaded New York legislators to legalize and regulate daily fantasy, part of a lobbying campaign aimed at winning legal approval in multiple states. The companies also agreed to pay Schneiderman’s office $6 million each.
A merger could spark a new round of legal costs as the companies seek approval from the Federal Trade Commission and Department of Justice, said Boston College law professor Brian Quinn.
“They take the effect on consumers seriously, so they’re going to take a good, hard look,” Quinn said.
A formal review of the deal could involve six months of legal back-and-forth before regulators are satisfied, Quinn said. That typically means requiring combined companies to shed certain subsidiaries or lines of business as a way to encourage more competition in the market, he said.
Some industry observers said a DraftKings-FanDuel combination probably won’t be the last big acquisition in the daily fantasy arena. Media and sports companies, including the NBA, Comcast, Google, and Twenty-First Century Fox, already own stakes in at least one of the companies. Gambling companies also could be natural suitors, Klein and Wallach said.
“This isn’t a one-time thing. They’re going to roll themselves together, and they’re going to roll themselves into somebody else,” said Jeff Ifrah, a gambling and sports lawyer who has advised fantasy sports companies. “They’ve spent a lot of money acquiring young men from 18-25 … You’re talking about millions of other types of products that would like to target that market.”