DraftKings, FanDuel drop merger plans

Gretchen Ertl/The New York Times

Boston-based DraftKings Inc. and chief rival FanDuel Inc. said Thursday they would walk away from their planned merger, abandoning a deal that had promised to reshape the multibillion dollar daily fantasy sports business before federal antitrust regulators stepped in to block it.

In an interview, DraftKings chief executive Jason Robins said he had become more confident in the company’s ability to stand alone than he was in the prospects of winning a costly legal battle with the Federal Trade Commission, which in June sued to stop the deal.

“Our business has continued to improve both overall and competitively,” he said. “Those things kind of came together at this time to a conclusion where we think it’s best to move on.”

The FTC argued the two companies would have formed a “near monopoly,” with more than 90 percent of the US market for paid daily fantasy sports.

DraftKings and FanDuel countered that antitrust regulators had misunderstood their business. Both companies argued that they faced competition from fantasy sports games that last an entire season.

But the firms, once bitter rivals, also made clear in recent days they were assessing the likelihood of prevailing over the FTC.

“FanDuel decided to merge with DraftKings last November, because we believed that this deal would have increased investment in growth and product development thereby benefiting consumers and the greater sports entertainment industry,” said FanDuel chief executive Nigel Eccles said in a statement.

But now, Eccles said, the best move is to go it alone: “There is still enormous, untapped market opportunity for FanDuel,” Eccles said.

By abandoning a deal the companies had contended was critical to their future, DraftKings and FanDuel now return to the familiar — and costly — role of battling each other for the upper hand in the still young daily fantasy sports business.

The companies run contests where participants compete based on the real-life performance of athletes they select for their rosters. Entry fees and cash prizes can vary, with some contests awarding $1 million or more. The companies take a cut of the entry fees, typically about 10 percent.

Both have gone through a torrid growth period, fueled by more than $1 billion raised between the two in multiple rounds of venture financing.

Each has its own roster of powerful backers, with Twenty-First Century Fox Inc., the professional leagues for baseball, hockey, and soccer, New England Patriots owner Robert Kraft’s company, and Cambridge venture capital firm Accomplice among the investors in DraftKings.

In March, as it awaited word on the merger, DraftKings raised more than $100 million in a private investment round led by one of the owners of the Los Angeles Dodgers, bringing its total to at least $830 million. FanDuel had raised at least $363 million at the time the deal was announced.

A research report by Eilers & Krejcik Gaming said DraftKings’ 2016 revenue after paying prize money was $169 million. FanDuel, formed in 2009, brought in $166 million.

The companies had long been bitter rivals, and in 2015 engaged in an expensive advertising battle for shares of the growing market. That growth had slowed last year, in part because of a series of regulatory and legal hurdles thrown up by government officials questioning whether the games amounted to a form of gambling.

Robins said he does not expect a similar public battle this time.

“That was kind of a point in time when you had this rapidly growing [market] in an unregulated space,” he said. “There was an enormous amount of capital available to everyone, and it all came together.”

Observers of the industry, however, said there’s a chance both companies cannot remain independent — at least not in their current forms.

Daniel Barbarisi, author of “Dueling With Kings,” an account of the industry’s early history, said he believes DraftKings and FanDuel will both work hard in advance of the pivotal upcoming NFL season to bring players onto their respective platforms.

Players, who have seen prizes decline in recent years as the companies looked to shore up their finances, are looking forward to the competition, he said.

“It makes them think of the heady days of 2015 when the companies couldn’t throw enough doo-dads and enticements at them, and they like that,” Barbarisi said.

However, the good times might not last. “While there might be a short-term boost, the long-term situation is going to be more problematic now because you now have two companies that have to fight to the death — again,” he said.