The biggest daily fantasy companies, Draft Kings and Fanduel, are currently fighting a bid to block their merger. The Federal Trade Commission launched proceedings to halt the deal stating that it violated anti-trust laws and would create a near monopoly of the daily fantasy sports market.
The two companies vigorously defended their merger, saying that it would have the opposite effect on the market. According to them, the proposed tie-up would be a good thing for market competition rather than wipe it out entirely.
However, the fact that the two companies are the biggest names in daily fantasy sports doesn’t help their argument. The two companies raked in billions of dollars in profit annually with advertising and sponsorship deals with almost every major sports network and professional team out there.
Competition between the two companies for the past five years has been beneficial, at least for fans of daily fantasy. It has forced them to offer lower entry fees, larger contests with larger prize pools, and a better of sports in an effort to take away the other’s share of the market.
A merger between them will essentially wipe this out with the huge entity being formed stamping out the competition, if there are any, to begin with. The FTC also argued that it will eliminate “vigorous price and non-price competition” that would inevitably lead to consumer harm.
According to Casino, both companies fired back, arguing that the FTC decision to block the merger reflects “an unnecessarily rigid and uninformed application of the antitrust laws” to what they described as an “underdeveloped, nascent industry.”
Furthermore, they argued that daily fantasy sports are not a market at all but a segment of a much bigger fantasy sports market and season-long variety. However, this argument was rejected by the FTC after it observed that season-long fantasy sports were not viewed as a viable substitute by players of daily fantasy.
Should the merger be allowed to complete, the FTC believes that no future entrants to the market will be able to compete at the level of the two companies. This would also increase their clout on the country’s lawmakers as fights to keep their business in line with the law.
The business model of Draft Kings and Fanduel are a hotly debated issue at both the Federal and State level. This is due to daily fantasy being considered as gambling and therefore should be subject to gambling laws.
In their defense against being subjected to gambling laws, both companies have been insisting that they are primarily a game of skill rather than a game of chance. As for their legality, they have also cited a clause in a bill passed in 2006 to crack down on online gambling that their operations are exempted from the law.
However, their arguments were shot down in comical fashion by HBO’s Last Week Tonight. In one particular episode, host John Oliver dissected their defense, revealing that both companies took advantage of a loophole in the clause that exempted fantasy sports from the gambling laws.
Despite the legal issues currently surrounding both companies, their expansion still remains unhindered. Just recently, both Draft Kings and Fanduel expanded their operations to include the WNBA reports Swish Appeal.
This has been viewed on a positive note by the WNBA as a way to increase viewership of the league. Fantasy sports currently has over 53 million players across the United States with daily fantasy contributing a substantial amount to this figure.
However, its continued freedom from scrutiny from the gambling laws continues to worry lawmakers. Should these two companies complete their merger, it would create the biggest gambling corporation since the days of the Mafia. Its clout will also doom any efforts to subjugate in under current gambling laws currently enforced both at the federal and state levels.
[Featured Image by Stephan Savoia/AP Images]