A fantasy merger may not help FanDuel and DraftKings escape a harsh reality. There’s some logic to uniting the two daily fantasy-sports gorillas, an idea that is being discussed, according to news reports. Bold-faced backers that include Alphabet’s Google, KKR and the Dallas Cowboys could perhaps improve the odds on their collective $700 million investment in the two startups. State lawmakers, however, can throttle one big site as easily as two.
There are some obvious savings from putting FanDuel and DraftKings together. Any football fan who sat through the onslaught of TV commercials from the two companies last fall knows the ad budget could be slashed. Together, FanDuel and DraftKings accounted for a whopping 59 percent of third-quarter U.S. television advertising growth, according to Bernstein Research. In September alone, they spent more than $100 million, MoffettNathanson analysts estimate.
The legal-defense synergies are also appealing. Several states have shut down FanDuel and DraftKings. Combining the two lobbying budgets might give them a little more muscle, too, as legislators question the credibility of the nascent $4 billion industry. Of course, a merger also might open up a new legal battleground: antitrust. Together, the two companies would control 95 percent of the narrowly defined market.
In New York, FanDuel and DraftKings agreed to close their contests earlier this year after sparring with Attorney General Eric Schneiderman. An appeals hearing is scheduled for September and local lawmakers are considering new proposals. Other states have initiated investigations into fantasy sports as Illinois and Nevada push to classify the business as a gambling activity rather than one of skill, as the fantasy-site operators argue.
With so much opposition to overcome, merging FanDuel and DraftKings might be worth a chance. The odds for a sustainable and successful business model, however, would remain long.
http://blogs.reuters.com/breakingviews/2016/06/15/fantasy-sports-merger-would-face-harsh-reality/
Source: Reuters.com