DraftKings, FanDuel File FTC Response: ‘Dismiss the Complaint In Its Entirety’
UPDATE: 07/17/2017
On Thursday, FanDuel and DraftKings issued a joint statement that they would no longer be moving forward with their merger. The alleged antitrust violations brought forth by the FTC would have cost the operators exorbitant legal fees and an indefinite amount of time to resolve.
In the wake of abandoning the union, DraftKings CEO Jason Robins and FanDuel CEO Nigel Eccles both expressed the sentiment that their companies would continue to operate independently and competitively.
“We have a growing customer base of nearly 8 million, our revenue is growing over 30 percent year-over-year, and we are only just beginning to take our product overseas,” said Robins in a statement.
“There is still enormous, untapped market opportunity for FanDuel, and we will continue to execute our strategy to grow our business and further expand the fantasy sports industry,” stated Eccles.
Both DFS leaders are now preparing the upcoming NFL season, where they will once again go head-to-head to earn their share of the market. With their daily fantasy football products accounting for a majority of annual revenues, both sites will be seeking additional funds to pour into advertising.
FanDuel has been actively looking for new investors, while DraftKings is coming off of a multi-million dollar funding round in March.
It looks as if it’s business as usual for the two daily fantasy sports giants.
POSTED: 06/21/2017
DraftKings and FanDuel, the leading daily fantasy sports (DFS) operators, have filed their separate responses to the Federal Trade Commission’s (FTC) antitrust complaint.
On Monday, the two DFS giants filed their respective replies where they both cite the advantages of the proposed merger. Both operators made it a point to deny any claims that the merger would impede on the ability of customers to reap the benefits of a competitive marketplace.
Instead, the operators cite that their merger will “result in substantial merger-specific efficiencies, cost-savings, innovation, and other procompetitive effects that will directly increase the consumer value proposition.”
Here are the full responses that were filed to the FTC:
DraftKings Response
https://www.ftc.gov/system/files/documents/cases/d09375draftkingsanswersanddefenses587325.pdf
FanDuel Response
https://www.ftc.gov/system/files/documents/cases/d09325fanduelansweranddefenses587326.pdf
The Antitrust Issue
Last month, the Federal Trade Commission filed their lawsuit to prevent the FanDuel-DraftKings union from being finalized by its anticipated late-summer deadline. The Offices of the Attorneys General in the State of California and the District of Columbia were joint filers. The FTC obtained a temporary restraining order on June 21 to stop the merger from taking place until the case has been resolved. With the original complaint, the FTC states the following:
“Post-Merger, the combined DraftKings/FanDuel would command more than 90% of the relevant market as measured by entry fees. That means the Merger would result in… an increase in concentration much greater than 200 points. Thus, the Merger would produce concentration levels well beyond what is necessary to establish a presumption of competitive harm.”
Though the complainants and both operators agree that DraftKings is the largest DFS provider in terms of entry fees and revenues, it is no secret that the operator has incurred steep losses. According to financials released by Axios, in 2015 DraftKings reported an operating loss of 500 million dollars. In 2016, both operators saw substantial losses.
The potential merger between FanDuel and DraftKings would bring major financial benefits to both companies. With the assets combined, they would be able to split legal costs, share advertising costs, and upon existing partnerships with professional sports leagues.
The FTC, however, does not see the merger as a fair or legal solution. Their administrative complaint states that the proposed merger would create a monopoly that violates the FTC Act and the Clayton Act. In response to the two DFS operators pooling their resources to create a better road to profitability, the FTC said the following:
“But Respondents’ preferred solution is to merge to become a de facto monopolist, free of the competitive constraints that each firm has imposed on the other. Essentially, DraftKings and FanDuel assert that consumers will be better off with one paid DFS provider, rather than two.”
“This action reaffirms a core principle recognized by the U.S. Supreme Court in 1978, which is that antitrust ‘foreclose[s] the argument that because of the special characteristics of a particular industry, monopolistic arrangements will better promote trade and commerce than competition.’”
What Happens Next?
The Federal Trade Commission issued a proposed scheduling order that gives a tentative timeline for the court proceedings.
In addition to the responses from FanDuel and DraftKings, initial disclosures and investigative materials are expected to be received by July 11th at the latest. Throughout August more case materials will be gathered, with the hearing for the FTC’s request for a preliminary injunction tentatively scheduled for September 18th.
The administrative trial is scheduled for November 21.
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