Federal regulators are challenging the planned merger of FanDuel and DraftKings, saying the combination of the two largest daily fantasy sports sites would create a company controlling more than 90 percent of the market.
The Federal Trade Commission announced Monday it will file a complaint — along with the attorneys general of California and the District of Columbia — seeking to temporarily stop the deal, pending an administrative trial scheduled for Nov. 21.
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Combining the onetime rivals would "deprive customers of the substantial benefits of direct competition," said Tad Lipsky, acting director of the commission's Bureau of Competition.
DraftKing's Jason Robins and FanDuel's Nigel Eccles, the CEOs of the two companies, said they're disappointed by the FTC's decision and are weighing their options. That includes filing their own legal maneuver to block the FTC's efforts, Robins and other DraftKings founders said in a message to employees.
"Please don't let this regulatory setback distract you. DraftKings is poised for growth, whether or not we merge with FanDuel," the company executives said. "In the days ahead, it will be business as usual as we prepare for the start of the NFL season."
Daily fantasy sports contests are online games in which players build rosters of real-life athletes and vie for cash and other prizes based on how those athletes do in actual games. They grew in large part from a 2006 federal law that banned online gambling but created a specific niche for fantasy sports.
DraftKings and FanDuel have argued their merger doesn't violate antitrust laws because the two companies represent a niche within the larger, multibillion dollar fantasy sports market in which ESPN, Yahoo and other major corporations have long dominated.
But the FTC doesn't appear to share that view, concluding the two companies are "each other's most significant competitor."
"It all comes down to how you define the relevant market, and that's where they fell short," Daniel Wallach, a Florida attorney who specializes in gambling and sports law, said of the two companies. "And I'm not convinced they'll do any better in a federal court."
The FTC said it also isn't convinced that other fantasy sports companies could provide sufficient competition if the merger went through and that consumers are unlikely to view other products — including the traditional, season-long fantasy sports competitions played by millions of Americans each year — as a meaningful substitute for the contests offered by the two companies.
Boston-based DraftKings and New York-based FanDuel agreed to merge in November as the industry they helped pioneer fell under intense regulatory scrutiny.
With the two companies engaged in a costly advertising war, state attorneys general, lawmakers and gambling regulators across the country began to question whether the online contests amounted to illegal sports-betting operations.
At the time the merger was announced, the companies said a merger would help them reduce costs as they lobbied for state laws recognizing their legality and fought off legal challenges in court, as well as help them improve their contests.
Both had raised millions of dollars through investors and sponsorships with prominent teams and sports leagues in a few short years but still weren't profitable.
But the daily fantasy sports industry has sharply contracted in the past year, despite roughly a dozen states adopting new laws and regulations.
More than two-thirds of daily fantasy sports companies have shuttered, changed focus or joined with competitors, the Fantasy Sports Trade Association has said. That's left DraftKings and FanDuel as the largest remaining operators.
DraftKings, which was founded in 2012, is currently the largest in terms of entry fees and revenues. FanDuel, which was founded in Scotland in 2009, is the second largest.