FTC Ruling Causes DraftKings and FanDuel to Squash Their Merger

FTC Ruling Causes DraftKings and FanDuel to Squash Their Merger

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DraftKings and FanDuel are no longer merging.  Why?  The FTC was attempting to block the merger, citing that it would be a monopoly.  About a month ago, they released a statement indicating that the combined company would “control more than 90 percent of the U.S. market for paid daily fantasy sports contests.”  Which, for all purposes is, essentially a monopoly.  But the merger stood to be beneficial to both companies, and potentially consumers.  It seems odd, I realize, but they are both doing the same thing.  And in doing so, they are trying to make more money from the consumer.  Why not become one company and benefit from all the profits?  Right now, they are splitting the profits in order to deliver the same product.  It doesn’t make sense.

The government thinks otherwise.  The FTC was concerned that if they merged there would be no clear competition.  Which makes sense, but outside of the two, there is no competition.  The merger would have helped the two companies who are over spending on advertising.  Essentially competing for business.  To back track for a moment.  There are other companies that would like to be in the game, but because of the legal ambiguity have pumped the brakes on getting into the game.  So its not necessarily the merger that would kill the competition, it’s the unknown legal ramifications from a gambling perspective.  So why put that on DraftKings and FanDuel?

With the death of the merger, where do they go from here?  To preface that slightly, they had the option of fighting the FTC.  But that would be an extremely long legal battle that might not have panned out for them.  They still have that as an option, but I suspect they will hold off for the time being.  That being said, if the legal ambiguity surrounding this issue were to be resolved, it would certainly bring more players to the game.  ESPN and Yahoo have both shown interest in this arena, but because of the unknown legal status, it’s a non starter.

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It is my opinion that in some cases, the government needs to keep their nose out of it.  Don’t get me wrong, this isn’t a blanket statement.  But what about the “invisible hand” that helps the supply and demand in a free market?  Isn’t there something to be said about letting the chips fall where they may?  No pun intended.  I hope you can see where I’m going with this.  If we are constantly over regulating industries, we are going to be left with a system that can’t grow.  And if the system can’t grow, then there is no opportunity for any kind of competition.

Sure, the argument could be made that there would not be any room for any other competitors to join in.  But the current system doesn’t allow for that.  So, to me, that’s a cop out.  Yes, people have a choice between DraftKings and FanDuel, but how is that a choice?  That’s like someone saying Burger King and McDonald’s can’t merge because without the two, there is no competition.  Competition will occur naturally if you let it.  If Burger King and McDonalds merged then I only have one option, but it’s the same as the other.  Which, in my opinion is the same as having a monopoly.

Maybe that’s a bit unclear, but my point is that low competition is just as bad as no competition.  Especially when they’re offering the same product or service as in this case.  I understand that there’s no real other option, so how would you encourage that?  Certainly not by not allowing two companies to merge.  The regulations should allow for the market to work itself and the competitors will eventually come forward.

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