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Final fantasy

Thursday, 08 December 2016 02:36
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It’s been an eventful year for Daily Fantasy Sports giants DraftKings and FanDuel, resulting in the revelation that they will now merge to create an industry superpower. IAG takes a closer look at their path to marriage.

In a surprise twist to the Daily Fantasy Sports (DFS) saga, industry giants DraftKings and FanDuel are set to join forces after agreeing to terms on a merger. Already boasting 90% market share worldwide between them, the merger would create a true titan of the online gaming industry, with the DFS market expected to double in value to more than US$5.3 billion by 2021.

Under the proposed deal, DraftKings Chief Executive Jason Robins would become CEO of the new entity while FanDuel boss Nigel Eccles would be Chairman of the board.

“Joining forces will allow us to truly realize the potential of our vision, and as a combined company, we will be able to accelerate the pace of innovation and bring a richer experience to our customers than we ever could have done separately,” Robins said.

News of the merger comes at the end of a turbulent 12 months for DraftKings and FanDuel. On the back of a multi-million dollar advertising blitz ahead of the 201516 NFL season, fantasy football grew by a phenomenal 500% from the previous year with an estimated 56 million Americans playing DFS in one form or another. The value of both companies soared to over US$1 billion each.

But having previously flown under the radar of regulators nationwide until then, such extraordinary growth was always going to attract attention eventually. The tipping point was the revelation that a DraftKings employee had won US$6 million playing DFS on rival site FanDuel – the inference being that his job had allowed him to access detailed statistical information on DraftKings players, then use that knowledge to gain an advantage when choosing his DFS teams on FanDuel.

In November 2015, New York State Attorney General Eric Schneiderman issued cease and desist letters to all DFS companies operating in the state, claiming they were, “engaged in illegal gambling under New York law, causing the same kinds of social and economic harms as other forms of illegal gambling, and misleading New York consumers.”

Schneiderman’s actions sparked a chain reaction around the country and soon dozens of states were discussing the legality of fantasy sports and whether they should be regulated or banned completely.

It was a brutal blow to the DFS industry and one it’s been fighting against ever since.

Last month, DraftKings and FanDuel – who have been leading the legislative charge on behalf of all operators – agreed to pay a combined US$12 million to New York to settle claims of false and deceptive advertising practices. More damaging has been their rapidly escalating legal costs as well as the considerable resources they’ve needed to fund lobby groups in various states. Since the start of the year, eight states have passed legislation giving the green light for DFS to operate within their borders with a handful of others currently mulling over similar moves.

But progress has been slower than hoped, with FanDuel recently forced to lay off 60 employees to help reduce costs. The merger with DraftKings would provide a much bigger combined war chest for the battles that lie ahead.

The good news is that DFS isn’t losing any of its appeal among players.

In a research paper published by the UK’s Juniper Research just a few weeks ago, the market for DFS is set to surge over the next few years, from US$2.6 billion now to US$5.3 billion in 2021. Aside from the likelihood of more US states passing legislation, new markets have recently begun to emerge with DraftKings launching in the UK in early 2016 and strong signs in Latin America and Australia. Asia and Europe loom as the next huge opportunities.

“Currently North America dominates the industry with US regulatory loopholes denoting the activity a ‘game of skill’, rather than gambling,” Juniper’s research paper explains. “Nonetheless, with several smaller players in operation globally and an initial foray into the UK by the industry leaders, West Europe will become the next major market over the coming five years.”

The paper also suggested that DFS operators should focus more on attracting casual players to increase transactions and alleviate concerns over liquidity – a problem that has plagued the online poker industry in recent years thanks to the actions of disgraced site Full Tilt – which was subsequently swallowed by PokerStars.

The proposed merger between DraftKings and FanDuel remains subject to federal approval and a likely review under US anti-trust laws. If approved, it is expected to be complete by late 2017.



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