FanDuel Inc. and DraftKings Inc. have agreed to merge after months of speculation, creating a company that would control more than 90 percent of the turbulent daily fantasy sports industry.
The deal raises potential antitrust concerns, and federal regulators will need to clear any tie-up. For customers, little will change until the merger closes, which could take more than a year. The valuation of the combined entity wasn't disclosed.
DraftKings cofounder Jason Robins, who would be CEO of the new entity, and FanDuel cofounder Nigel Eccles, who will chair its board, described the agreement as a merger of equals. "It's that simple," Robins said during a joint interview Friday.
Investors have been encouraging a marriage for months, as Bloomberg News reported in June. With almost identical games - players assemble rosters made up of real-life athletes, then win (or lose) based on actual on-field performance - the companies have spent hundreds of millions of dollars competing with each other, first to attract players, then to fight legal battles.
"Shareholders have been incredibly supportive," Eccles said. "They've seen the benefits of the deal for a long time."
Both companies will explore raising money as separate entities and then as a combined unit, they said.
Neither company has ever been profitable on its own, even during a 2015 boom, but at that peak, each company was valued at more than $1 billion. Investors in DraftKings include Madison Square Garden Co. and the Kraft Group, which owns the New England Patriots. FanDuel is backed by KKR & Co. and Time Warner Inc., among others.
By combining forces, a combined FanDuel-DraftKings will spend less on advertising, legal fees, and lobbying and more on development and innovation, easing the path to profitability, according to a statement.
"Our biggest frustration is that we can't do more, can't innovate more, can't deliver more product," Eccles said. He noted the company's August 2015 purchase of sports-analytics company numberFire, which hasn't yet been integrated into the FanDuel platform.
While the combined company may have an outsize share of the daily fantasy industry, the executives identified as their main competition Walt Disney Co.'s ESPN and Yahoo! Inc., which offer fantasy sports games and much more.
Investment in the new company and the industry as a whole depends in part on the changing regulatory landscape. Robins said the new unit will continue to focus solely on fantasy games, leaving betting on sports - should it be legalized across the United States - to other companies.
The daily fantasy sports industry was upended midway through the 2015 NFL season by questions about a DraftKings employee who may have used inside information to win money on FanDuel. Regulators in several states followed by questioning the games' legality. New York Attorney General Eric Schneiderman, for example, called it gambling and briefly banned both companies from operating in the state.
Fighting those challenges has been costly. By some estimates, the companies have each lost about half their peak value. In February, 21st Century Fox wrote down its $160 million investment in DraftKings by about 60 percent. The legal battles forced Robins and Eccles, whose relationship has been rocky, to mend fences.