Daily fantasy sports rivals DraftKings and FanDuel to merge

While DraftKings and FanDuel are known mostly for daily fantasy sports games, the company formed by their impending merger is eyeing a larger share of the season-long fantasy sports market, according to multiple reports.

FanDuel’s CEO Eccles told Reuters past year that he had heard investors compare a potential deal to the 2008 merger between Sirius and XM Radio, when two unprofitable upstarts merged to create No. 1 satellite radio provider Sirius XM Radio Inc (SIRI.O). The valuation of the combined entity wasn’t disclosed. Draft Kings CEO Jason Roberts and FanDuel CEO Nigel Eccles in a joint email to patrons of both sites say this will not happen to fantasy sports when the merger is completed sometime next year.

Robins will be chief executive officer at the newly combined company. The two companies sunk more than $750 million into marketing a year ago, and that resulted in roughly $3 billion in contest fees. Investors in DraftKings include Madison Square Garden Co. and the Kraft Group, which owns the New England Patriots.

To date DraftKings has raised $600M and FanDuel has raised $416M, putting the amount raised for the combined company over one billion dollars.

DraftKings is more popular, with a global traffic ranking of 4,449.

“Neither company has been able to invest as much as we want to in a vast array of innovative ideas”, Mr. Robins said. “Both businesses think quite broadly about that broader fantasy sports market, but even really the (general) sports market”, said Eccles.

The move creates a powerhouse in fantasy sports, where contestants pick a fantasy roster of professional athletes from leagues such as the National Football League and Major League Baseball and win prizes based on their actual performance.

In addressing what the merger will mean for customers, both companies offered only broad strokes.

Robins and Eccles said the merger would allow the companies to free up resources to develop better products – like offering more varied contests, developing loyalty programs and improving their website features – though they declined to elaborate on those plans. Regulators in several states followed by questioning the games’ legality. The companies had each been valued at over $1 billion before authorities including New York Attorney General Eric Schneiderman began a crackdown on the industry previous year.

Both companies have been facing regulatory and legal challenges to their industry, with regulators in some USA states ruling that fantasy sports firms’ activities amounted to illegal gambling.

Fighting those challenges has been costly. One of the DraftKings investors, media conglomerate Twenty-First Century Fox, said in a filing in February that it had reduced the value of its $160 million investment by 60% on its books.