How DraftKings and FanDuel Plan To Get Their Merger Approved

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Fantasy sports sites DraftKings and FanDuel this morning confirmed their plans to merge, with similar details to what we reported on Wednesday. The question now is how the top two companies in their market plan to appease anti-trust regulators who, in general, oppose such combinations.

Neither company is commenting about legal strategy on the record, but I've spoken to multiple sources close to the situation. Here's their playbook:

1. DraftKings and FanDuel have around five million combined players, but the companies will argue that the total universe of active online fantasy sports players is upwards of 57 million (a number cited in today's press release). In order for the combined company to succeed, it must attract a much larger share of that pie. Moreover, existing providers must work to maintain and/or grow their own user base. In other words, there is plenty of competition ahead.
2. "But wait," says rhetorical regulator. "Most of that 57 million is playing free games without cash prizes. If there were only two casinos in the world, you wouldn't say that their merger is fine because millions of people people play cards at home for bragging rights." First, how dare you compare this to gambling? These are, uh, games of skill (like the ring toss at a carnival). More importantly, DK/FD will argue that their merger will actually help bring some of those free players into the for-money world. How? By merging, the new company will be more effective at getting paid fantasy rules codified at the state level, thus reducing regulatory risk for new players (which it believes is a major reason why groups like ESPN have yet to take the plunge).
3. One big anti-trust concern is always that the new combo company will raise rates (or, in this case, rakes), because there is no longer a competitive counterweight. This is again where DK/FD will bring up companies like ESPN, which already have millions of free players but don't yet offer cash games. If FD/DK begins gouging players, then someone like ESPN will have even more incentive to enter the market as a lower-cost alternative.

Beyond its expected legal arguments, it's also worth noting that DK/FD may benefit from Donald Trump being elected president. Not because he has a stated position on such things, but because mergers sometimes have a way of falling through the regulatory cracks when there is a party change in the White House  ― as old political appointees leave and new ones arrive.

DraftKings and FanDuel didn't mean to time things this way ― they began working on the deal back in May, and likely expected a Clinton win ― but sometimes you just get lucky. Kind of ironic, given the companies we're talking about...

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