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Why the Fan Duel-Draft Kings merger was disqualified

By: Glenn Greene - exclusive to OSGA.com
Published: Jul 20, 2017

Some reasons why the two DFS giants were not allowed to merge

Let me first honestly acknowledge I am not an attorney. Perhaps one of my biggest regrets and greatest disappointment to my mother. After college, instead of reading legal protocol and case textbooks I often was distracted reading The Daily Racing Form instead.

The Federal Trade Commission (FTC) was also likely reading that Daily Racing Form along with their anti-trust violation handbook in dismissing the pending merger between DFS titans Fan Duel and Draft Kings. They must have been "handicapping" the winning potential for traditional sports gaming companies to also potentially merge in the future if they somehow neglected this case. Although isn't Daily Fantasy Wagering purely a "skill game" that has nothing to do with the "luck or random outcome" of betting on individual events as sports wagering? And what about the potential for corruption to destroy "the integrity of the game" often quoted by NFL Commissioner Roger Goodell. What does a DFS anti-merger case have to do with potentially legalizing U.S. sports wagering? A lot more than you might think gazing into the crystal ball.

Anti-Trust 101

The Sherman Anti-Trust Act of 1890 is a landmark U.S. Federal statute in competition law. It attempts to prevent the artificial raising of prices by restriction of trade or supply. The purpose of the Sherman Act is not to protect competitors from harm from legitimately successful businesses, nor to prevent businesses from gaining honest profits from consumers, but rather to preserve a competitive marketplace to protect consumers from abuses. Over time, the act has also been used more broadly, to oppose the combination of entities that could potentially harm competition, such as monopolies or cartels.

In this specific fantasy sports case, it seemed like an obvious slam-dunk from the beginning and didn't need an FTC ruling to kill the action. When you have only two sole majority companies (Fan Duel & Draft Kings) controlling 94% of a market and no opportunity for another company to legitimately compete, it would seem obvious to be against any consumer benefit for them to merge. Add on the political firestorm involving some U.S. states approving DFS and some states opposing, the real question was "what took them so long"?

In fairness to both companies, this merger was announced in November 2016. For the FTC to wait over eight months in rendering a judgment could have been overly optimistic thinking by both companies. Or maybe just bad timing looking at future events looming ahead that didn't have anything to do with DFS. Kind of like that strong safety that came out of nowhere to pick off the pass.

DraftKings Fan Duel mergerIntegrity of the Game

The biggest irony comparing daily fantasy sports to sports wagering was the giant gray line of protecting bettors and the public from any corruption or potential of any insider benefitting from an unfair advantage. The fact that daily sports wagering combined the efforts of several athletes from disjoint sources made it impenetrable compared to "fixing" one specific sporting event. That all changed one fateful day in October 2015 while both Draft Kings and Fan Duel were soaring.

Statements were released after an employee at Draft Kings admitted to inadvertently releasing data before the start of the third week of NFL games. The employee, a midlevel content manager, won $350,000 at rival site, Fan Duel, that same week. Afterwards the two companies temporarily barred their employees from playing games or taking part in tournaments at any other site. They already had prohibited their employees from playing on their own company sites. The "integrity" of DFS is still cloudy today for some in comparison to sports wagering and therefore will be in question indefinitely.

Which brings us to the future question of legalizing sports wagering in the U.S.

Although this didn't officially enter into the decision for the FTC, it surely was a factor outside the lines. For these two companies to dominate one industry and maintain no control over their employees was not a good omen. Also, this wasa a lightning rod for those with political influence against legalizing both DFS and sports wagering. Not only won't it be soon forgotten but a forever factor to dissuade doubters that fantasy wagering can be potentially "fixed" the same as traditional sports wagering. It's akin to insider trading with financial markets or perhaps knowing something about how the numbers that will be selected in a lottery drawing.

The Taxman Always Wins

Perhaps the most disturbing behind the scene factor mitigating this merger was the angry taxman. Meaning, the U.S. Government still had not clearly defined how much they would receive in a new industry controlled by one combined mammoth player. Without any federal legislative tax rules and new state by state taxes being assessed, it was very uncomfortable to envision only one company obtaining control. Somebody had to apply the review brakes, with the FTC obviously the likeliest force.

We wait in mystery to see whether the U.S. Supreme Court peals back PASPA (the Professional Amateur Sports Protection Act) and grants New Jersey's appeal in their third attempt to obtain sports wagering. One advantage will be obtained versus DFS should this 1992 federal law be reversed and granted a longshot victory. We will clearly know all the rules, taxes and laws for people in the U.S. long before the first legal sports bet is made outside of Nevada.

Unlike daily fantasy wagering, it will be unlikely that two other gaming industry companies will be denied potential merging because of anti-trust laws. The one sure bet they do share is that someone will always question "the integrity of the game".

Glenn Greene covers the games from a betting angle every week exclusively at OSGA.com. For weekly betting insights, inlcuding previews and picks from Glenn, click here.



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