US-based, corporate-backed daily fantasy sports platforms DraftKings and FanDuel have confirmed that they will join forces in what they referred to as a “merger of equals,” meaning there will be one dominant player in the sector.
The deal will follow a tight-knot rivalry that involved both companies raising nine-figure rounds at billion-dollar plus valuations, before regulatory hurdles hit them hard, in effect requiring them to pool their resources.
DraftKings and FanDuel are the two largest participants in the daily fantasy sports sector, which transplants the fantasy sports model into a system that breaks each round of matches into a separate online game, enabling users to compete with each other for a prize pot.
Founded in 2009 as a spinout Edinburgh University in the UK, FanDuel has raised about $420m in financing, most recently securing $55m in convertible note financing from its existing backers.
Comcast Ventures, the corporate venturing arm of mass media group Comcast, led FanDuel’s $11m series C round in 2013, investing alongside Piton Capital, Pentech Ventures, Bullpen Capital and angel investor Richard Koch. FanDuel received $70m the following year from Comcast Ventures, its sister unit, NBC Sports Ventures, Shamrock Capital Advisors, Bullpen Capital, Pentech Ventures and KKR.
The company raised $275m in July 2015 at a valuation of more than $1bn from Google Capital, a subsidiary of internet technology group Alphabet now known as CapitalG, as well as media group Time Warner’s Time Warner Investments unit, broadcaster Turner Sports, NBC Sports Ventures, Comcast Ventures, KKR, Shamrock, Bullpen, Pentech, Piton and the owners of unnamed National Football League (NFL) and National Basketball Association (NBA) teams.
DraftKings was founded three years later in 2012 and has raised a total of about $530m, having secured $153m in a September 2016 round led by growth equity firm Revolution Growth that reportedly valued it at substantially less than the reported $2bn valuation at which it raised $300m in July 2015.
The 2015 round was led by 21st Century Fox subsidiary Fox Sports and included professional sports leagues Major League Baseball (MLB), National Hockey League (NHL) and Major League Soccer (MLS); Kraft Group, the conglomerate that owns American football franchise the New England Patriots; Atlas Venture and Raine Group.
Other existing DraftKings investors include Redpoint Ventures, GGV Capital, BDS Ventures, Boston Seed Capital, Hub Angels and Angel Street Capital.
The deal can perhaps best be seen as a defensive move, At the time of the companies’ 2015 rounds they were riding high but a string of regulatory issues, most often related to whether their businesses count as gambling, have sprung up since and severely hampered their operations in several US states.
Although FanDuel and DraftKings won permission from New York’s legislature earlier this year to operate in the state, and have received the explicit go-ahead from 10 states, they have been forced to temporarily withdraw from several others, though they are continuing to lobby lawmakers.
In addition to presenting a united front for legal battles, the deal will allow the newly merged business to significantly cut advertising costs, which reportedly reached a combined $500m in 2015 as FanDuel and DraftKings each sought to outdo the other with a concerted marketing blitz.
The merger will also enable the new company to combine partnerships. DraftKings has exclusive partnership deals in place with MLB, MLS, NHL, Nascar and the Canadian Football League, while FanDuel is the official partner of the NBA as well as several NFL and NBA teams.
The companies said in a joint statement: “The operational efficiencies and cost savings that are expected to result from the merger will drive a greater focus on developing new products and features, including more variety in contest formats, loyalty programs, enhanced social functionality and ancillary sports-oriented content and experiences, all aimed at creating a more diverse, exciting and appealing experience for fantasy sports players and all sports fans. The merger will also help the combined company accelerate its path to profitability.”
Once the deal closes in 2017, DraftKings chief executive Jason Robins will be CEO of the merged company, which will be co-headquartered in New York and Boston, while FanDuel CEO Nigel Eccles will be chairman. The rest of the board will comprise three directors from each company and one independent director.