Daily Fantasy Sports Face Uncertainty

by Raymond Pucci 0

Hold your bets—Daily Fantasy Sports Fans. The two big players in this market, DraftKings and FanDuel, are awaiting their fate in some US markets, notably in the hands of the New York State legislature. The following reports the current state of Daily Fantasy Sports and how they are dealing with their current uncertainty, including a possible merger.

The daily fantasy sports industry is changing faster than anyone can keep up with.

Just two years ago, daily fantasy sports sites FanDuel and DraftKings were virtually unheard of. After a huge marketing blitz, they exploded into billion-dollar companies. All that attention not only caused their valuations to skyrocket, but it caught the eye of regulators and lawmakers hoping to protect consumers and share in the profits.

Today, the industry looks very different. It is changing daily, and operators are rushing to keep up, or risk dying. The Fantasy Sports Trade Association estimates 10 percent of the industry has disappeared in the past months. There are reports that two of the daily fantasy sports industry’s biggest players, FanDuel and DraftKings, could be merging.

While fantasy sports participation in North America has reached more than 57.4 million players according to an Ipsos poll — the legal and regulatory battles have put financial strain on the companies, forcing them to re-allocate their staffs and resources.
“The lawyers are definitely making a lot of money,” said Peter Schoenke, the association’s chairman. “There’s a lot of legal chaos right now.”

Insiders at the conference suggested the renewed merger talks between daily fantasy’s two biggest players might be a backup plan in case New York state lawmakers rule against the companies.
Consolidation could help both companies financially and potentially ease their legal and regulatory fight with the states.

No doubt the Daily Fantasy Sports companies are spending a lot of time and resources on their strategic options. At stake is their biggest US market, just as the biggest fantasy sport, football will get underway in less than 3 months. Our betting is that DraftKings and FanDuel will survive to play another day but not as separate companies. If some states in the US regulate them out of business, their fallback position will be in remaining states, as well as in lucrative international markets.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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