FTC Temporarily Halts Proposed DraftKings-FanDuel Merger
On June 20, 2017, the United States District Court for the District of Columbia issued a temporary restraining order blocking the daily fantasy sports (DFS) companies DraftKings and FanDuel from consummating their proposed merger until the Court rules on a motion for a preliminary injunction filed by the Federal Trade Commission (FTC). The FTC alleges that the merger would create a monopoly in violation of Section 7 of the Clayton Act in the purported DFS market. The TRO does not otherwise prevent DraftKings and FanDuel from individually continuing to host DFS competitions.
The preliminary injunction—and the FTC’s administrative complaint—largely turn on the question of whether DFS leagues are part of the same market as traditional fantasy sports leagues, or whether DFS leagues constitute a separate and distinct market. DraftKings and FanDuel constitute less than 5% of the traditional fantasy sports leagues, but over 95% of the daily fantasy sports (DFS) market. The FTC spends a significant portion of its complaint arguing that DFS leagues differ substantially from traditional fantasy sports leagues, most notably in their highly accelerated schedule—many DFS competitions conclude in a single day, rather than a full sports season—and the pricing mechanics of participating in competitions. Since DFS leagues rose to prominence in the past few years, the FTC’s proceeding presents a case of first impression for antitrust enforcement in the fantasy sports industry.
The FTC’s ongoing litigation with DraftKings and FanDuel suggests that the DFS industry has gained a measure of legitimacy. When it first emerged, the DFS industry faced repeated challenges from the U.S. Department of Justice, and the Attorneys General of New York, Texas, Mississippi, and Hawaii, who suggested that DFS may constitute illegal gambling. In contrast, the FTC’s lawsuit implicitly acknowledges the legitimacy of daily fantasy sports betting by recognizing the DFS industry as a legitimate market that can be regulated under US antitrust and competition laws. Accordingly, regardless of whether DraftKings and FanDuel prevail in this particular instance, the FTC’s suit suggests that the DFS industry may be here to stay.