The Federal Trade Commission plans to file a federal lawsuit to block DraftKings' merger with its New York competitor FanDuel, the U.S. agency announced on Monday.
"This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel."
The FTC said its two commissioners voted in favor of filing the lawsuit, which will be joined by the Attorneys General of the state of California and the District of Columbia. The announcement follows speculation from Recode last week that the FTC would reach a decision on the DraftKings-FanDuel merger.
DraftKings announced its plan to merge with FanDuel last November after the two rivals spent several months and significant resources to defend their businesses from various states against accusations that their games constitute gambling. Both companies have contended that their contests require skill and are not "games of chance." Together, the two companies have raised hundreds of millions of dollars from investors.
In the lawsuit, FTC said the merger would create the single largest provider of daily fantasy sports contests, not to be confused with other fantasy sports contests that run for larger periods. It has previously been reported that DraftKings and FanDuel would constitute more than 80 percent of the daily fantasy sports market.
While both companies have begun offering season-long fantasy sports contests that would put them in broader competition, the FTC said it argued in its lawsuit that consumers are unlikely to view the new product "as a meaningful substitute for paid daily fantasy sports, due to the length of season-long contests, the limitations on number of entrants and several other issues." The agency also said in its lawsuit that smaller daily fantasy sports companies are unlikely to "offset the anticompetitive effects of the merger."
"This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel," Tad Lipsky, acting director of the FTC’s Bureau of Competition, said in a statement. "The FTC is committed to the preservation of competitive markets, which offer consumers the best opportunity to obtain innovative products and services at the most favorable prices and terms consistent with the provision of competitive returns to efficient producers."
Shortly after FTC's Monday morning announcement, DraftKings CEO Jason Robins and FanDuel CEO Nigel Eccles issued a joint statement, saying that they are "considering all our options at this time."
"We are disappointed by this decision and continue to believe that a merger is in the best interests of our players, our companies, our employees and the fantasy sports industry," they said.
According to a memo obtained by The Boston Globe, DraftKings co-founder and COO Paul Liberman said the company plans to seek an injunction against the FTC's action.
Update: Here is a redacted version of the FTC's complaint, which was filed on Monday:
