By Alexandra Berzon,Dow Jones Newswires
The two leading fantasy sports companies are hammering out a merger deal, with DraftKings Inc. chief executive Jason Robins likely to stay on as CEO of the combined entity and rival FanDuel Inc. CEO Nigel Eccles serving as chairman, according to people familiar with the matter.
The companies have long been bitter rivals, but have been discussing a merger for months . Neither company has figured out how to be profitable, spending heavily on marketing and legal issues eating up revenue. The deal seems to be moving quickly but could still fall through, these people said.
Even combined, the companies are relatively small, with FanDuel taking in around $100 million in revenue last year. Together they account for the — estimated at around 4.5 million last year.
They have had an outsize presence due to heavy advertising and financial backing from major media and sports companies. FanDuel is backed by Comcast Corp., while DraftKings has investments from 21st Century Fox Inc.
21st Century Fox and News Corp, parent company of Wall Street Journal, share common ownership.
Both fantasy sports companies have come up with more money recently from investors. FanDuel raised about $55 million from existing funders in the form of convertible notes, according to a May filing. DraftKings in September raised around $150 million in new financing led by Revolution Growth.
The companies didn’t disclose their valuations in recent financing rounds.
The potential merger comes as football season, key to the daily fantasy sports industry, has so far been disappointing, compounding an already bleak financial picture, according to insiders and analysts.
One issue, according to a person involved in one of the companies, is that National Football League viewership overall is down.
The companies together spent upward of $500 million on advertising last year to try to build up their customer bases, but that backfired somewhat when it helped to lead to from several state attorneys general who said the sites violated state gambling laws. The companies have also faced civil lawsuits from consumers, as well as investigationby the U.S. Justice Department, previously reported by The Wall Street Journal and others.
The companies say their activity is legal and deny any wrongdoing, but were forced to pull out of some states, reducing their user base. They have pursued a heavy and expensive lobbying effort to try to convince state legislatures to explicitly legalize the activity.
The companies over the summer won a victory in New York’s legislature that allows them to operate there again. Last week they both agreed to pay $6 million to settle a yearlong legal battle in New York.
Both companies have cut down on their advertising this football season, which could also be contributing to the drop in users, according to analysts.
“There’s also cultural fatigue, the novelty wearing off, and backlash [due to] the idea that highly skilled players usually win,” said Chris Groves, an analyst who has closely followed the industry.
Both companies have sought to increasingly emphasize that their sites can be used for casual play by sports fans rather than as a way to win large sums of money.
FanDuel is the older company, but DraftKings came on in a particularly aggressive manner after launching in 2012. Analysts believe that they share many of the same users.
Many details of a merged company haven’t been worked out, including whether it would retain both brands or operate under just one of them, one person familiar with the matter said.
