DraftKings, FanDuel Agree to Merge as Regulatory Pressures Weigh on Industry

The wait is over. Daily fantasy websites DraftKings and FanDuel on Friday agreed to merge. The companies didn't disclose terms of the deal, though they each had been reported to once carry valuations upwards of $1 billion.

The deal, which has been rumored for weeks, comes as the daily fantasy sports industry continues to wade through regulatory pressures state by state regarding the legality of the game.

"By combining and streamlining resources, DraftKings and FanDuel can accelerate work with government officials to continue to develop a standard regulatory framework," DraftKings said in the Friday statement.

The companies expected the deal to close in 2017. DraftKings CEO Jason Robins will serve in the same role at the newly combined company, and FanDuel CEO Nigel Eccles will become chairman. In addition to the chairman and CEO, the board will comprise three directors from DraftKings, three directors from FanDuel and one independent director.

Though the two largest daily fantasy websites are back by some heavy-hitting investors, the two have had to wade through issues on their own which pressured each company's finances.

"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," DraftKings said. "The merger will also help the combined company accelerate its path to profitability."

New York-based FanDuel is back by Kohlberg Kravis Roberts (KKR) , Alphabet's (GOOGL) Google Capital and Time Warner's (TWX) Time Warner Investments. Time Warner's Turner Sports as well as a number of National Football League and National Basketball Association team owners also back FanDuel. Other investors include Shamrock Capital Advisors, Comcast's (CMCSA) NBC Sports Ventures and Comcast Ventures, Bullpen Capital, Pentech Ventures and Piton Capital.

Boston's DraftKings is back by a litany of investors. They include Madison Square Garden (MSG) , New York merchant bank Raine Group and Kraft Group, which owns the New England Patriots.

The decline in the industry since it burst onto the sports scene also has been evident and may have been another motivation for the merger. 

In February, Rupert Murdoch's 21st Century Fox  (FOXA) revealed in a regulatory filing that it had marked down the company's $160 million investment in DraftKings by more than 60%.

"Between all of the lawsuits and the declining business, with a seeming inability to attract new money and a very high burn rate, given the advertising to gain market share, it makes a lot of sense," said Dan Etna of law firm Herrick Feinstein's sports practice.

Etna said he'd be surprised to see antitrust regulators block the deal given both the infancy of the industry and the struggles each company has endured over the past year or so. He also said he didn't expect Donald Trump's inauguration to affect the merger.

Wilson Sonsini Goodrich & Rosati, which represented KKR in its investment in FanDuel, once again represented FanDuel. Cooley represented DraftKings.

Orrick, Herrington & Sutcliffe's London-based partners Shawn Atkinson and Ed Denny led a team representing FanDuel shareholder Piton Capital. Orrick's U.S. public policy team represents FanDuel, DraftKings and the Fantasy Sports Trade Association in their efforts to secure legislation in various states permitting the fantasy sports industry to operate.

No bankers worked on the deal.

FanDuel and DraftKings did not immediately respond to requests seeking comment.

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