DraftKings (NASDAQ: DKNG) and FanDuel are drawing bipartisan accusations of collusive behavior that could violate US antitrust laws.
In a letter to Assistant Attorney General Jonathan Kanter and Federal Trade Commission (FTC) Chairwoman Lina Khan, Sens. Mike Lee (R-UT) and Peter Welch (D-VT) say that since their 2016 merger was blocked, DraftKings and FanDuel have engaged in anticompetitive behavior.
After their merger to monopoly was blocked, it seems that FanDuel and DraftKings have arguably acted as one company, violating our antitrust laws…and have undertaken a coordinated effort to pressure crucial business partners not to do business with these new players,” wrote the senators.
California, the District of Columbia, and the FTC fought to block that marriage, which was attempted prior to the 2018 Supreme Court ruling on the Professional and Amateur Sports Protection Act (PASPA). That decision paved the way for states to make their own decisions on legalizing sports wagering. Today, some form of sports betting is allowed in 39 states and Washington, DC.
Senators Say DraftKings, FanDuel Moving to Quash Competitors
Since the PAPSA ruling, DraftKings and FanDuel leveraged their previously established dominance in daily fantasy sports (DFS) to gain a decided competitive advantage in the world of online sports betting.
Today, the two operators are widely described as a duopoly and that’s accurate because they control more than 70% of the mobile sports wagers placed in this country. In nearly all of the states in which both companies offer mobile sports betting, they rank first and second by market share. Lee and Welch wrote that DraftKings and FanDuel “may be compounding these harms through anticompetitive conduct.”
The US sports betting market doesn’t lack for competitors to DraftKings and FanDuel, but the senators told Kanter and Khan that they believe the two behemoths are unwilling to compete with rivals based on the merits of their offerings. Citing public reports, the politicians claimed DraftKings and FanDuel are working with the Sports Betting Alliance to quash competitors.
The senators told the regulators there are reports suggesting the two giants pressure rivals “to stymie market access” and there is evidence of interference with competitors’ “relationships with major sports leagues, marketing partners, payment processing companies, and other critical vendors.”
Investors Brace for Impact
On the back of the senators’ letter, it was a volatile day for shares of DraftKings and FanDuel parent Flutter Entertainment (NYSE: FLUT). Earlier in Friday’s session, DraftKings was lower by as much as 7% while Flutter was down as much as 4%. DraftKings closed down 1.29% while Flutter finished the day with a slight gain.
Lee and Welch reminded Kanter and Khan that their agencies are designed to protect consumers from the anticompetitive behavior they accuse the gaming companies of engaging in.
The issue now becomes whether or not new leadership at the FTC and Justice Department will consider an investigation into DraftKings and FanDuel. With President-elect Trump slated to take office next month, Kanter and Khan will likely be moving on and it’s not clear if their successors are interested in pursuing the investigation suggested by Lee and Welch.
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