DraftKings (NASDAQ: DKNG) and FanDuel are facing bipartisan allegations of collusive actions that might breach US antitrust regulations.
In a correspondence to Assistant Attorney General Jonathan Kanter and Federal Trade Commission (FTC) Chairwoman Lina Khan, Senators Mike Lee (R-UT) and Peter Welch (D-VT) assert that following the obstruction of their 2016 merger, DraftKings and FanDuel have participated in anticompetitive practices.
"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 worked to prevent that union, which was sought before the 2018 Supreme Court decision on the Professional and Amateur Sports Protection Act (PASPA). That choice opened the door for states to determine their own policies on legalizing sports betting. Currently, various types of sports betting are permitted in 39 states and Washington, DC.
Senators Claim DraftKings, FanDuel Are Trying to Eliminate Rivals
Following the PAPSA decision, DraftKings and FanDuel utilized their prior dominance in daily fantasy sports (DFS) to secure a clear competitive edge in the realm of online sports wagering.
Currently, the two companies are frequently referred to as a duopoly, which is correct since they manage over 70% of the mobile sports bets made in this nation. In almost all the states where both companies provide mobile sports betting, they hold the first and second positions in market share. Lee and Welch stated that DraftKings and FanDuel “could be intensifying these harms via anticompetitive actions.”
The US sports betting landscape has plenty of rivals to DraftKings and FanDuel, yet the senators informed Kanter and Khan that they believe the two giants are not keen on competing with competitors based on the quality of their services. Referencing public documents, the politicians asserted that DraftKings and FanDuel are collaborating with the Sports Betting Alliance to eliminate rivals.
The senators informed the regulators that reports indicate the two giants exert pressure on competitors “to hinder market access” and that there is proof of meddling with rivals’ “connections to major sports leagues, marketing partners, payment processors, and other essential vendors.”
Investors Prepare for Effect
At the reverse side of the senators’ letter, it was an unpredictable day for the stocks of DraftKings and FanDuel's parent company Flutter Entertainment (NYSE: FLUT). In the earlier part of Friday's session, DraftKings fell by as much as 7%, while Flutter dropped by as much as 4%. DraftKings dropped by 1.29%, whereas Flutter ended the day with a minor increase.
Lee and Welch reminded Kanter and Khan that their organizations are intended to safeguard consumers against the anticompetitive actions they allege the gaming companies are participating in.
The question now is whether the new leadership at the FTC and Justice Department will contemplate an inquiry into DraftKings and FanDuel. As President-elect Trump prepares to assume office next month, Kanter and Khan are expected to depart, and it remains uncertain whether their successors will be inclined to continue the inquiry proposed by Lee and Welch.