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The U.S. government will try to block FanDuel and DraftKings from merging

The coming challenge from the FTC is a major blow for the daily fantasy sports sites.

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The Federal Trade Commission will file a lawsuit to block the proposed merger of FanDuel and DraftKings, dealing a major blow to two companies that sought to combine in order to remedy their shared business and regulatory woes.

First proposed in 2016, the tie-up of FanDuel and DraftKings would have granted the two companies — already the top-two daily fantasy sports websites in the United States — perhaps more than 90 percent of that particular market, according to the government’s own estimates.

Such a dominant position had weighed heavily on legal staff reviewing the deal at the FTC — as Recode first reported last week — leading the agency’s antitrust investigators to recommend the FTC vote in opposition to the merger. In the end, both the FTC’s acting Republican chairman, Maureen Ohlhausen, and her Democratic colleague, Commissioner Terrell McSweeny, agreed to challenge the deal.

“This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel,” said Tad Lipsky, the acting leader of the FTC’s Bureau of Competition, in a statement Monday.

In their own short statement, FanDuel and DraftKings responded: “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. We are considering all our options at this time.”

The two daily fantasy sports sites, once bitter rivals, began pursuing a tie-up last November, particularly as regulatory pressures — from an investigation and shutdown in New York to political scrutiny by the U.S. Congress — continued to mount. Meanwhile, reports at the time suggested FanDuel and DraftKings had been suffering from severely diminished cash flow.

With their merger, however, the challenge at the FTC had been defining the scope of their market.

In the realm of daily fantasy sports — weekly bets and cash prizes based around athletes’ performance — FanDuel and DraftKings are the top two platforms. Combined, they would have served more than 80 percent a market where consumer spending worldwide could reach $5.3 billion by 2021, according to an estimate by Jupiter Research.

But the companies in 2016 began to offer other contests, like year-long fantasy football leagues, which helped FanDuel and DraftKings argue that they competed with a much broader universe of companies — including ESPN and Yahoo, which offer more casual fantasy sports leagues. The argument did not appear to sway the FTC’s economics and antitrust investigators, sources say.

Additional reporting by Kurt Wagner.


This article originally appeared on Recode.net.