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Horns of a dilemma for one of Scotland’s unicorns

Terry smiling headWhen it came to the ultimate gamble, sorry that should be ‘game of skill’, FanDuel and DraftKings decided not to place their bets on a merger.

The two fantasy games companies killed off their tie-up at the end of last week after months of trying to persuade regulators, politicians and lawyers that it would not create a monopoly that could control prices.

Nigel Eccles, the Northern Irishman who launched FanDuel in Edinburgh in 2009 with his wife Lesley and a bunch of friends, gave up on the plan after admitting it was not in the interest of shareholders, customers, employees and partners.

More to the point, the Federal Trade Commission threatened yet more legal action against two companies who were already facing an estimated $15 million legal bill in one of the world’s most litigious countries. It’s a fair assumption that Mr Eccles and his counterpart at DraftKings Jason Robins had lost their appetite for the fight.

Daily fantasy sports remains a grey area. Different states have different rulings about whether or not it is illegal gambling. The companies are working with the authorities to draw up new consumer rights which they hope will help persuade them that it is safe to continue.

Aside from that little conundrum, the two companies hoped the merger would solve their money problems. Despite the enormous sums spent by players, neither has made a profit.

If they needed a merger to ease their financial pressures, then the failure of that merger has inevitably raised questions about how they intend to push on as independent companies.

When the merger was proposed, many antitrust experts said it was incumbent on the companies to prove their businesses could not survive without combining.

“We certainly feel that next year will be a break-even year for us,” Eccles told the media last week just a day before he and Robins were due to announce details of how they would fight the FTC.

Amid talk of a flotation in 2015, Eccles told Daily Business that the company would make a profit it it was not investing so much in marketing. At that time FanDuel was one of the top five television advertisers in the US.

That same year New York Attorney General Eric Schneiderman opened an inquiry into how the companies would prevent fraud after it was revealed that a DraftKings employee had released information before the start of the week’s NFL games and won $350,000 on a FanDuel game the same week.

That led to some internal rule-making on employees competing in games, but the incident only added to the debate over their legality.

Nigel and Lesley Eccles relocated to New York – where the company has been headquartered for some time – as they needed to be in day-to-day proximity to the authorities and lawyers and develop a new marketing strategy.

While they insist it will be business as usual once the American football season kicks in, there will be intense focus on whether the two companies can indeed prove they can survive without merging.

Daily Business revealed in April that FanDuel had dropped its planned relocation to new offices in Edinburgh’s Quartermile, an early indication of the need to draw in the horns of a company held up as one of Scotland’s two unicorns (companies valued at $1 billion).

Some insist it is still worth a billion dollars, though Mr Eccles’ biggest priority over the next year is likely to be focused on turning that first profit.

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FanDuel and DraftKings abandon merger plan

 

 

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