For the second month running, the much-anticipated merger between FanDuel and DraftKings dominated daily fantasy news. We reported last month that the FTC was planning to sue to block the merger between the two fantasy giants. This month, FanDuel and DraftKings sent notice that merger talks are off.
In other news, Maine, Indiana, Delaware and Illinois are moving forward with plans to formally legalize and regulate daily fantasy sports. Indiana is the only one of those states with legislation already implemented; the other states are still working through the process with bills that are in various states of completion.
Today’s topics of discussion:
- FanDuel and DraftKings Terminate Merger Talks
- Daily Fantasy Sports Bill Moving Forward in Maine
- First DFS Licenses Granted in Indiana
- Report: DraftKings Has Had Operating Losses of $688 Million Since 2013
- How Illinois Can Relieve Budget Woes with DFS and Online Gambling
- House Bill Could Legalize DFS in Delaware
FanDuel and DraftKings Terminate Merger Talks
This news item got its own post yesterday, but it’s worth a quick mention again in our July news roundup in case you missed it. The short of it is FanDuel and DraftKings called off their merger talks yesterday.
The e-mails and statements from both companies didn’t go into their reasoning, but the most likely explanation is they decided to terminate merger talks due to the FTC’s decision to sue to block the merger. FTC action was always seen as the biggest risk to this deal due to FanDuel and DraftKings together accounting for upwards of 90% of the daily fantasy market. The FTC also noted that FanDuel and DraftKings are each other’s most significant competitor in the market.
This left FanDuel and DraftKings with the options of either giving up on the merger or fighting an expensive, uphill battle with the FTC. Both sites chose the latter and released statements yesterday afternoon simply stating they believe it will be “in the best interest of our shareholders, customers, employees and partners to terminate the agreement.”
Daily Fantasy Sports Bill Moving Forward in Maine
A bill making its way through the Maine legislature looks like it will be sent to the governor’s desk for his signature before becoming law. The Maine House passed LD 1320 on June 29th and sent it to the Senate, which is expected to approve the bill.
The biggest question is whether or not the Governor will sign the bill. If he vetoes the bill, lawmakers will have to go back and drum up more support to override the veto. A report from Maine Public casts some doubt on the bill’s ability to make it into law. Although the bill received enough support to make it this far, some lawmakers have been voicing strong opposition to the bill.
Maine Public also reports that Governor Paul LePage has not voiced his opinion of the bill, but has opposed gambling expansion through the construction of new casinos. This bill remains a wait and see thing for now.
If L 1320 does pass, it includes basic consumer protections such as identifying “highly experienced” players, prohibiting employees from participating, prohibiting athletes who participate in games included in contests from playing, establishing a minimum participation age of 18 and segregation of funds.
Daily fantasy operators with annual revenues of $100,000 or more will be required to pay a $2,500 licensing fee and 10% tax while operators with lower revenues will be exempt from both.
First DFS Licenses Granted in Indiana
Nearly a year after a licensing law took effect in Indiana, three daily fantasy sites have been approved to host real money games. FanDuel, DraftKings and FantasyDraft each received approval from the Indiana Gaming Commission on June 29th.
The Herald Bulletin reports that thirteen other daily fantasy operators also showed interest but failed to seek licenses during the temporary agreement they had with the state. A hefty $50,000 licensing fee may have dissuaded smaller operators from applying for an Indiana license.
The original version of the bill called for a licensing fee of just $5,000 with lawmakers saying they purposely set the fee that low in order to minimize barriers to entry. The bill that actually passed, however, upped that amount to $50,000.
As of July 1st, all non-licensed operators are required to block customers from Indiana. Officials also told the Herald Bulletin that the Indiana Gaming Commission will most likely not seek charges against state residents who play with unlicensed operator after July 1st. instead, the decision to seek gambling charges would be left with local prosecutors.
Report: DraftKings Has Had Operating Losses of $688 Million Since 2013
It has never been a secret that DraftKings is operating at a loss during its startup years, but recent financial documents put a number to those losses that is shocking. Since 2013, DraftKings has burned through $688 million as the company seeks to establish its brand here in the US and abroad.
Axios got ahold of documents related to the proposed merger between FanDuel and DraftKings, which include financials, valuations, risks and more. Inside those documents was a year-by-year breakdown of DraftKings financials. DraftKings has operated at a loss every year since 2013, and lost $509 million in 2015 (that was the year of the DraftKings ad overload that raised the ire of so many people).
Throughout all of 2016, DraftKings had revenues of $160 million but still suffered an operating loss of $92 million. DraftKings is still burning through cash, but it looks like the hemorrhaging has slowed. However, it will be interesting to see how DraftKings reacts now that the merger with FanDuel has been called off and both companies go back to competing for new customers.
It’s not all gloom and doom, however. Axios made the point that FanDuel valued itself at $1.2 billion and frequently called the merger a “merger of equals” in the documents. Thus, an educated guess would put DraftKings at a similar value in the range of $1.2 billion.
Axios was only able to confirm FanDuel 2016 revenues from January through October of last year, but based on what we can see, it looks like both companies were at least in the same ballpark for 2016 revenues.
How Illinois Can Relieve Budget Woes with DFS and Online Gambling
A white paper produced by gaming industry analyst and author Chris Grove projects Illinois could see hundreds of millions of dollars in new revenue if an online gambling bill currently sitting in the House becomes law.
The bill in question would legalize online gambling, online poker and daily fantasy sports while imposing licensing fees of $10 million in addition to imposing a 15% tax rate. There’s no doubt those are hefty sums, but if Chris Grove’s projections are anywhere near accurate, operators will be happy to go live in Illinois at that cost.
According to the white paper, online gaming of all types could see revenues in the range of $300 million in the first year alone and increase to nearly $400 million per year within five years.
Fees and tax revenues to the state are likewise projected to hit $140,000,000 in the first year alone as operators pay their startup fees. Years two and three would see dips to roughly $3 million and $15 million due to licensing fees being offset against future taxes paid, but state income from online gaming would rise to $62 million in year three and nearly $64 million in year four.
All told, Illinois would be looking at nearly $285 million in revenue within the first five years of legalization according to the report. And in a state with nearly $15 billion in unpaid bills, any source of easy revenue should be welcome.
House Bill Could Legalize DFS in Delaware
A bill making its way through the legislative process in Delaware could make daily fantasy sports legal once again. One year ago last week, the Delaware Department of Justice issued a statement explaining that fantasy sports contests violate existing state laws on gambling and kicked out all DFS operators.
To this day, FanDuel and DraftKings both include Delaware on their lists of restricted states. The bill seeks to implement consumer protection measures, collect annual licensing fees of $50,000 from each operator in Delaware and establish a 15% tax.
That bill passed the House at the end of June by a vote of 28-6. Delaware Online notes that this same bill did not make it to the Governor’s desk two years ago after reaching the General Assembly. However, the bill’s sponsor (Charles Potter) said he believes additional regulations this time around give the bill a greater chance to become law.