After months of speculations and rumors that the deal was all but closed, we finally have confirmation that DraftKings and FanDuel will merge into one company.
The move is being called a “strategic merger of equals.” While the company isn’t yet announcing how the combined organization will be structured, we do know that DraftKings CEO Jason Robins will become CEO of the newly combined company and FanDuel CEO Nigel Eccles will become Chairman of the Board.
Interestingly, both brands will continue to operate on their respective sites “for the foreseeable future.” This may resolve the complicated question of what the new company would have been named, since it seemed neither DraftKings nor FanDuel wanted to part with their branding.
This dual-operating structure is similar to what GrubHub and Seamless did post-merger. While the two are one company, they both kept their consumer-facing platforms because many customers had strong brand loyalty to one or the other. This is similar with DraftKings and FanDuel — most users are strictly loyal to one or the other, especially because the product is essentially identical.
The merger is expected to close in 2017, and both platforms will remain totally separate through the 2017 NFL season, which is the most lucrative time of the year for both companies.
Merging has a few major benefits. First, the companies acknowledged that lobbying for legalization as a combined company will save time and money:
By combining and streamlining resources, FanDuel and DraftKings can work more efficiently and economically with state government officials to develop a standard regulatory framework for the industry. This will not only enhance the long-term growth prospects and improve sustainability for the combined company, but also make it easier for other players to enter and thrive in the market. — DraftKings and FanDuel
Previously, both companies had been spending separately to obtain the same goal — explicit legalization throughout the United States.
Another huge cost savings is advertising. The combined company won’t have to spend an arm and a leg on TV advertising and sponsorships. Over the last few years the two companies had spent hundreds of millions of dollars advertising against each other, which is definitely not good for business. Now that they won’t be competing for customers, the two companies can advertise smarter and more cost effectively.
These two things will allow the combined company to become profitable much faster, something that will please investors and potentially move them closer to an IPO.
Financial terms were not disclosed, and while it was an equal merger (with a rumored equal board of directors), it’s not yet clear how investors will fare.
To date DraftKings has raised $600 million and FanDuel has raised $416 million, putting the amount raised for the combined company more than $1 billion.
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