The planned merger between daily fantasy leading operators DraftKings and FanDuel is off, the companies announced Thursday.
It's an abrupt end to a deal that many viewed as the best path forward for both companies, but also one that drew federal scrutiny and anti-trust concerns.
In November, DraftKings and FanDuel announced an agreement to merge after several years of heated competition. The Federal Trade Commission reviewed the proposed deal and, in June, along with attorneys general from California and the District of Columbia, filed suit to block the merger over competition concerns. Combined, DraftKings and FanDuel are believed to represent better than 90 percent of the daily fantasy market.
"The parties' decision to abandon this transaction is a clear win for American consumers," Markus H. Meier, Acting Director of the Bureau of Competition, said in a statement. "For years, the vigorous competition between DraftKings and FanDuel has spurred innovation and favorable pricing. In brief, consumers benefitted from the intense rivalry between the two leading players in this space. If this merger had been allowed to go through, those benefits would likely have been lost."
The companies, facing an expensive legal battle with the FTC, on top of several other ongoing suits, attempted to keep all options on the table. They filed legal briefs Wednesday in the FTC case, while simultaneously negotiating to terminate the merger.
"FanDuel decided to merge with DraftKings last November, because we believed that this deal would have increased investment in growth and product development thereby benefiting consumers and the greater sports entertainment industry," FanDuel CEO Nigel Eccles said in a statement Thursday afternoon.
"There is still enormous, untapped market opportunity for FanDuel, and we will continue to execute our strategy to grow our business and further expand the fantasy sports industry."
DraftKings CEO Jason Robins said in his statement announcing the merger's termination that calling it off was in the best interest of everyone involved.
"We believe it is in the best interests of our customers, employees, and investors to terminate our agreement to merge with FanDuel and move forward as a separate company," the statement said.
While executives remain publicly optimistic, the financial health for both companies is being questioned. Neither company has reached profitability, according to legal filings, and whether both DraftKings and FanDuel can survive as separate entities is unknown. A source familiar with the legal fees associated with fighting the FTC estimated costs for the companies could have been as much as $12 million-15 million. The companies elected not to take that gamble.
The timing of the withdrawal from the FTC suit also has spawned questions from legal experts, who noted the bulk of the costs associated with the case were already absorbed when the companies filed Wednesday's briefs.
"The timing of the withdrawal from the merger appears to indicate that there is more behind the decision than cost savings," Rachel Hirsch, an attorney for Washington, D.C.-based firm Ifrah Law who specializes in FTC investigations, told ESPN.
"Perhaps these companies were worried about the information that would be revealed at the [preliminary injunction] hearing and how that would tarnish their brands. Win or lose, at the end of the day, image is everything to these companies, and they couldn't afford adverse witnesses or data that could permanently impair their chances of recovering from a failed merger. One thing is for certain -- after a failed merger, it will no longer be business as usual for one or both of these companies."
A dozen states have passed legislation clarifying the legality of paid online fantasy sports in recent years. New Jersey Gov. Chris Christie is reviewing a bill that would regulate fantasy sports in the Garden State. Legislation also has advanced in Delaware, Maine and New Hampshire.
But DraftKings and FanDuel also are still fighting legal battles in other states in addition to a large class-action suit that is proceeding in federal court in Boston.
Sources closely following the attempted merger were not surprised by Thursday's decision by the two companies, who were trying to work together after years of cutthroat competition.
"If everyone is being honest with themselves, the merger was off the second the FTC's decision was announced," a source with close ties to the companies and their CEOs told ESPN. "Both companies can use the money that would have been spent on litigation on government affairs. ... I think it is a sign of their maturation. Rather than burn a pile of cash with little to show for it, use the money to continue to shore up any remaining concerns about legality in key states."
ESPN Senior Writer Don Van Natta contributed to this story.