Impending DraftKings-FanDuel Merger Won't Move the Needle on Ad Spend

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Credit: DraftKings
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After having invested hundreds of millions of dollars in an effort to steal market share from one another, DraftKings and FanDuel appear to be on the verge of settling their differences, and thereby consolidating their media spend.

According to multiple sources familiar with the negotiations, the two companies are on the verge of hammering out the terms on a long-speculated merger that would give the conjoined DraftKings-FanDuel entity a stranglehold on as much as 95% of the daily fantasy sports market. Both companies are said to be fully prepared to address any potential regulatory misgivings should they arise.

ESPN first reported that the merger was imminent on Oct. 28.

While details about the newly configured DraftKings-FanDuel mashup remain scant, sources said that DraftKings cofounder and CEO Jason Robins is expected to serve as chief executive of the hybrid outfit, while FanDuel co-founder-CEO Nigel Eccles will be named chairman of the board. The location of the company's headquarters -- FanDuel is based in Times Square, while DraftKings' offices are in downtown Boston -- remains to be determined.

A formal announcement of the merger could arrive this week, although DraftKings shrugged off the topic in a statement. "As we have stated previously, a potential combination would be interesting to consider," a DraftKings spokesperson wrote. "However, as a matter of policy, we don't comment on rumors or speculation, and there can be no assurances at this time that any discussion about a combination would result in an agreement or merger."

Word of the merger comes a week after the two firms agreed to pay $6 million each to settle lawsuits brought by New York Attorney General Eric Schneiderman alleging they'd engaged in false and misleading advertising practices. The Empire State in August ruled that the services provided by DraftKings and FanDuel did not conflict with its prohibitions on illegal gambling, and that the two companies could resume business under the jurisdiction of the New York State Gaming Commission.

At this stage in the game, it's not entirely clear how the emergence of a mega-DFS company would impact the advertising market. On the one hand, with the arms race settled, the impetus that propelled a good deal of DraftKings' and FanDuel's year-ago TV spend effectively vanishes. On the other hand, the melded entity is likely to turn to big-reach televised sports in order to get out the word on its new brand and/or a concomitant upgrade in the end-user experience, more generous payouts, etc.

However things shake out, TV ad sales executives aren't holding out hope for a return to the DFS gold rush of last fall. According to iSpot.tv estimates, DraftKings and FanDuel between Sept. 1 and Nov. 1, 2015, spent a combined $192.8 million on national TV inventory, with nearly half of that investment (47%, or $90.3 million) going toward securing in-game spots in NFL broadcasts. In the same two-month period in 2016, their combined TV spend added up to a mere $15.7 million, a 92% decline compared with the year-ago period. (DraftKings this season has eschewed pricey in-game NFL spots altogether, while FanDuel has slashed its in-game spend to $3.29 million, down from last fall's $55.9 million outlay.)

As they brought an end to their free-spending ways, both companies late last summer also began to reshape their commercial messaging, seeking to place greater emphasis on how DFS amplifies the fun of watching live sports while all but burying the get-rich-quick come-ons that were a cornerstone of their respective 2015 campaigns.

Year-to-date, DraftKings has spent $14.2 million on national TV inventory, per iSpot.tv estimates, down 91% compared with the $149.6 million it shelled out during the first 10 months of 2015. FanDuel's TV spend has dropped 92% to $9.85 million, compared with its year-ago splurge of $123.4 million.

If the drastic reductions in ad spend reflect a major shift in their respective customer-acquisition strategies, there also can be little doubt that the costs associated with waging a legal battle with the likes of New York State have contributed to DraftKings' and FanDuel's less-frenzied approach to marketing. For their part, network ad sales execs say they saw this coming a long time ago.

"You didn't have to be Jimmy the Greek to know that the smart bet was on the spend drying up," cracked one sales boss. "That sort of investment for a couple of first-time [national TV] players was unprecedented … and unsustainable."