A recent federal petition against DraftKings and FanDuel has stirred up controversy, but US investment bankers Stifel Financial Corp are dismissing the claims as having little validity. Stifel’s Managing Director Equity Research Jeffrey Stantial believes the petition calling for an investigation into anticompetitive practices by the two brands has a “negligible risk of enforcement.” The petition was authored by Senators Mike Lee and Peter Welch, who believe that DraftKings and FanDuel may have collaborated to limit competition in the sports betting industry.
The senators claim that the two brands may have acted as one company, but Stifel analysts have dissected the accusations and found them to be lacking in evidence. The letter from the senators suggests that DraftKings colluded with its New York counterpart through their Sports Betting Alliance (SBA) link, leading to regulatory actions against certain daily fantasy sports games in some states. However, Stantial and Legal Sports Report have both found the source information cited in the petition to be questionable.
In 2017, the FTC blocked a merger between DraftKings and FanDuel, citing concerns that the combined company would dominate the US DFS market. Despite this history, Stantial believes that the current accusations against the two brands have little merit. He points out that DraftKings’ attempt to implement a tax surcharge on sports bet winnings in high-tax states was met with resistance from FanDuel and other sportsbooks, indicating that the two brands may not be as closely aligned as the senators suggest.
Stantial also notes that the upcoming transition in FTC leadership could further reduce the likelihood of enforcement action against DraftKings and FanDuel. With Andrew Ferguson set to replace Lina Khan as FTC Chair, there is speculation that the commission may take a lighter approach to antitrust enforcement. Khan, during her tenure, blocked several corporate takeovers and filed lawsuits against Amazon and Meta for alleged antitrust violations. However, with her impending departure, it is possible that the FTC under Ferguson’s leadership will be less aggressive in pursuing anticompetitive practices.
Overall, Stifel Financial Corp’s analysis suggests that the claims made in the federal petition against DraftKings and FanDuel may be unfounded and unlikely to result in any significant enforcement action. Despite the initial drop in share prices for both companies following the news, it appears that the market is not overly concerned about the potential impact of the allegations.