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Proposed business partners in fantasy sports call off merger

New Jersey companies that are considering advancing their business goals by merging with or acquiring another company should make certain that the idea fits in with their corporate strategy and it is a viable plan. Mergers and acquisitions is an exceedingly complex area of the law with various aspects of it up for scrutiny from government regulators and resistance from shareholders. Companies that are thinking about an ambitious plan in this vein must be cognizant of what they are facing. One recent decision on the part of two large companies in the same business provides a window into the difficulty of such business maneuvers.

A proposed merger between two purveyors of fantasy sports - FanDuel and DraftKings - has come apart. The companies had announced the merger in late-2016, but there were numerous obstacles that were too difficult to overcome. The federal government was scrutinizing the agreement and there were concerns about violations of the antitrust laws. The merger had been blocked last month as the Federal Trade Commission conducted a review. Concerns centered around competition. The two companies are believed to have more than 90 percent of the fantasy sport market.

Pricing was believed to be kept in check with the two companies competing against one another. Were they to merge, the lack of competition could have led to higher prices and overwhelming market dominance that the government found unpalatable. While the sites are popular, information regarding their profitability indicates that neither company is making money. There is a question as to whether they can both survive as they currently stand. Daily fantasy sports faces regulatory issues as to whether it constitutes gambling or not, also muddying up the waters of this type of business. In New Jersey, there is a bill that is being reviewed to regulate fantasy sports. Other states have similar bills.

Companies that are considering a merger with a strong rival can take the struggles that were exhibited by the two fantasy sports companies and place them into their own context to determine if they would face similar issues as they try to combine. Having legal assistance is one of the most important factors in a business deal like this. Even though most companies are not as large and well-known as the fantasy sports businesses, they still need to have legal advice and protection and that is the first step to take before moving forward.

Source: espn.com, "Planned merger between DraftKings, FanDuel is off," David Purdum, July 14, 2017

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