The two largest daily fantasy sports companies, FanDuel Inc. and DraftKings Inc., are in early-stage talks to merge, people familiar with the matter said on Monday, as the industry faces a crackdown by U.S. states over whether it runs illegal gambling.
The two sources said that no deal is certain and asked not to be identified because the negotiations are confidential. FanDuel declined to comment. DraftKings did not immediately respond to a request for comment.
The multibillion-dollar fantasy sports industry has drawn increased attention since last year, with the attorneys general of several states including New York, Illinois and Nevada questioning the legality of the games.
A deal could reduce legal costs for the two firms, which have had to defend themselves against the legal challenges as well as lobby for legislation to make the games legal in states that have declared them illegal gambling.
It could also lower their advertising budgets. The companies have spent aggressively against each other in the past few years as they battled for market share. For instance, Bernstein research estimated that 59 percent of total U.S. television ad revenue growth in the third quarter of last year was from spending on daily fantasy football ads.
FanDuel and DraftKings agreed in March to halt their business in New York, betting on a legislative path to make the games legal after a months-long fight with the state’s attorney general, Eric Schneiderman.
The state’s Senate and Assembly are both considering bills on the games, but have yet to pass final legislation.
Fantasy sports, which started in 1980 and has surged in popularity online, allows participants to create fictional teams of athletes from professional sports leagues. The better a chosen athlete performs in real life, the better the player’s fantasy team does.
Daily fantasy sports, a turbocharged version of the season-long game, has exploded in popularity over the past decade. Players draft teams in games played in just one evening or over a weekend.
Bloomberg News first reported on the merger talks between FanDuel and DraftKings.