FanDuel’s shareholders take equity slice after failed merger

FanDuel’s shareholders take equity slice after failed merger

Tuesday, August 22, 2017 Posted by Andy McCarron
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Founders Nigel and Lesley Eccles have seen their share of company drop

When daily fantasy sports market leaders FanDuel and its major rival DraftKings called off their proposed merger in July after the US Federal Trade Commission (FTC) signalled it was ready to block the merger on competition grounds, it had an immediate effect for FanDuel’s shareholders.

According to newspaper reports, papers filed with Companies House in the UK show that FanDuel’s big ticket private equity owners including KKR and Shamrock Capital have seen the value of their investment increase at the expense of founders Nigel and Lesley Eccles. The husband and wife pair have also seen their voting rights curtailed.

At the time of the cancellation of the merger, Nigel Eccles – who is still the chief executive – remained bullish about the prospects for FanDuel and the wider sense daily fantasy sports sector in the US.

“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,” he said.

However, there has to be a doubt as to whether he will still be leading that fight after the details of the new shareholder arrangements became clear in the official postings last month.

The private equity interests behind the last two major fundraisings at FanDuel have seen their shareholdings bolstered in the wake of the merger failure. Shamrock Capital Advisors – the Los Angeles-based private equity house which led a $70m raise in 2014 - has received an extra share for every two shares previously held while KKR, which led a $275m fund raise in 2015, has received two extra shares for each share in its original holding.

While the number of shares awarded as part of management incentive schemes have been increased dramatically, their status as been demoted to deferred shares meaning they would be at the back of the queue for repayment should the company be liquidated.

According to the Herald newspaper report, KKR, Shamrock and some other shareholders including NBC Sports Ventures, Google Capital and Time Warner Investments have seen their shareholding increase to 71 percent from 54 percent before the merger collapse.

FanDuel is overdue on reporting its statutory results which should have been posted with Companies House by 30 June. The Edinburgh-based firm’s last results for the 18 months to June 2015 were published in May 2016. The company said in the period from June 2015 to May 2016 its cash balances had fallen back to $47.8m from $274m largely as a result of a surge in marketing spend at the time of the start of the 2015 NFL season.

Chatter regarding the financial health of FanDuel increased later in July when the company announced it was exiting the UK market after just a year, saying it was reallocating its resources to its US business.

Although DraftKings continues to operate into the UK, the FanDuel “hiatus” must cast a shadow over the hopes of those who believe fantasy sports can translate to the European market where legalised sports-betting is more freely available.

The industry continues to grow in the US, albeit at a slower rate than in previous years and with a cloudier regulatory backdrop. According to the most recent statistics from the Fantasy Sports Trade Association (FSTA) released at the end of June, the industry is now worth $7.22bn with 59.3 million US and Canadian players in the year to June, up 3 percent on the figure for 2015.

This apparent success – combined with the fact that between them FanDuel and DraftKings are believed to control well over 90 percent of the North American market between them – lies behind the FTC’s actions.

At the time of the decision to abandon the merger, Markus Meier, acting director of the Bureau of Competition, said the move was a “clear win for American consumers."

“For years, the vigorous competition between DraftKings and FanDuel has spurred innovation and favourable 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.”

Totally Gaming says:  At least until FanDuel’s most recent financial results are published, the consumer benefits remain in doubt. The regulatory backdrop is improving – Delaware become the most recent state to specifically legalise the activity – but with populous states such as Texas and Florida failing to pass bills this year a job of lobbying remains to be done and DFS’ future path is hard to assess.

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