DraftKings (NASDAQ: DKNG) and FanDuel are facing accusations from both parties of potential collusive actions that might breach US antitrust regulations. 

In a correspondence to Assistant Attorney General Jonathan Kanter and Federal Trade Commission (FTC) Chairwoman Lina Khan, Senators Mike Lee (R-UT) and Peter Welch (D-VT) assert that since their merger was prevented in 2016, DraftKings and FanDuel have participated in anti-competitive practices.

"After their merger to monopoly was blocked, it seems that FanDuel and DraftKings have arguably acted as one company, violating our antitrust laws…and have undertaken a coordinated effort to pressure crucial business partners not to do business with these new players,” wrote the senators.

California, the District of Columbia, and the FTC worked to prevent that union, which was sought before the 2018 Supreme Court decision regarding the Professional and Amateur Sports Protection Act (PASPA). That choice opened the door for states to determine their own regulations on legalizing sports betting. At present, various types of sports wagering are permitted in 39 states along with Washington, DC. 

Senators Claim DraftKings, FanDuel Aim to Eliminate Rivals 

Following the PAPSA decision, DraftKings and FanDuel capitalized on their established dominance in daily fantasy sports (DFS) to secure a clear competitive edge in online sports betting. 

Currently, the two operators are often referred to as a duopoly, which is correct since they account for over 70% of the mobile sports bets made in this nation. In almost every state where both companies provide mobile sports betting, they hold the top two positions by market share. Lee and Welch stated that DraftKings and FanDuel "could be exacerbating these harms due to anticompetitive behavior." 

The US sports betting industry has many competitors to DraftKings and FanDuel; however, the senators informed Kanter and Khan that they think the two giants are hesitant to compete with others purely on the quality of their services. Referencing public reports, the politicians asserted that DraftKings and FanDuel are collaborating with the Sports Betting Alliance to eliminate rivals. 

The senators informed the regulators of reports indicating that the two giants exert pressure on rivals “to hinder market access” and there is proof of meddling with competitors’ “connections to major sports leagues, marketing partners, payment processors, and other essential vendors.” 

Investors Prepare for Effects 

Following the senators’ letter, it was an unstable day for the stocks of DraftKings and FanDuel's parent company, Flutter Entertainment (NYSE: FLUT). Earlier in Friday's trading, DraftKings dropped by as much as 7%, while Flutter fell by as much as 4%. DraftKings decreased by 1.29% while Flutter ended the day with a small increase. 

Lee and Welch pointed out to Kanter and Khan that their agencies aim to safeguard consumers from the anticompetitive actions they claim the gaming companies are involved in. 

The question now is whether the new leadership at the FTC and Justice Department will look into an investigation of DraftKings and FanDuel. As President-elect Trump prepares to assume office next month, Kanter and Khan are expected to transition out, and it's uncertain whether their replacements are keen on continuing the inquiry proposed by Lee and Welch.