DIS Walt Disney Co

Two major daily fantasy sports sites, DraftKings Inc. and FanDuel Inc., said they have agreed to set aside years of bitter rivalry and become one as they face down continuing regulatory and legal challenges to their industry.

The two companies, which together spent upward of $500 million on advertising last year to try to build unique brands, had been talking about merging for months, with those talks accelerating in the last few weeks.

As expected, DraftKings Chief Executive Jason Robins will serve as CEO of the new company, while FanDuel CEO Nigel Eccles will be chairman of the board. The new board will also comprise three directors from FanDuel and three from DraftKings, with the company's headquarters divided between New York and Boston offices. The deal is expected to close in the second half of 2017.

The companies haven't yet decided what brand they will operate under, or if they will maintain both brands. They are not disclosing their valuation, which is expected to have dropped precipitously in the last year in the wake of regulatory and legal challenges.

Even combined, the companies are relatively small, with FanDuel taking in around $100 million in revenue last year.

They have had an outsize profile due to heavy advertising and financial backing from major media and sports companies. FanDuel is backed by Comcast Corp., while DraftKings has investments from 21st Century Fox Inc.

21st Century Fox and News Corp, parent company of The Wall Street Journal, share common ownership.

Their massive advertising outlays last year backfired somewhat when they helped to lead to regulatory and legal probes by several state attorneys general who said the sites violated state gambling laws. The companies, which deny any wrongdoing, have also faced civil lawsuits from consumers, as well as investigations by the U.S. Justice Department, previously reported by the Journal and others.

The challenges caused them to pull out of several key states, including Illinois and, in the case of FanDuel, Texas.

The companies over the summer won a victory in New York's legislature that allows them to resume operating there; they'd shut down in March after being sued by the state's attorney general. They have lobbied heavily to try to convince state legislatures to explicitly legalize the activity. Ten states so far have explicit laws recognizing the legality of fantasy sports.

Neither company has figured out a business plan to become profitable. They both cut back significantly on advertising during the current football season as legal and lobbying bills have stacked up, painting a bleak financial picture, according to insiders and analysts.

The advertising cuts have even had ripple effects across the sports media industry. Last week, executives at Walt Disney Co. told investors that a "significant" decrease in advertising from fantasy firms during the quarter ended Oct. 1 contributed to a 13% decline in ESPN ad revenue.

The sites decided that the solution was to merge their legal and regulatory efforts to save costs and get on the same page with their strategy going forward, according to Scott Sher, an attorney for FanDuel.

Mr. Sher said Thursday he is expecting the deal to undergo an antitrust review by the Federal Trade Commission but doesn't believe that will pose a problem. The companies account for the vast majority of daily fantasy sports players, which they estimate to number around 5 million.

Still, they don't think they will have any issues because daily fantasy sports—which allows players to assemble virtual teams and get results at a fast clip—is part of a broader fantasy sports universe, Mr. Sher said. Websites like Yahoo, ESPN and NFL.com operate season-long fantasy sports leagues and could enter the daily fantasy sports space once regulatory and legal issues are resolved, Mr. Sher said. The sites will also be competing against the season-long fantasy sports sites to acquire new users, Mr. Sher said, which will keep them competitive in both pricing and innovation.

"It only is successful if they can grow and capture users" from people playing other sites, Mr. Sher said.

Erich Schwartzel contributed to this article.

Write to Alexandra Berzon at alexandra.berzon@wsj.com

(END) Dow Jones Newswires

November 18, 2016 10:05 ET (15:05 GMT)

Walt Disney (NYSE:DIS)
Historical Stock Chart
From Mar 2024 to Apr 2024

Walt Disney (NYSE:DIS)
Historical Stock Chart
From Apr 2023 to Apr 2024