US Senators Mike Lee (R) and Peter Welch (D) have formally urged the Federal Trade Commission (FTC) and the Department of Justice (DOJ) to investigate leading sports betting platforms, DraftKings and FanDuel, for alleged anti-competitive behavior. In their December 5th letter, the senators expressed concerns that these companies might be leveraging their dominance in the sports betting market to suppress competition, particularly targeting smaller rivals. The letter underscores the growing scrutiny over the business practices of these industry giants and calls for federal oversight to ensure a fair and competitive market.

Allegations of Coordinated Anti-Competitive Actions

1. Leveraging the Sports Betting Alliance
DraftKings and FanDuel are accused of using their membership in the Sports Betting Alliance (SBA) to pressure businesses into avoiding partnerships with rival betting platforms. The senators suggest that the SBA has been repurposed as a tool for collusion rather than fostering healthy competition.

2. Acting as a De Facto Monopoly
Senators Lee and Welch allege that after their proposed merger was blocked in 2017, DraftKings and FanDuel have effectively behaved as a single entity. This conduct, according to the letter, violates antitrust laws by discouraging smaller operators from entering or competing in the market.

3. Market Influence Tactics
The senators accuse the companies of using their relationships with U.S. sports leagues, commercial partners, and payment processors to obstruct smaller competitors from gaining market access. These actions, they claim, create significant barriers for new entrants and limit consumer choice.

Dominance Since the 2017 Merger Block

1. Growth Post-Merger
Since the FTC blocked their merger in 2017, which would have handed the combined entity 90% control over the daily fantasy sports market, DraftKings and FanDuel have pivoted into the rapidly growing regulated sports betting market. Today, they are among the dominant players in this multi-billion-dollar industry.

2. Allegations of Suppression
According to the letter, their dominance may have enabled them to suppress smaller platforms through strategic influence over key market stakeholders, from sports leagues to vendors.

Broader Implications for the Industry

1. Barriers to Entry
The senators argue that the alleged practices by DraftKings and FanDuel hinder innovation and restrict market accessibility for smaller companies. This reduces competition and limits consumer choice, potentially resulting in higher costs for users and fewer innovations in product offerings.

2. Federal Oversight Needed
Lee and Welch emphasized that such practices warrant federal scrutiny, calling for the FTC and DOJ to intervene to ensure compliance with antitrust regulations and promote a level playing field in the sports betting sector.

Legal Challenges Add to the Pressure

1. DraftKings’ Lawsuit with the NFLPA
DraftKings is currently facing a $65 million lawsuit from the NFL Players Association (NFLPA) over unpaid fees related to the use of players’ likenesses in non-fungible tokens (NFTs).

2. FanDuel’s Recent Penalties
FanDuel has dealt with its own challenges, including a $10,000 fine in Massachusetts for taking prohibited bets on a Boston College basketball game and settling a dispute with the MLB Players Association over the use of player images.

Potential Regulatory Impact on the Industry

1. Heightened Scrutiny
If the FTC and DOJ decide to act on the senators’ request, it could mark the beginning of intensified regulatory oversight for the sports betting industry. DraftKings and FanDuel’s dominant market positions would likely come under closer examination.

2. Long-Term Implications
An investigation could reshape how sports betting companies interact with competitors, partners, and consumers. It may lead to increased transparency, reduced barriers for smaller operators, and more stringent compliance requirements.

FTC Inquiry Could be a Turning Point for the Sports Betting Sector

The call for a federal investigation into DraftKings and FanDuel highlights the growing concerns about monopolistic tendencies in the burgeoning sports betting industry. While neither company has commented on the allegations, the scrutiny adds to the mounting pressure they face from legal and regulatory challenges. For the broader sector, the outcome of such an investigation could redefine competitive practices, ensuring a fairer landscape for smaller operators and fostering innovation. As the FTC and DOJ consider their next steps, all eyes will be on how this pivotal case unfolds.