Rebecca Zisser / Axios

Federal antitrust regulators yesterday sued to block the proposed merger of fantasy sports sites DraftKings and FanDuel, leaving the two companies scrambling to decide whether to fight as partners or go their separate ways as rivals. As we wait, Axios has obtained a 106-page merger document circulated by FanDuel to its investors back in January, which includes company financials, valuations, risks and post-merger structures.

The jaw-dropping stat: Remember when every other ad during the 2015 NFL season was for fantasy sports? DraftKings lost over half a billion dollars that year.

Here are the highlights:

DraftKings audited GAAP financials:

  • 2013 revenue: $4 million
  • 2013 operating loss: $12 million
  • 2014 revenue: $30 million
  • 2014 operating loss: $75 million
  • 2015 revenue: $89 million
  • 2015 operating loss: $509 million
  • 2016 (Jan-Sept) revenue: $92 million
  • 2016 (Jan-Sept) operating loss: $103 million
  • Update: DraftKings emailed Axios to say its full-year 2016 revenue was $160 million with an operating loss of $92 million.

FanDuel audited GAAP financials:

  • 2016 revenue (Jan-Oct): $91 million
  • 2016 EBITDA loss (Jan-Oct): $59 million
  • Cash on hand at end of 2016: $30 million

Axios note: DraftKings raised over $100 million in new equity funding after this document was published. FanDuel also was in talks to raise new capital at the time, but a source says that those talks were later shut down as the company felt it had enough cash on hand to close the merger without accepting extra dilution. Now, however, those discussions may need to be reopened.

Valuation:

  • FanDuel says that its fully-diluted equity valuation was $1.2 billion, for purposes of the merger.
  • This would imply the same $1.2 billion valuation for DraftKings, given that the tie-up is repeatedly referred to in the document as a "merger of equals" — in terms of both voting rights and economic entitlements.

Transaction timeline:

  • Second half of 2015: Informal meetings between FD and DK management teams.
  • April 2016: Companies form special negotiating committees.
  • May 2016: Companies enter into non-binding letter of intent for a "merger of equals."
  • November 2016: Transaction agreement signed.

Why a merger of equals?

"The committees acknowledged that the two businesses are volatile, with significant seasonality and regulatory risk, and that both have different seasonal patterns due to differing marketing arrangements and sports coverage, which makes it difficult to measure accurately and compare the businesses at any particular point in time."

Pertinent risk factor, in light of FTC action:

"If completion of the Transaction does not occur, the value of FanDuel Shares as well as the FanDuel Group's ongoing business may be adversely affected, including as a result of (i) having to pay certain non-recurring transaction costs relating to the Transaction (including legal, advisory, accounting and other professional fees), and (ii) having to devote significant attention and resources of the management of FanDuel to the Transaction, instead of pursuing other business opportunities that could have been beneficial to the FanDuel Group."

Board structure: Were the merger to complete, the new company's board of directors would have nine members:

  • 3 shareholder reps for FanDuel: L Andrin Bachmann (Piton Capital), Michael LaSalle (Shamrock Capital), Ted Oberwager (KKR)
  • 3 shareholder reps for DraftKings: John Salter, (Raine Group), Hany Nada (GGV Capital) and Ryan Moore (Atlas Venture).
  • CEO, chairman and independent director
  • Also: Some existing shareholders such as the NBA and 21st Centuty Fox would have had indefinite board observer rights. Some other existing shareholders, namely Google Capital and Revolution Growth, would only have had board observer rights for a single year.

Both FanDuel and DraftKings initially declined comment when contacted by Axios, although DraftKings later provided its full-year 2016 revenue and operating loss.

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