Morning Report: The FanDuel-DraftKings Financial Crater

Morning Report: Remember when FanDuel and DraftKings advertisements were ubiquitous? Well, the two companies just got their merger blocked and Axios dished their financials. Guess what we’ll find!

FanDuel and DraftKings, two lavishly funded startups, want to merge. The government disagrees.

Earlier this week, the FTC “authorized legal action to block the merger of the two largest daily fantasy sports sites” on the grounds that allowing such a combination would create an entity in control of “more than 90 percent of the U.S. market for paid daily fantasy sports contests.” In antitrust terms, the argument seems nigh-elementary.

Simple or not, it’s a problem for FanDuel and DraftKings, companies that have raised $416.2 million and $715.05 million apiece, respectively. Why? Because they spent most of it and are still deeply in the red. In part due, it’s simple to posit, because they spent, and continue to spend spend, heavily to compete with one another.

Dan Primack, everyone’s favorite inbox guest, broke news this morning concerning the two companies’ financial performance. The published data includes DraftKings’ results going back to 2013, and, according to his recent Axios report, part of FanDuel’s 2016 performance.

As you expected, the numbers are incomplete. For DraftKings, we have operating losses, instead of GAAP net income. And for FanDuel, the partial 2016 data includes only EBITDA losses. Adjusted metrics or not, the numbers are what Primack describes as “audited GAAP financials,” so we are likely in decent shape to trust the figures, despite their inherent incompleteness from a profit perspective.

And, the fact that we only have partial information doesn’t mean that we can’t graph the bloodbath:

That 2015 result is bonkers. Spending that sum of money to not even double revenue seems steep. Sure, the firm has improved its operating margins, but at simply massive cost. This may be a real business, but it’s growth sure as heck wasn’t very efficient.

Here’s the little we learned regarding FanDuel:

Primack goes on to report that the companies were both to sport $1.2 billion valuations in the merger. That feels slightly optimistic, but perhaps improving margins were enough to convince the companies that together they had a shot at being a multi-billion dollar firm if they joined at the hip.

However, at $1.2 billion apiece, they are only worth around twice what they have raised. And that’s not a wildly amazing result.

From the Crunchbase Daily:

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