DraftKings and FanDuel in talks to merge amid legal fights, as the two biggest daily fantasy sports sites have been fighting regulators in several states over the legality of their games

Photo: Bloomberg News
New York-based FanDuel is looking at the possibility of merging with DraftKings, headquartered in Boston.

DraftKings Inc. and FanDuel Inc., the two biggest daily fantasy sports companies, are in talks about a merger, according to people familiar with the situation.

Investors in DraftKings and FanDuel, which are privately held, have been pushing for a tie-up for some time, according to the people, who asked not to be identified as the discussions are private. The companies offer nearly identical products and spend a lot of money competing with each other; they also face the same legal challenges that threaten their business across the U.S.

No final transaction has been agreed, and the deal may still fall apart, the people said.

Representatives for DraftKings and FanDuel declined to comment via e-mail.

Roughly a year ago, the two companies were raising money from investors in sports, media and venture capital at valuations of more than $1 billion each. They have since been fighting regulators in several states who say their games amount to illegal gambling, and those valuations have dropped by about 50%, according to a separate person familiar with the matter.

DraftKings and FanDuel agreed to bar New York residents from entering paid daily fantasy sports contests in March, after Attorney General Eric Schneiderman mounted a high profile campaign against the businesses. The companies argue that their games are legal because they require skill, not just luck, and they have supported an expensive national lobbying effort to that effect.

The New York state legislature is expected to announce new regulations for the games soon, which would allow the companies to take entries from New Yorkers again. Schneiderman could still proceed with false-advertising claims and investigations of other potential consumer-protection violations, according to the agreement.

New York was the ninth state where DraftKings agreed not to accept paid entries. FanDuel has ended paid games in 10 states. The two companies took separate routes in Texas.

Investors in DraftKings include Madison Square Garden Co., and the Kraft Group, which owns the New England Patriots. FanDuel is backed by KKR & Co. and Time Warner Inc., among others.