In a striking development for the world of daily fantasy sports and online sports betting, lawmakers in Washington are urging antitrust regulators to investigate FanDuel and DraftKings for allegedly coordinating to stifle competition. 

A letter to the Federal Trade Commission and Department of Justice from Sens. Mike Lee (R-Utah) and Peter Welch (D-Vt.) accuses the two sports betting giants of leveraging their dominant market positions to block smaller rivals from accessing crucial business partnerships.

FanDuel and DraftKings, which together allegedly control 80% of the online sports betting market, are no strangers to antitrust scrutiny. A proposed 2017 merger was blocked by the FTC due to concerns it would virtually eliminate competition in the daily fantasy sports space, the letter from Lee and Welch says. These senators are now warning the companies may be circumventing those legal roadblocks through backroom agreements, allegedly pressuring third parties to sever ties with up-and-coming competitors.

This alleged behavior could have far-reaching implications — not just for the daily fantasy sports market but for antitrust enforcement in emerging digital industries. By targeting their competitors' access to technology and marketing resources, FanDuel and DraftKings may be creating barriers that stifle innovation, reduce consumer choice, and consolidate their dominance.

The case raises an urgent question: Can U.S. antitrust laws prevent firms from achieving through collusion what courts have barred through mergers? As the DOJ and FTC consider next steps, the outcome could set a critical precedent for applying anti-competition law in the digital age.

The evolving case law

The basic text of the 1890 Sherman Antitrust Act broadly prohibits any attempt by a company to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States.”

The classical case for antitrust law — Standard Sanitary Mfg. Co. v. United States — held that for sufficient collusion in violation of the Sherman Act, one must demonstrate a manifested agreement. In Standard Sanitary, the Supreme Court found that a combination of manufacturers and jobbers (a wholesaler), which fixed prices and standardized trade practices, violated the Sherman Act. Violating the act required evidence that the manufacturers and jobbers engaged in a manifestation of intent to form an agreement between the users of the tool, as evidenced by interaction between the users.

Some courts have recently taken a more skeptical examination of antitrust allegations for collusion. Judge Richard Posner on the 7th Circuit, for example, writes in In Re Text Messaging Antitrust Litigation that allegations against a corporation for a violation of the Sherman Antitrust Act must not only be a possibility of collusion, but also plausibility — that is, an allegation cannot be met by sheer speculation of circumstantial evidence. Some economically “irrational behavior” such as abnormal pricing, Judge Posner tells us, can be evidence of collusion; but mere “parallel behavior… standing alone… is not proof of [collusion].”

A recent district court case, Gibson v. Cendyn Group LLC, also suggests a trend towards suspicion of antitrust allegations. An examination of Gibson provides a useful analogy to current case law. In Gibson, the district court addressed whether Cendyn and several Las Vegas Strip hotel operators violated Section 1 of the Sherman Antitrust Act by allegedly engaging in a conspiracy through pricing software.

The plaintiffs claimed that this software facilitated a hub-and-spoke arrangement that artificially inflated hotel room rates. However, the court identified critical flaws in this claim. First, the plaintiffs did not sufficiently allege that the hotel operators entered into explicit or tacit agreements to follow Cendyn’s pricing recommendations. The software provided flexibility, allowing users to accept or override recommendations. The court concluded that mere usage of the same software does not constitute an agreement in violation of the Sherman Act. Second, the adoption of Cendyn’s software occurred over a 10-year span, which made it unlikely that the hotels engaged in a coordinated effort or simultaneously adopted the tool for price-fixing. The court contrasted this scenario with precedents where uniform adoption of pricing strategies in a short timeframe suggested collusion. 

Third, the plaintiffs failed to allege that the software facilitated the sharing of confidential or non-public pricing data among the hotels. Instead, the court noted that the software relied on publicly available pricing data, which does not violate antitrust law. And fourth, the hotels were under no obligation to implement Cendyn’s pricing recommendations and often chose to override them. This autonomy in pricing decisions indicated independent, rather than coordinated, conduct.

What Gibson demonstrates is the district courts increasing hesitancy to broadly apply the Sherman Antitrust Act, especially compared to Standard Sanitary Mfg. Co. v. United States. 

Applying the case law

The exact pattern of alleged behavior has not been submitted to court yet; however, there are several possible factual and legal analogies that can be made.

The Senate's letter to the FTC and DOJ alleges that FanDuel and DraftKings have engaged in a hub-and-spoke conspiracy by leveraging their trade association, the Sports Betting Alliance (hub), to pressure third-party technology providers and marketing partners (spokes) into withholding services from smaller DFS competitors.

Unlike the failed allegations in Gibson where there was no proof of coordinated adoption of pricing practices, the Senate letter claims FanDuel and DraftKings acted through the Sports Betting Alliance to orchestrate deliberate pressure on partners. If substantiated, this coordination would satisfy the requirement of an agreement between the hub and the spokes.

A key element missing in Gibson was evidence of confidential information sharing. The Senate letter, however, implies that coordination through the trade association may involve non-public agreements or arrangements that obstruct competition. Investigators would need to establish whether such exchanges occurred.

Moreover, unlike Gibson, where independent discretion undermined allegations of collusion, the Senate letter highlights how even modest obstructions to partnerships or access to capital could delay market entry and harm smaller competitors. If these practices are proven, they could constitute anticompetitive behavior by limiting innovation and reducing consumer choice.

If the allegations against FanDuel and DraftKings hold, their conduct may meet the criteria for a hub-and-spoke conspiracy under Section 1 of the Sherman Act. By targeting critical inputs and partnerships essential to smaller competitors, the two firms could be unlawfully restraining trade, warranting a full investigation by the FTC and DOJ. The outcome of this inquiry could shape the future of antitrust enforcement in digitally driven markets.