After an autumn largely to forget for the daily fantasy sports industry, the business has started 2016 on a similarly turbulent but perhaps still hopeful path.
Vantiv Inc., a payment processor that services the majority of the industry (including its two largest operators, FanDuel and DraftKings), said recently it will stop processing daily fantasy payments at the end of this month, striking another blow to the already embattled business. The Ohio-based company cited the “uncertain regulatory and judicial environment around these operations” in its decision.
Days later, both FanDuel and DraftKings ceased operations in Hawaii after the state attorney general there, Doug Chin, issued an opinion that daily fantasy constitutes illegal gambling. Hawaii is not a major source of daily fantasy players or revenue to operators, but that state’s action follows regulators in Nevada last fall ordering daily fantasy companies to apply for state gambling licenses. Seven states now do not permit paid daily fantasy games.
Both FanDuel and DraftKings said they do not anticipate a disruption to user activity as a result of Vantiv’s pending exit. In addition to potential replacement vendors, DraftKings is challenging Vantiv’s decision and has a restraining order from a Suffolk County, N.Y., judge preventing the company from leaving its contract.
“There are many other payment processors available, as well as PayPal, and this decision will not impact their ability to play,” FanDuel said in a statement.
The state legislative situation for daily fantasy, meanwhile, remains decidedly a work in progress. The largest and noisiest battleground, New York, is now on hold after DraftKings and FanDuel received a permanent stay of the injunction against them from state Attorney General Eric Schneiderman. The companies are continuing to do business in the state pending a larger trial on the case later this year.
A number of other states are in various stages of considering legislation that would clarify their stances on daily fantasy, with many contemplating an overt regulatory structure aimed at providing increased consumer protections for players. The Fantasy Sports Trade Association said last month at its annual winter industry conference in Dallas that the legal battleground for the industry would be very much a state-by-state rather than federal affair.
“We’re actually seeing a lot of positive momentum on a lot of these state legislatures,” said Peter Schoenke, FSTA chairman. “There are about two dozen states now looking hard at this industry, and we’ve had bills that are positive for our business pass many key committees and legislative houses. We’ve been encouraged at the number of legislators around the country who are seeing the benefits the fantasy business brings. … We’re still trying to get our arms around [Hawaii], but that also isn’t representative of what we’re seeing in a lot of other states.”
Beyond the legislative and regulatory issues, the other consideration in play is whether the industry at large — and DraftKings and FanDuel, in particular — can afford to ride out the current problems.
The entire fantasy sports business has come to a slower point of the year, with fantasy football now complete until next season. User growth for many companies is believed to be slowing down after a meteoric rise through much of 2015. The industry is spending large sums of money on legal aid to address the many state-level battles as well as private lawsuits. And access to additional capital will likely not be as easy as it was when DraftKings and FanDuel combined to raise $575 million in venture capital funds last summer.
“Cost management and cash preservation is definitely going to be an increasing focus for these guys,” said Adam Krejcik, principal with Eilers & Krejcik Gaming and a leading analyst on the daily fantasy industry. “There are clearly a lot of variables out there in the market right now, and the question out there is whether they can now grow more organically.”
