The long, drawn out, costly battle for the legalization of daily fantasy sports (DFS), is definitely catching up to the two biggest operators in the DFS industry. FanDuel and DraftKings have admitted that cash flow is becoming a serious problem. Add to that a mountain sized pile of debt, and one has to wonder if the two companies will survive. It would seem like unjust dessert, if after being the driving force in the battle for legality, the daily fantasy sport’s two largest players would not benefit, but instead have to exit, leaving a clean playing field for new operators to jump in and take over.
Although there has been some good news since January of this year with the passage of DFS friendly legislation for eight states – Mississippi, Indiana, Massachusetts, Missouri, Virginia, Tennessee, Colorado and New York – the financial and legal challenges for DraftKings and FanDuel are not letting up.
DraftKings and FanDuel shared the cost for the legalization battle in New York that was both lengthy and expensive, with more costs still to come. New York Attorney General Eric Schneiderman was fiercely opposed to the legalization of daily fantasy sports and shut down the DFS industry in New York. After five months, Schneiderman relented and allowed the industry to resume operations under a new state law that requires all operators to pay a $50,000 annual fee and 15 percent tax on revenue derived from New York players. He also insisted on the financial settlement of a suit by the state for false advertising in the two companies’ promotion of DFS. The two DFS industry leaders would like nothing more than to get the litigation behind them and to get on with the business of rebuilding their financial infrastructure. But there’s one big problem – they’ve got no cash.
Insiders familiar with the situation in New York have said that the two DFS operators “have conceded that they are having difficulty meeting their day-to-day obligations” and are trying to work a deal for installment payments on the final settlement. The total is expected to be between $8 million and $12 million in total. Both companies say that they are months behind in vendor payments, especially to lobbying and public relation firms that were instrumental in helping persuade legislatures across the U.S. to legalize daily fantasy sports contests.
In the past three weeks, FanDuel has laid off more than sixty employees. This was a direct result of the cash flow problems that they are experiencing, but it’s not the first time they’ve had a large layoff. Earlier this year, when Texas state Attorney General Ken Paxton declared DFS to be illegal gambling, FanDuel handed out pink slips. Texas was second behind New York in the volume of DFS players across the U.S.