Eight months ago, daily fantasy sports looked destined to rule the world. Their commercials were all over the air, participation was at an all-time high, and common sense said one-day lineups were the next step in the fantasy sports evolution. Now, amid clashes with attorney generals and lawmakers in numerous states, daily fantasy’s future seems more bleak by the minute.
Daily fantasy companies such as FanDuel and Draft Kings have already been forced to pull out of New York due to the state’s position that the games constitute gambling, and their legality remains highly contentious in other high-population states like Texas, Florida and Illinois.
According to a handy chart over at Legal Sports Report, there are currently 11 states in which no major DFS companies are operating, either as part of a deal with the attorney general or because their product has been deemed illegal. Four more states have seen several major DFS brands pull out due to efforts at regulation. Others, such as Illinois, are engaged in contentious debates over the legality of DFS.
Per gambling news website CalvinAyre.com, the situation has FanDuel’s auditors a bit concerned.
FanDuel’s annual report attempted to put its forced market exits into perspective by saying they represent “less than 20% of total turnover” in its most recent financial report. But the company’s auditors Deloitte expressed a less sunny outlook and warned that the company could face real problems if current trends continue.
Specifically, Deloitte senior statutory authority James Boyle warned that the prospect of more states shutting off the DFS taps “represents a material uncertainty that casts significant doubt upon [FanDuel’s] ability to continue as a going concern.”
Aside from questions surrounding daily fantasy’s legality, FanDuel has also has financial issues to worry about. The company reportedly began layoffs back in January and, according to CalvinAyre, was taking big losses even before it started getting closed out of major markets.
The Edinburgh-based FanDuel recently released its annual report, which showed the company enjoyed record revenue of $87.7m in the 18 months ending June 30, 2015. However, pre-tax losses came to $94.9m, compared to a loss of only $11.3m in its previous report.
FanDuel blamed the escalating losses on its decision to “significantly” boost its marketing and product development, while insisting that the company’s financial reserves – which fell from $274m to $47.8m as of June 30 – are sufficient to see it through the coming year.
There are still tons of dominos left to fall. DraftKings is suing Texas to keep the state from banning daily fantasy, legislation to legalize the games is crawling through the New York legislature, and a Congressional hearing is on the way. The game isn’t over yet for daily fantasy sports, but the industry finds itself behind in the fourth quarter, and it might be time to starting going for it on fourth downs.
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