It was a matter of time before major players starting jumping off the daily fantasy sports ship. Sooner or later all the controversy was gonna scare off a major investor or partner.
It would be one thing for ESPN to stop running ads for DraftKings or the NBA to distance itself from FanDuel. These DFS companies can survive without this kind of support. They don’t need a whole lot of advertising these days anyway.
But when Vantiv Entertainment Solutions, a major provider of payment processing for DFS sites, announced they would be leaving the daily fantasy sports arena at the end of February, that was a blow that rocked the two major DFS companies as well as the lesser known sites.
“As you are aware, an increasing number of state attorneys general have determined that daily fantasy sports (‘D.F.S.’) constitute illegal gambling,” Jonathan Ellman, chief transaction and marketing counsel at Vantiv, wrote in a letter obtained by The New York Times. “Although in recent weeks D.F.S. operators have raised numerous arguments to the contrary, to date those arguments have been unsuccessful and/or rejected.”
While I’d like to chastise this payment processor for their lack of courage, I can’t. Even though I’d love to see them have a backbone and stand up to the government, they stand to lose big money if things keep trending in the wrong direction for the DFS business model.
With seven states now declaring DFS to be illegal gambling, and class action lawsuits popping up each week to sue anyone involved with DraftKings and FanDuel, I can’t blame Vantiv for getting out while the gettin’s good.
Even TV networks are being sued for running ads for DFS sites!
With blood thirsty lawyers and politicians circling there will be more partners scrambling to leave this industry behind. Nevermind that payment processors, affiliates, and other service providers have made a killing along with DK and FD.
Losing the ability to accept payments from its user base is clearly a deadly blow to companies offering daily fantasy options. Vantiv is not the only payment processor in town, but others may panic and jump ship as well. What company wants the possibility of future government fines and consumer lawsuits when they can simply avoid the risk altogether.
This problem has to be addressed immediately by daily fantasy sports sites. All efforts to gain new customers need to cease while they focus on a solution to getting paid should more payment processors leave them hanging. Should Paypal stop working with DFS companies, that could start the domino effect that ends a hell of a run by DraftKings and FanDuel. No pay, no play.
This while they do legal battle with several state governments.
While there are ways around the payment issue for users, that doesn’t help the DFS industry itself. As a user of DraftKings, I could play in a local league with guys I know as we all put up cash for the “jackpot.” Or I could step it up a bit and form a league of a hundred users online that may grow larger using message boards or Google Groups so we could have larger contests. We would still use DraftKings enter the contests; only we would make them free so DK would make zero dollars off our use.
This would morph into the same system used by season long leagues. Guys send entry fees to a trusted league commissioner via Paypal or Google Wallet, and he distributes the winnings. This would certainly not be the easy system that we have now where we play and get paid on the same website, but it would allow daily fantasy to survive among consumers.
Of course, most of the DFS sites would eventually shut down if they weren’t receiving any revenue. That is unless some of them took the opportunity to make all their games free to play as long as users paid a membership fee.
It’s not looking good for FanDuel and the like. Their court battles with the growing number of individual states could last years. Even if they were to win in the end as legislation could evolve to make DFS legal is some states, the companies would have a hard time surviving in the meantime if they can’t collect revenue from users.
The creative leaders at DraftKings and FanDuel have done a great job of designing an entirely new industry that has been a hit with fantasy players. These same leaders better get really creative with their payment process before their revenue stream dries up.
Daily fantasy sports will survive, and the gambling will continue among fanatics like myself. It just may not be as smooth a system as we have right now, and the landscape could be littered with bankrupt companies that once raked in millions of dollars per week.