Did DraftKings, FanDuel make the Wrong Bet on DFS?

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Last year this time, the daily fantasy sports betting industry – aka DFS – bombarded our sports television networks with advertisements. Hundreds of millions were spent in an effort to convince consumers to bet on DFS. At the same time, legal challenges arose that have cost operators millions more, and despite an outward appearance of munificence, DraftKings and FanDuel could be on the verge of bankruptcy.

Reports surfaced this week claiming that the ongoing legal battle between DFS operators )including DraftKings and FanDuel) and the state of New York may soon reach a settlement. While Governor Andrew Cuomo legalized daily fantasy sports betting back in August, there was still the issue of the State’s Attorney General’s claim that these operators had engaged in false advertising, and there would be a price to pay for it.

DFS Settlement with NY State

The NY Times published an update on Monday that indicated a settlement is on the horizon. Their source – two individuals “familiar with the discussions” who requested anonymity due to the ongoing proceedings – said that, according to the current status of the negotiations, the operators are expected to pay somewhere between $8 and $12 million for their transgressions.

That’s not all, though. The sources said NY Attorney General Eric Schneiderman may also require the daily fantasy sports betting sites to admit that his office’s findings, relating to fraudulent practices, were genuine, and could impose even stricter consumer regulations to protect those who bet on DFS.

Cash Flow Running Dry

Those sources also confirmed that DraftKings and FanDuel are no longer rolling in money, as they were last year. In fact, they said the daily fantasy sports betting operators have requested that AG Schneiderman allow them to pay out the impending settlement in installments, admitting they’ve had difficulty meeting even day-to-day financial obligations.

How could they be so broke? These are companies that collectively spent near half a billion dollars on advertisements last year. Now they can’t afford a mere $8-$12 million?

There’s certainly enough evidence to support their claims of financial woes. Both operators are behind on monthly payments to vendors – particularly those expensive PR and lobbying firms they hired to encourage legalization and regulation from state to state – and FanDuel has distributed pink slips to over 60 employees in the last three weeks alone.

Less Players Bet On DFS in 2016

While there are still millions of punters out there who bet on DFS, operators aren’t free and clear to accept all players and collect 100% the the profits anymore. A handful of states have moved to prohibit daily fantasy sports betting, and in areas where it’s legal (often requiring taxes and licensing fees), there’s a notable stigma that’s thwarted new sign-ups and kept some former users at bay.

Much like the ‘super-user’ scandal at the Ultimate Bet online poker room a few years back, DraftKings and FanDuel became the topic of heavy criticism – not to mention federal investigations – when an employees of one site won a massive $350k prize from the other.

Allegations of using insider information rose immediately, hence the call for prohibition and/or regulation across many US states over the last year.

DFS Sites Must Mature To Avoid Bankruptcy

It doesn’t mean that DFS is a sinking ship, or that DraftKings and FanDuel will be bankrupt within a few months. It just means that these operators, who rose to instant fame and billionaire status in such a short time, need to learn to manage their money better, much like a young adult who suddenly comes into wealth.