Fantasy sports companies fold as legislative battle resumes


The daily fantasy sports industry has sharply contracted since the online games offered by companies such as FanDuel and DraftKings sparked court and legislative battles across the United States last year. 

More than two-thirds of companies that existed this time last year have shuttered, changed focus or joined with competitors, according to the Fantasy Sports Trade Association, the industry's lobbying arm. 

Among the most prominent examples is the proposed merger between the industry's two largest companies — Boston's DraftKings and New York's FanDuel. That deal, which was announced late last year, is currently being reviewed by the Federal Trade Commission. 

At least three notable companies — Fantasy Aces, FantasyHub and FantasyUp — shuttered while still owing players money, prompting other operators to assume their assets and pledge to make customers whole. 

Many smaller operators have also quietly folded. At peak last year, 118 member companies offered some form of paid fantasy sports contest, the trade association said. Of those, 81 are no longer offering contests or their status is unknown. 

The legal chaos and uncertainty that befell the industry starting with the 2015 NFL season has driven away investors, making it impossible for many startups to continue to raise the financial capital to survive, said Peter Schoenke, the trade association chairman. 

The uncertainty also shook out companies not offering much new or distinctive from the competition, added Daniel Barbarisi, author of "Dueling With Kings," an inside look at the industry's rise and fall released last month. 

"Everyone thought (daily fantasy sports) was the next gold rush," he said. "It couldn't sustain that level of speculative growth, especially from small operators. Now that the barrier to entry is higher, I'm not surprised at all to see many of them falling by the wayside." 

The legal landscape, meanwhile, remains unsettled, and the industry is again engaged in a costly, state-by-state legislative push. Roughly half of all U.S. states have seen proposals introduced to legalize and regulate the industry. 

Arkansas has so far passed new legislation, joining 10 other states from prior years: Colorado, Indiana, Kansas, Maryland, Massachusetts, Mississippi, Missouri, New York, Tennessee and Virginia. 

Lawmakers in other states will become receptive to the proposals as they see how the regulations are working in other states, said Marc La Vorgna, a spokesman for DraftKings and FanDuel. "The evidence is there for legislators," he said. "Any uncertainty around the impact of these laws has been removed." 

Indeed New York, one of a handful of states that impose a tax on daily fantasy sports, says it took in nearly $3 million in revenues in the first months of its new law. 

DraftKings and FanDuel are again "investing heavily" in state legislative efforts, La Vorgna said, declining to provide specific tallies for lobbying costs and political donations this year. The trade association is spending "very little" on direct lobbying this year, said Schoenke, also declining to provide specifics. 

During last year's legislative push, DraftKings, FanDuel and the trade association spent at least $500,000 on lobbyists and its employees donated roughly $380,000 to political campaign committees at the state government level, according to the most recent data collected by the National Institute on Money in State Politics in Helena, Montana. 

That was a big jump from 2015, when the industry wasn't quite in the crosshairs of regulators. The three entities accounted for at least $275,000 in lobbying and donations that year, up from at least $18,000 in 2014, the institute's data shows. 

Some of the laws being considered this year may hasten the industry's consolidation, said Ted Kasten, who has advised several daily fantasy sports startups. 

Some states are considering imposing costly licensing fees and other regulatory hurdles that smaller operations complain could put them out of business. 

Ryan Huss, co-founder of Syde Fantasy Sports, said he and his partners ended their fantasy sports contests and shifted the company's focus after their home state of Virginia started requiring a $50,000 registration fee. 

"The fees seem like more of a deterrent than anything else," he said. "Only the largest operators can truly afford to pay them." 

Despite the consolidation, demand for the games still appears healthy. 

From 2015 to 2016, the total amount of entry fees paid by players grew 4 percent to about $3.3 billion and net revenues for companies rose about 15 percent to $350 million, according to the California-based gambling research firm Eilers & Krejcik Gaming. 

New startups are still emerging, just nowhere near the levels to replace the ones closing down, Schoenke said. 

Some new companies say they're in a better position to succeed than their predecessors. 

Teague Orgeman, co-founder of Starting 11, a Minneapolis-based daily fantasy soccer site hoping to launch soon, says his company's contest will be more innovative than what's already out there. And, as a practicing attorney, he's prepared to navigate the ever-changing regulatory landscape. 

"We see opportunity, not the flip," Orgeman said. "We think regulation is a good thing long-term for industry. It really wasn't a deterrent."


Reader Comments ...


Next Up in Sports

Pennsylvania recruiting rankings: DE Micah Parsons, QB, Phil Jurkovec, Penn State commits top list
Pennsylvania recruiting rankings: DE Micah Parsons, QB, Phil Jurkovec, Penn State commits top list

It’s the midseason point in college football and a bit later than that when it comes to high school football schedules. Members of the 2018 recruiting class are now faced with the final stretch of their prep careers, primed to make a major leap next year. Since releasing our preseason Pennsylvania prospect...
Miami Dolphins down to just one healthy starter on offensive line
Miami Dolphins down to just one healthy starter on offensive line

Dolphins quarterback Jay Cutler (6) is hit by New York Jets inside linebacker Darron Lee (58), drawing a personal foul. (Allen Eyestone / The Palm Beach Post) DAVIE — The Dolphins are coming off a game in which their starting quarterback was driven into the ground and is expected to miss games and their running attack...
Iowa State’s receivers pose biggest threat for TCU’s defense
Iowa State’s receivers pose biggest threat for TCU’s defense

For TCU, the toughest task on Saturday will be containing Iowa State’s tall, solid group of receivers. Yes, Oklahoma State undoubtedly has the best group of wide receivers in the conference, but Iowa State’s are playing well, and might not be all that far behind. In this week’s Big 12 conference call, Gary Patterson answered...
Florida State coach Jimbo Fisher doubles down, doesn’t regret snapping back at fan
Florida State coach Jimbo Fisher doubles down, doesn’t regret snapping back at fan

If you thought Florida State coach Jimbo Fisher had any regret confronting a fan on his walk back to the locker room following a disappointing last second home loss to Louisville on Saturday, you would be wrong. “No, not one bit,” Fisher said during his Monday press conference that was reported by Noles247Sports...
Arizona Wildcats’ Khalil Tate earns 3rd straight Pac-12 Player of Week award for first time since 1988
Arizona Wildcats’ Khalil Tate earns 3rd straight Pac-12 Player of Week award for first time since 1988

We already knew Arizona Wildcats quarterback Khalil Tate was on a historic tear. But this is something — Tate became the first player of the Pac-12 era to be named player of the week in after three consecutive games. In fact, he’s the first player from the conference to take the award three straight times since 1988, when USC&rsquo...
More Stories