DFS Sites Close to Settlement with New York but Are Running Out of Cash

Posted on: October 24, 2016, 01:00h. 

Last updated on: October 24, 2016, 01:22h.

Draft Kings and FanDuel to settle with New York AG Eric Schneiderman
New York AG Eric Schneiderman threatened Draft Kings and FanDuel with billions in fines last year but is reportedly now prepared to settle for $8 million to $12 million. (Image: politico.com)

DraftKings and FanDuel are on the cusp of a settlement with New York State over allegations of false advertising and consumer fraud, according to sources who spoke to the New York Times.

The final settlement is expected to cost between $8 million and $12 million, according to the NYT. 

But the sources also claim that the two market-leading daily fantasy sports sites are now so short of cash that they are asking to pay the sum in installments.

It could have been worse. Last December, New York Attorney Eric Schneiderman threatened the sites with fines of $5,000 per head for every state resident who had bought-in to a contest through 2015, as well as seeking the return of every single player buy-in.

With 600,000 DFS customers in the state, that sum would have run into well over $3 billion in fines.

“Difficulty Meeting Financial Obligations”

Schneiderman had sought an injunction to stop the sites trading in New York State after he declared their operations constituted illegal gambling under state law.

Following an investigation into their business models, he accused them of committing “repeated and persistent fraudulent acts,” pointing to sign-up bonuses as evidence of supposed malpractice.

He also claimed the sites’ advertising constantly misrepresented the chances and skill levels needed to win “life-changing” amounts of money.

Both companies are once again up and running in New York, which has now legalized DFS, but there are still remaining charges to settle. And the legal disruption the industry has suffered since late last year is beginning to bite; this has included legal fees for various court cases, lobbying costs, and increased licensing fees as more states regulate DFS. The NYT sources claim both DraftKings and FanDuel are creaking under the burden and are “having difficulty meeting their day-to-day obligations.”

Merger Becoming More Likely

FanDuel has laid off more than 60 workers over the past three weeks, while both companies have admitted they are behind in their payments to vendors and the various lobbying firms hired to fight in the industry’s corner across the US.

Their current financial situations could increase the likelihood of a merger, which many of their shareholders are understood to favor. Many believe the market cannot sustain both companies and consolidation would be the most logical move, allowing them to share these stifling costs.       

“While we cannot comment on the details, we can confirm that we have been in ongoing settlement negotiations with the New York attorney general’s office. They have been tough but fair, and we hope to reach an acceptable resolution.”