Fantasy Aces Files for Bankruptcy, Can’t Pay Players
Posted on: February 2, 2017, 01:27h.
Last updated on: February 2, 2017, 05:32h.
Daily fantasy sports (DFS) operator Fantasy Aces filed for bankruptcy this week after a last-ditch rescue attempt by competitor Fantasy Draft fell through.
Alarmingly for players, it appears from the bankruptcy filing that the company is unable to pay more than $1 million of players’ funds, and that it has co-mingled customer money with its operating expenses.
“The Fantasy Aces team truly regrets to announce that we are unable to sustain our site and business operations effective January 31st 2017, filing for protection under Chapter 7 bankruptcy law,” the company told its customers on Wednesday.
“After spending over a year attempting to secure long-term capital, including recent negotiations with two notable companies which subsequently failed to close, we are left with an unresolvable financial burden. We have unfortunately exhausted every possible financial option with no success,” the California-headquartered DFS company concluded.
Will Regulated Jurisdictions Prosecute?
Consumer protections and the need for operators to segregate player funds was a major driving force behind states taking steps to regulate the DFS industry last year.
If Fantasy Aces has indeed broken the law, it will be the first test of the robustness of these new regulatory regimes, which have a duty to bring criminal prosecution against the owners of the site if players from regulated states are proven to have been affected.
Meanwhile, it could be bad news for FanDuel and DraftKings’ proposed merger.
Antitrust laws protect fair competition for the benefit of consumers and prevent the creation of monopolies or companies that are too dominant within one market. The fact that a combined DraftKings and FanDuel would control around a 95 percent of the DFS market might be enough for the Federal Trade Commission to block the unification.
However, as Marc Edelman, a professor of law at the City University of New York, pointed out in a column for Forbes this week, the removal of Fantasy Aces from the DFS market also removes its revenues from the denominator in calculating market share.
In plain speaking, DraftKings and FanDuel may together own 96 or 97 percent of the market, now that Fantasy Aces is out of the picture, exacerbating the antitrust issue.
But even more significantly, writes Edelman, Fantasy Aces’ premature demise “also calls into doubt any theory raised by FanDuel and DraftKings lawyers that it would be easy for new companies, with moderate funding, to enter the daily fantasy marketplace and compete with their merged entity.
“Indeed, if FanDuel and DraftKings’ antitrust lawyers had been using Fantasy Aces’ ‘success’ to tell the story about how smaller companies without sports league relationships could easily enter the DFS marketplace even after a combined FanDuel DraftKings, that ‘success story’ has now been largely debunked,” Edelman explained.