Turmoil in daily fantasy sports spreads beyond DraftKings, FanDuel
The ongoing debate about whether and how the daily fantasy sports industry should embrace regulation doesn’t center entirely on major operators FanDuel and DraftKings. Turmoil related to smaller sites has added fuel to the fire, too.
FanDuel and DraftKings together control the vast majority of the daily fantasy market, and they were the subjects of a major industry scandal last fall when allegations of activity tantamount to insider trading ushered in a wave of public scrutiny. But two recent instances of small websites shutting down, leaving players without access to their funds, also have led some experts to call for strong regulation of the industry.
In January, the site FantasyUp said it was closing, telling users it did not have the funds necessary to process all of their withdrawals. That called into question whether customers who were owed money by the site would ever be able to recover their money.
FantasyUp said in an email to customers that it had “essentially paid players” to use its platform, expecting that the industry would continue expanding and that a “financing deal” would help the site grow, according to the website Legal Sports Report, which closely monitors the daily fantasy sports industry. The email further explained that FantasyUp almost sealed such a deal months earlier, but it was delayed.
“Over the following weeks, the industry saw numerous legal issues arise, increasing the cost of doing business and the decreasing the ability to raise funds,” the site said. “FantasyUp no longer has the capital to fund even minimal operations.”
In an instance of good timing for customers of FantasyUp, help came along not much long after that. In early February, fantasy sports provider iTeam Network announced that it was stepping in to restart FantasyUp and reinstate all players’ accounts.
Experts say FantasyUp’s case indicates that the site wasn’t keeping players’ money separate from its operating funds — something that strong regulation could have prevented.
iTeam Network CEO Gabe Hunterton, who is based in Las Vegas, said the issues sent a clear signal to other daily fantasy operators.
“It’s a very, very clear-cut indication that our industry needs regulation,” he said. “If we are to be holding customer money, then we need to be worthy of that customer trust.”