Daily fantasy sports companies FanDuel and DraftKings were dealt a big blow to their continued operation Friday when the New York Times reported that payment processor Vantiv cut ties to the sites. Vantiv doesn't handle all of the payments made to the two companies, and the exact percentage is unknown according to the Times. Players rely on the company to deposit fees, however, leaving FanDuel and DraftKings scrambling to find another company to process the transactions.
Daily fantasy sports have been facing growing pressure from states' attorneys general who have deemed the sites illegal under state laws. The Times report was released minutes after the Mississippi attorney general released a statement saying that fantasy sports wagering is illegal, joining Illinois, Nevada, New York, Texas and Vermont among states to release negative statements against the industry.
The mounting pressure against DFS directly influenced Vantiv's decision.
"As you are aware, an increasing number of state attorneys general have determined that daily fantasy sports (‘D.F.S.') constitute illegal gambling," Vantiv chief revenue counsel Jonathan Ellman wrote in a letter. "Although in recent weeks D.F.S. operators have raised numerous arguments to the contrary, to date those arguments have been unsuccessful and/or rejected."
DraftKings released a statement saying it has not yet been directly informed of Vantiv's decision.
DraftKings counsel says it hasn't been told by payment processor Vantiv it's exiting the business, says it can't pic.twitter.com/UYaEblt0Nm— Darren Rovell (@darrenrovell) January 29, 2016
Vantiv's decision may not cripple daily fantasy sports, but it does not bode well for the industry. It reflects the strength of the legal challenges against DFS, and could potentially prompt other payment processors, including major banks and credit card companies, to follow their lead.
What are payment processors?
FanDuel and DraftKings do not handle player deposits directly. They rely on companies like Vantiv instead to securely process the millions spent on fees to play their daily games. At the moment, daily fantasy sports companies don't have the capacity to do it themselves.
That puts daily fantasy sports sites at the mercy of payment processors, and likewise puts pressure on payment processors to determine whether they're facilitating illegal transactions. The Unlawful Internet Gambling Enforcement Act of 2006 prohibits "gambling businesses" from accepting electronic payments in connection with a "bet or wager," meaning that once a state determines that a site constitutes illegal online gambling, the onus is on payment processors to stop accepting money or be punished under criminal law.
Will people lose their money?
They shouldn't. Daily fantasy sports aren't going away yet. This isn't at all like the online poker's Black Friday in 2011, when the justice department shut down three of the most popular online poker sites, seizing 76 bank accounts in 14 countries and five domain names.
Many online poker players were left wondering how they were going to get their money back. Two years after the fact, the Verge reported that many were ultimately reimbursed, though some were still waiting. Poker was not specifically exempted under federal law the way that daily fantasy sports were under UIGEA, however. We're unlikely to see a dramatic crackdown on DFS, which should, perhaps, allow players to be reimbursed in a more timely manner should anything happen to FanDuel and DraftKings.
Is DFS done for?
No. There are still court battles being waged, perhaps most notably in New York where a permanent stay of injunction was granted in favor of FanDuel and DraftKings earlier this month, allowing them to operate within the state until trial and appeals finish up to determine whether they constitute illegal gambling.
While New York has taken a hard stance against daily fantasy sports, prompting Vantiv to stop processing payments made within the state back in November, other states have been softer. The Massachusetts attorney general, for example, has stated that DFS is legal under state law, and has proposed regulations that could create more oversight over the industry and also tax it.
Developments have generally trended against daily fantasy sports since the New York attorney general sent a cease and desist letter to FanDuel and DraftKings in November. If they continue to exist, daily fantasy sports may not be able to operate at the same high level they did in 2015.