A recent Bloomberg article quotes Nigel Eccles, the chief executive officer and co-founder of FanDuel, as saying the company isn’t profitable, “but we’re building a multibillion-dollar business.”
That quote isn’t too comforting and leads me to wonder how daily fantasy sports websites can expect to maintain profitability considering their No. 1 resource of revenue is the fees on these fantasy tournaments. The amount of advertising dollars alone that some of these daily fantasy sports websites are spending is incredible.
This of course leads me to the second problem….transparency. The daily fantasy sports industry operators are exempted by the Unlawful Internet Gambling Enforcement Act of 2006 as it’s considered a game of skill. This is a loophole that may not always be open, so there are legal risks.
“There is zero evidence anyone contemplated fantasy of the daily variety when they passed this loophole,” said Florida State assistant professor of sport law Ryan Rodenberg in a Fantasy Sports Trade Association article
As they are not considered a gambling institution, they are not beholden to the rules that regulate casinos and other gambling institutions. They are also not a bank where they must produce balances as public record.
Also, there are only two daily fantasy sports sites that are publicly traded and presumably under stricter financial oversight. Fanduel and Draftkings are not public even though they are easily the two biggest in the space (this has not been confirmed).
This is where players could be left holding the bag. In order to deal with the daily demand of cash out requests, I’m assuming that the majority of these companies could get away comfortably with having about 20% of players balances at their disposal. This leaves an awful lot of money that is just sitting there “not being used” for daily operational costs.