It’s been a terrible, horrible, no good, very bad fall and winter for the daily fantasy sports industry. It started in October, when a content manager at one of the largest daily fantasy sports companies, DraftKings, was using inside information to play on rival FanDuel. This triggered a series of state investigations, some of which have found that daily fantasy sports amount to gambling–and therefore may be illegal. But late Friday, the final nail in this industry’s coffin may have been hammered in by a company that few people have heard of–the company that processes payments for most daily fantasy sports games.
Vantiv, a Cincinnati-based payment processing company, notified its daily fantasy sports clients, including DraftKings and FanDuel, that it will suspend all daily fantasy sports transactions in the United States and its territories on February 29. In a letter obtained by The New York Times, chief transaction and marketing counsel Jonathan Ellman told Vantiv’s daily fantasy sports clients that due to several state attorneys general ruling that daily fantasy sports are gambling, Vantiv has no choice but to end its relationships with them.
According to several legal experts, Vantiv really had no choice. The Unlawful Internet Gambling Enforcement Act makes it illegal to process payments to online gambling sites. When a state finds that a sports website is engaging in illegal gambling, payment processing companies risk severe civil and criminal penalties unless they stop the payments immediately.
There’s a reason that this could potentially be the final nail in the coffin for an industry that has ballooned from almost nothing to a billion dollars in just a few years. DraftKings and FanDuel don’t handle deposits and withdrawals from their players’ accounts, leaving that responsibility to companies like Vantiv. Simply put, without a way to process that money, daily fantasy sports Websites literally cannot operate.
It’s not clear what percentage of daily fantasy sports transactions Vantiv handled. But apparently it was large enough that Indiana University law professor Sarah Jane Hughes thinks Vantiv’s decision to cut bait is “a game changer.” She thinks either a regulator or a major shareholder twisted Vantiv’s arm, forcing it to walk away from what she called “a very lucrative business.” Hughes also doubts that DraftKings and FanDuel will be able to find another payment processor, since “I’m not sure who will touch this industry if Vantiv won’t.”
From what I’ve learned about daily fantasy sports, I suspect this day would have come sooner or later. These sites exist under a loophole in the Unlawful Internet Gambling Enforcement Act, which allows them to claim that they are games of skill rather than games of chance. But even if they are games of skill, there is something fundamentally wrong with a billion-dollar industry operating more or less unregulated. Couple that with the prospect that playing on inside information is rampant in this industry, and there is no reason anyone should touch these games with a ten-foot pole.
The only thing that comes as a shock is that it wasn’t court or legislative action that may be the final nail in the coffin for DraftKings and FanDuel. It was a business decision by a company that even some news junkies may not have heard of until Friday.
