Questions Raised About FanDuel’s Survival As Losses Mount
Concerns have been raised regarding FanDuel’s financial potential to stay afloat after being prohibited from offering paid contests by numerous states in United States. The Edinburgh based FanDuel is one of the top two major Daily Fantasy Sports (DFS) providers in the U.S. Paid DFS contests have been a contentious issue in United States during the last few months.
So far 12 states across the U.S. have declared DFS as illegal and they including Nevada, Texas and New York. Three have allowed DFS sites to operate legally while around 30 other states are engaged in deliberations on the legality of these DFS games.
The withdrawal of paid contests in these states have been made mandatory after state lawmakers ruled that these DFS games were similar to gambling as per state laws and thus illegal. DFS companies such as FanDuel have been banned from offering paid contests in these states and as a result have suffered financial losses.
FanDuel’s withdrawal from New York last month has been the most significant blow to the company since it was the largest market in U.S contributing almost13 percent by some accounts.
In a statement, Deloitte, the auditor for FanDuel said
It is possible that the number of states where the state attorney general may issue opinions against the group’s activities could expand and the group’s activities could be determined to be unlawful in those states and therefore prohibited from operating. The potential for such an outcome represents a material uncertainty that casts significant doubt upon the group and the company’s ability to continue as a going concern.
The company has however said that the states where it has ceased operations contribute less than 20 percent of the total turnover for a period of 18 months ending 30 June 2015. FanDuel has reported an all-time- high revenue of $87.7 million for the same period but pre-tax losses was around $94.9 million, as compared to the loss of $11 million posted in 2013.
The sharp rise in losses has been attributed by the company to increased investment in product development and marketing. The company has justified this by saying that the investment would help drive significant growth in the future, adding that its financial reserve of $47.8 million was sufficient for its operations for the rest of the year. FanDuel also pointed out that its active player base had increased five-fold by June 30to 1.25 million. The DFS site has also raised a further $55 million from its investors to fund the strategy.
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DraftKings and FanDuel, the two biggest Daily Fantasy Sports (DFS) companies dominate a major portion of the DFS market in
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