FANDUEL, the Edinburgh-based fantasy sports firm, may not be able to continue as a going concern if an ongoing regulatory crackdown in the United States intensifies.
The privately-held company – which has been valued at more than £1 billion – has warned that legal and regulatory uncertainties could significantly impact its future operations.
In its annual report, the company confirmed it had suspended operations in New York, Texas and Neveda pending further legal clarity. A total of five states have issued advisory opinions addressing the legality of fantasy sports. FanDuel has also been named in a number of class action lawsuits related to its promotional and marketing activities in states where its legality is under question.
In the company’s annual report, auditor Deloitte warned that it was possible more states could determine fantasy sports unlawful.
“The potential for such an outcome represents a material uncertainty that casts significant doubt on [FanDuel’s] ability to continue as a going concern,” said James Boyle, senior statutory authority, Deloitte.
Chief executive Nigel Eccles said the directors have always considered the company to operate lawfully in the US and Canada. He added that while the group would robustly defend its position and fully expected a successful resolution, there were a range of possible outcomes not within its control.
He wrote: “[These] outcomes could include clearing the group’s activities as lawful… to it being determined unlawful and prohibited from operating in certain states [with] the potential for damages to be levied.”
The report also reveals that the overhanging issues have impacted the willingness of a number of credit card and online payment companies to process payments to the business.
Mr Eccles pointed out that more than 20 states had drafted proposals that would expressly legalise fantasy sports, and believed that more would follow.
FanDuel reported record turnover of $87.7 million for the 18 months to June 30, but the company’s losses rocketed to $94m and its cash balance reduced from $274m to $47.8m as it heavily invested in product development and TV advertising – where it is reported to have spent $74.5m between January and October 2015. It also spent more than $2m on research and development.
FanDuel’s paid active players now stand at 1.25 million as of end of June, up from 250,000 at the end of 2013. The company’s employee numbers have also significantly increased, up from 57 at the end of 2013 to 230.
“We believe that the invest strategy undertaken will drive the future success and growth of the group, with due consideration of the ongoing litigation issues,” wrote Mr Eccles.
“Despite the legal and regulatory challenges, we believe in our strategy… and believe we can continue growing headcount, paid active players, turnover and profitability in the coming period, and beyond,” said Mr Eccles.
He also confirmed FanDuel was “nearing completion” on its international product, which will see the company debut in the UK.
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