Fantasy sports payment firm may opt out
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Vantiv Inc., the payment processor that handles much of the money flowing through the daily fantasy sports business, notified clients Friday that it will withdraw from the market next month, a blow to companies that rely on its software.
In a copy of a letter obtained by the Globe, Vantiv told customers it made the decision because of the legal uncertainty around daily fantasy contests, and that it would stop processing all transactions related to the embattled industry on Feb. 29.
"As you are aware, an increasing number of state attorneys general have determined that daily fantasy sports ("DFS") constitute illegal gambling," the letter reads. "Although in recent weeks DFS operators have raised numerous arguments to the contrary, to date those arguments have been unsuccessful and/or rejected."
However, Boston-based DraftKings Inc., one of the two largest daily fantasy companies along with New York's FanDuel Inc., previously obtained a court order from a Boston judge that requires Vantiv to continue processing its payments.
David Boies, an attorney for DraftKings, said the company had not received a letter from Vantiv.
"We are not aware of what Vantiv may or may not have told other industry participants about its plans," Boies said in a statement, "Vantiv is under court order to continue to fulfill its contractual obligation to Draft-Kings."
Douglas Baldridge, a lawyer for Vantiv, confirmed that the letter had been sent but declined further comment. FanDuel declined to comment.
David O. Klein, an attorney who advises fantasy sports companies, said the industry's survival may depend on whether other payment processors are willing to replace Vantiv. Currently, the company helps most operators accept entry fees and pay out prizes.
"Recently, [Vantiv's] stance was that they weren't on-boarding any new fantasy sports operators until they had further clarity as to where the regulatory environment was headed," Klein said. "I guess based upon what's happened in the past few weeks, they've decided enough is enough and it's not worth the risk."
Banks and payment processors like Vantiv are "the first in the line of fire" under federal laws that outlaw gambling, Klein said, adding that prosecutors can bring federal charges even for violations of state law.
Analysts expected players to spend about $3 billion on the contests in 2015, more than triple the amount spent the year before. But the flurry of legal problems has also slowed the industry's growth. The companies are not profitable.
Matthew Chatlin, the chief executive of smaller daily fantasy company OwnThePlay, said he was worried that players would assume their deposits at daily fantasy sites are in jeopardy because of Vantiv's action.
"The money isn't going away," he said. "All your money remains in a segregated bank account."
Daily fantasy sports have been under intense legal scrutiny by federal investigators and attorneys general in multiple states, who are probing whether the contests are legal under state and federal gambling laws. In response, an alliance of daily fantasy companies led by DraftKings and FanDuel has mounted a nationwide lobbying blitz, and some two dozen state legislatures are considering bills to legalize the contests.
Amid those battles, Vantiv had sought clarity from courts in Massachusetts and New York about whether it could continue to work with DraftKings and other fantasy operators. A judge in Massachusetts last fall ordered Vantiv to continue doing business with DraftKings; a similar case in New York is still pending.
Since New York Attorney General Eric Schneiderman determined in early November that daily fantasy sports are illegal in his state, attorneys general in Texas, Illinois, Vermont, and Hawaii have followed suit, saying the games violate gambling laws in their states. Earlier, Nevada regulators effectively forced the industry to flee that state after ruling that fantasy sports operators needed to secure gambling licenses. And on Friday, the Mississippi Gaming Commission said daily fantasy sports are "illegal in the state of Mississippi under current law."
The most serious challenge to the business so far is from Schneiderman, who is suing to shut down DraftKings and FanDuel.
Massachusetts Attorney General Maura Healey has said she will not crack down on DraftKings and its competitors because state law doesn't explicitly ban fantasy contests for cash. Instead, she has proposed increased regulation of the industry, including a ban on players under 21 and the elimination of contests based on college sports.
Vantiv's decision was first reported by the New York Times.