Fantasy sports operators should be able to find a new company to process payments from their customers after the industry’s main vendor, Vantiv Inc., said it would withdraw from the sector, industry experts said.
Vantiv’s announcement late Friday that it would “suspend” most of its fantasy sports contracts by the end of February sent shockwaves through an industry already dealing with mounting questions about the games’ legal status.
Vantiv provides the key link between these companies and their paying customers, getting authorization from banks and credit-card issuers to transfer entry fees and prize payouts.
Boston-based DraftKings is not immediately affected by Vantiv’s decision. The fantasy sports operator has a restraining order issued by a Suffolk County judge preventing Vantiv from leaving its contract with DraftKings, arguing that losing Vantiv would “massively disrupt” its business. That contract runs until mid-2017, according to court documents.
DraftKings declined further comment Monday, citing a previous statement that noted the restraining order binding Vantiv to the contract. Vantiv also declined to comment.
Other payment processors will likely bid to take Vantiv’s place, observers said, but fantasy sports operators should expect to pay more for that service.
“I don’t think they’ll have a problem finding someone else,” said Jim Moran, an investor and payments-industry expert with North Bridge Venture Partners. “They may incur higher costs, but someone will take their business and they’ll just manage the risk.”
In a statement Monday, New York-based FanDuel Inc. told customers that “there are many other payment processors available, as well as PayPal, and this decision will not impact their ability to play on FanDuel, withdraw funds or have any other impact on the user experience.”
PayPal, which provides payment services to the industry, in a statement would only say it “will take the time necessary to carefully review ongoing developments.”
Still, Vantiv’s departure would be the most disruptive fallout from a series of legal challenges that have hit the young daily fantasy sports industry.
The most notable comes from New York, where Attorney General Eric Schneiderman contends DraftKings and FanDuel are running illegal gambling operations. In court documents, Schneiderman has said Vantiv is correct in assuming that processing fantasy sports payments “will expose them to liability under New York law.”
Federal law also poses a risk for payment processors, since prosecutors can charge financial services companies for enabling a business that violates state gambling laws.
In its letter Friday, Vantiv, based in Symmes Township, Ohio, cited the legal uncertainties raised after attorneys general in several states recently ruled that the cash contests violate their gambling laws.
One Vantiv customer, Matthew Chatlin, the chief executive of daily fantasy startup OwnThePlay, said he was looking into the possibility of using foreign processors.
“The UK is the most regulated gaming market in the world. I would not sell OwnThePlay’s customers short in doing business over there. Nor would I sell them short doing business with our neighbors to the north,” Chatlin said.
Several Vantiv competitors have already been processing payments for fantasy sports companies, said Scott Fitzgerald, a vice president with online payments software company BlueSnap Inc.
BlueSnap, a Waltham-based firm that provides payment services for some smaller fantasy sports sites, has not heard that those payment providers are backing away from fantasy sports, Fitzgerald said, declining to name specific companies working with BlueSnap.
“This isn’t the kind of thing where you see a run on the bank, where once one guy gets out they all get out,” he said.
DraftKings and FanDuel, Fitzgerald said, “probably have some short-term technical work they need to do to make sure they can quickly switch to another processor. But the thought that nobody would be standing there looking to date them is unlikely.”
The search for a replacement vendor can bring its own risks, however. Jeff Ifrah, an attorney who represents smaller fantasy sports companies, said he would advise operators to scrutinize payment processors who rush to fill Vantiv’s shoes, including asking to see proof of their relationships with legitimate banks.
“You have to wonder about any processor that would take on this business after Vantiv got out,” Ifrah said. “They can say they have their own risk-management department, saying they think the tide is going to turn, but they can’t say Vantiv is crazy. If a processor wasn’t concerned about doing business in certain states, that would be very suspicious.”