Auditors of daily fantasy sports operator FanDuel have expressed “significant doubt” about the company’s future if more US states determine it is an illegal gambling operator.
The Edinburgh-based FanDuel recently released its annual report, which showed the company enjoyed record revenue of $87.7m in the 18 months ending June 30, 2015. However, pre-tax losses came to $94.9m, compared to a loss of only $11.3m in its previous report.
FanDuel blamed the escalating losses on its decision to “significantly” boost its marketing and product development, while insisting that the company’s financial reserves – which fell from $274m to $47.8m as of June 30 – are sufficient to see it through the coming year.
FanDuel defended its spending by noting that its paid active player base had quintupled to 1.25m by June 30, and said the investments it had made would “drive the future success and growth of the group with due consideration of the ongoing litigation issues.”
Those issues include its ongoing fight with New York state attorney general Eric Schneiderman, who succeeded in convincing both companies to exit his state until they could convince a court that they weren’t violating the state’s gambling laws, or state legislators amended their laws to explicitly authorize real-money DFS play.
New York is far from the only state that has given DFS the bum’s rush since the ‘data leak’ scandal upended the industry last October. While some states have since taken a pro-DFS legislative approach, others have followed New York’s lead, and both FanDuel and rival DraftKings exited Idaho and Alabama in just the past two weeks.
FanDuel’s annual report attempted to put its forced market exits into perspective by saying they represent “less than 20% of total turnover” in its most recent financial report. But the company’s auditors Deloitte expressed a less sunny outlook and warned that the company could face real problems if current trends continue.
Specifically, Deloitte senior statutory authority James Boyle warned that the prospect of more states shutting off the DFS taps “represents a material uncertainty that casts significant doubt upon [FanDuel’s] ability to continue as a going concern.”
FanDuel may be close to catching a break in New York, as state Assemblyman J. Gary Pretlow recently tweeted that new DFS legislation would be “introduced and moved through the committees in the next coming days.” New York legislators will adjourn on June 16, meaning the pressure’s on to push the bill over the hump and give FanDuel’s auditors less reason for concern.
