- Stephen Savoia/AP
High-profile daily fantasy companies DraftKings and FanDuel are dealing with severe cash flow problems and are months behind paying vendors, The New York Times reported on Sunday.
According to Joe Drape of the Times, the two companies are nearing a settlement with New York attorney general Eric Schneiderman in which they will acknowledge false advertising and pay between $8 and $10 million.
Last year, both companies spent hundreds of millions of dollars on ads that promised pay-outs for everyday fans, though the Schneiderman’s office found that 94% of users lost money as a result of the “sharks and minnows” problem. A Business Insider special report from November 2015 quoted industry insiders saying that 1% of users took home almost all of the money playing daily fantasy sports.
But because of problems with cash flow, Drape reports, the two companies have asked to pay their settlement fees in monthly installments.
“DraftKings and FanDuel are so short of cash, according to the two people familiar with the negotiations, that they have asked Mr. Schneiderman’s office if they can pay the final settlement in installments, and they have conceded that they are having difficulty meeting their day-to-day obligations.”
The problems don’t stop there. Drape added that FanDuel has laid off more than 60 people, while both companies are behind on payments to vendors.
“Within the past three weeks, the New York-based FanDuel has laid off more than 60 people, and both companies have acknowledged that they are months behind in their payments to vendors, especially to the array of public relations and lobbying firms that they have employed across the nation to persuade individual state legislatures to legalize daily fantasy games – the most critical component of rebuilding their business.”
Rumors have swirled since the summer that the two companies are trying to merge, and although the companies have denied the speculation, Drape reported that they are trying to merge “as soon as possible.”
FanDuel offered the following statement to Business Insider:
“While we can not comment on the details, we can confirm that we have been in ongoing settlement negotiations with the New York Attorney General’s office. They have been tough but fair and we hope to reach an acceptable resolution.”
DraftKings offered a similar statement:
“Our business is growing, thanks to millions of players – including our New York fans – great leadership and a successful group of employees in both Massachusetts and New York. We can confirm that we are in discussions with the New York Attorney General’s Office to conclude the settlement that we entered into last March, but out of respect for the process, we will not comment further.”