Daily fantasy sports (DFS) operators rarely handle the banking aspects of player deposits and withdrawals in-house. Instead, DFS businesses contract with payment gateways as a financial go-between, and without the banking services of these processors, DFS sites would be unable to function.

One of the transaction firms utilized by some of the DFS sites, Cincinnatei-based Vantiv, has sent an email to their DFS operators instructing them to stop accepting payments from New York state players. The directive was issued shortly after New York Attorney General Eric Schneiderman announced that DFS websites are in violation of NY State’s gambling laws, and delivered cease-and-desist orders to the industry’s largest sites – DraftKing and FanDuel.

However, DFS sites that utilize the banking and processing services of consumer credit-card issuers JPMorgan Chase & Co. and Bank of America are continuing to allow New York residents to fund their DFS accounts through their banks while “monitoring the situation.” For most financial gateway servicers, DFS business represents only a portion of their payment processing operations. Further, financial processors and gateways operate with a different risk criteria due to the fact their federal and state regulation is more stringent than for gambling enterprises.

In a worse case scenario, both operators and payment processors could be vulnerable to an industry-wide forced shut-down and asset seizure not unlike the infamous online gambling closure known as Black Friday, lead by US Attorney Preet Bharara in 2011. Recently Bharara has begun investigations of the DFS industry, and for some – this is an unsettling turn of events.

Season-long fantasy sports were given an exemption during the creation of the 2006 Unlawful Internet Gambling Enforcement Act – well before DFS existed. Since then the daily fantasy sports industry has emerged and many states are struggling to come to terms with whether or not this new form of fantasy sport play qualifies as “online gambling.”

In the meantime, proactive payment processors are positioning themselves to stay out of the way of the federal investigations.

 

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