Payment processors aiming to take Vantiv’s place serving the billion dollar daily fantasy sports (DFS) market have been warned they face a “high risk, volatile and uncertain” legal environment.

Vantiv will stop processing payments for DraftKings and FanDuel, the two most popular operators in the sector, on February 29.

A series of state and federal investigations into the legality of DFS in the U.S. in relation to gambling has dragged the company, and card networks MasterCard, Visa and American Express, into a thickening mire.

Vantiv has decided the risk is too great as the number of states declaring the games illegal increases.

DFS is a hyper-charged version of the popular online games which allow individuals to create teams and compete against each other by earning points from professional sports.

In its fourth-quarter 2015 earnings call, Vantiv chief executive Charles Drucker said: “We have decided that it is prudent to suspend processing for transactions involving daily fantasy sports due to the increasingly uncertain regulatory and judicial environment around these operations.

“We may re-enter the space in the future should conditions change.

“In the meantime, we remain firmly committed to processing for online and land-based gaming operators, including state lotteries and other regulated gaming activity where the regulatory and judicial framework are more clearly established.”

PayPal said it would continue to process payments for DFS sites.

A Gamble Worth Taking?
Industry watchers believe any company hoping to step into Vantiv’s shoes is likely to be offered a weaker deal and may take on a greater burden of risk.

Gaming law expert Daniel Wallach of Becker & Poliakoff told PaymentsCompliance: “The level of risk is too high right now for payment processors like Vantiv.

“They are getting out until there is more clarity, and the big question is will there be other payment processors to fill the void and process these types of transactions.

This article first appeared on PaymentsCompliance, click to find out more.

“Vantiv is certainly one of the most prominent processors in the space and it remains to be seen of another legitimate processor will step in to fill the void, as without payment processors, there is no DFS.”

A great jeopardy for payment processors is what several state attorneys general opinions could potentially lead to once decisions are made.

According to our sister publication GamblingCompliance, 23 states are currently considering DFS legislation.

Federal investigations could mean criminal indictments under laws such as the Unlawful Internet Gambling Enforcement Act, the Illegal Gambling Business Act and the Wire Act.

“The legal environment for DFS is in a state of high volatility at the moment; while state legislators are moving quickly to provide an unobstructed legal path for DFS, they are not the only participants or lawmakers whose voices matter,” Wallach said.

He said state attorneys generals are increasingly weighing in to declare DFS constitutes illegal gambling.

“Those opinions are creating an environment of great risk for payment processors and others in the spectrum,” he said.

“The spectrum of federal criminal prosecution looms over the entire industry, while at the same time state lawmakers are rushing to provide a legal protection and clarity for the industry, but the potential involvement of the feds is a big unknown at this point.

“The one thing payment processors and banks cannot tolerate is the risk and the unknown, that is not a safe environment for companies that process billions of dollars in transactions.”

Big Risk, Big Reward?
The DFS industry is considered a small portion of the overall portfolio of many of the processors; however, Vantiv has not declared how much it makes from the sector.

A study by GamblingCompliance priced a fully regulated sports-betting market as worth $12.5bn, with online gambling worth about $4.4bn annually.

Payments expert Matthew L. Cantor, a partner in the New York office of Constantine Cannon LLP, said the Empire State had been aggressively leading the charge to criminalize DFS.

“There is a certain degree of risk involved and a real likelihood the sites will close, and a key pressure point of that is what is happening in New York,” he told PaymentsCompliance.

“That creates increasing risks for processors and others involved in the chain, anyone else invested in DFS.

“It would be difficult to imagine a company striking the same kind of deal that Vantiv had with the sites, should someone attempt to step up to replace them.

“Vantiv had that position previously and I think now we would see the advantage switched to the sites.”

DraftKings and FanDuel enjoy marketing deals with major sports franchises and draw direct investment from the MLB, NBA, NHL and MLS.

Although this may seem enticing, a newcomer is unlikely to enjoy the same advantages of Vantiv which had a long-standing relationship with the pair through their rise to prominence.

“Vantiv is known and reputable, so you might have to step down in class from a Vantiv to a processor that is more risk tolerant,” Wallach said.

“But credit card companies and banks are not exactly known for their risk tolerance.”

Wallach said he felt sure there would be a company or group of companies to collectively fill the void, but it may not be immediate.

“Payment processors are averse to the kind of risk that could jeopardize their ability to do business in the United States,” he said.

“The laws will eventually change (for the betterment of fantasy sports), but right now the environment may be too risky.

“I don’t think if Vantiv disappears from the scene that DFS will disappear.

“There will always be someone else to perform that function.

“The level of risk is high, notwithstanding the optimism coming out of the industry.”

In November, a Massachusetts court reportedly ruled in favor of a motion by DraftKingsrequiring payments companies Vantiv and NBX to continue processing New York transactions for them until the legal issues were decided.

In the same month, customers of DFS sites filed a class action lawsuit against Visa, MasterCard and American Express alleging the companies aided the legality of an unregulated industry.

Written by:
Mark Taylor
News Editor, PaymentsCompliance



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