“Significant” doubts have been raised over fantasy sports firm FanDuel’s ability to continue as a going concern amid growing legal challenges in the US.
The Edinburgh-based company – which has just reported record revenues of $87.7 million (£61m) – was recently told to stop accepting bets in the state of New York after investigators concluded that its daily competitions amount to gambling, rather than a game of skill.
Its latest annual report, FanDuel confirmed that it wound down operations in New York from 21 March – and in Texas from the start of this month – “until the legislative bodies in these states have determined whether or not to expressly legalise fantasy sports”.
FanDuel, one of Scotland’s most lauded technology start-ups that has been valued at more than $1 billion, has also suspended competitions in Nevada and reached “similar settlements in a couple of smaller states”.
“The loss of turnover in the states in which the group has suspended operations pending further legal clarity represents less than 20 per cent of total turnover for the 18 months ended 30 June 2015,” said the company, co-founded by five entrepreneurs including chief executive Nigel Eccles.
But writing in the firm’s annual report, auditor Deloitte said: “It is possible that the number of states where the state attorney general may issue opinions against the group’s activities could expand and the group’s activities could be determined to be unlawful in those states and therefore prohibited from operating.
“The potential for such an outcome represents a material uncertainty that casts significant doubt upon the group and the company’s ability to continue as a going concern.”
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The warning came as FanDuel, which insisted it had sufficient funding to meet its working capital needs for the coming year, revealed its pre-tax losses jumped to $94.9m for the 18 months to 30 June 2015, compared with a loss of $11m for 2013.
It said the losses had widened on the back of a decision to “significantly” ramp up its investment in product development and marketing.
“However, the directors believe that the investment strategy undertaken during the period will drive the future success and growth of the group with due consideration of the ongoing litigation issues.”
FanDuel’s headcount has ballooned to 230, up from 57 in 2013. The company also said it has raised an extra $55m from existing investors.