Edinburgh-founded fantasy sports firm FanDuel has insisted its $1 billion valuation has not been dented by mounting legal and regulatory pressure.
The firm, one of Scotland’s most lauded technology start-ups, 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 biggest rival in the US, DraftKings, was also ordered to “cease and desist”.
Last month, FanDuel – co-founded by five entrepreneurs including chief executive Nigel Eccles and his wife Lesley, the company’s executive vice-president of marketing – hit back at a claim that its service could be in breach of the law in Texas, arguing that the opinion put forward by the state’s attorney general, Ken Paxton, represented a “misunderstanding” of the facts.
In a statement published on his website, Paxton said: “It’s my duty as attorney general to look to the law, as passed by the people’s representatives, to answer the questions put to this office.
“Paid daily ‘fantasy sports’ operators claim they can legally operate as an unregulated house, but none of their arguments square with existing Texas law. Simply put, it is prohibited gambling in Texas if you bet on the performance of a participant in a sporting event and the house takes a cut.”
At the time, FanDuel counsel John Kiernan, a partner at law firm Debevoise & Plimpton, said Paxton’s opinion was founded on a “misinterpretation of the law and misunderstanding of the facts about fantasy sports”.
He added: “Fantasy sports has always been a legal contest of skill in Texas. The Texas legislature has expressly recognised that payment of an entry fee to compete for prizes in a contest of skill is not illegal gambling. Texans have long enjoyed participating legally in a wide variety of contests on that basis.
“The attorney general’s advisory prediction that a Texas court might think fantasy sports fall outside that protection because fantasy sports contestants are not actually participating in the sports events disregards that the selection of a fantasy roster to compete against other contestants’ selections is a separate valid contest of skill all its own.”
FanDuel closed a bumper $275 million (£192m) funding round in July, backed by big-name US investors including Google Capital and Time Warner. The move saw it ranked among an elite group of so-called “unicorns” – start-ups with a valuation of $1bn or more.
However, stock market commentator Douglas A McIntyre, chief executive and editor-in-chief of the website 24/7 Wall St, has claimed that FanDuel and rival DraftKings have “almost certainly” seen their values drop following “damaging attacks” from US states that allege the sites are in breach of gambling laws.
McIntyre said: “FanDuel and DraftKings were among the most promising start-ups in recent years. If the sieges against them get worse, they may be worth very little – certainly not $1bn.”
In response, a spokesperson for FanDuel, which has its UK headquarters at Edinburgh’s Quartermile development, said: “There has been no change to our valuation.”