Smaller fantasy sports businesses taking a hit as legislation continues to target daily fantasy sports giants DraftKings, FanDuel

Smaller fantasy sports businesses taking a hit as legislation continues to target daily fantasy sports giants DraftKings, FanDuel

The following article can be found in its original form at this link from the New York Daily News:

New York Daily News: Evan Grossman, April 22, 2016

Chances are, you've heard of DraftKings or FanDuel, the two giants of the fantasy sports world. But what about FantasyFreakingFootball.com? Yeah, not so much.

The fantasy sports industry is made up of many more small businesses that are trying to innovate and compete in a developing market set by the two biggest DFS operators. But as legislation continues to advance in statehouses across the country that grants DFS legal clarity, many of these laws seem to hurt those small businesses.

The result threatens to create a duopoly in the fantasy space with DraftKings and FanDuel, which both started as small companies, benefitting from laws that would appear to stifle startups and kill small fantasy businesses.

"There's no doubt it'll crush the little guys," Garret Mathany, the co-founder of Fantasy Freaking Football told the Daily News. "It would be like Walmart coming into a small town."

At the core of the concerns shared by Mathany and other small fantasy businesses are the lofty licensing fees included in bills like the DFS law recently passed in Virginia. That state, the first to officially legalize DFS, requires a $50,000 fee from operators. Proposed legislation in New York includes a $500,000 registration fee, a sum most small fantasy businesses would choke on.

"That's not the kind of money smaller companies can come up with," Mathany said.

Fantasy Freaking Football — it gets its name from the love-hate relationship fantasy players have with the game — makes a modest sum from selling draft kits specifically written for high-stakes season-long leagues. It's not even a DFS site, but because of an industry-wide crackdown even season-long fantasy businesses are feeling the pinch of government regulation.

High-stakes leagues typically include an entry fee anywhere between $1,000 up into the tens of thousands of dollars and usually cater to elite-level players. The site caters to a very small percentage of fantasy players.

As such, the business is just something Mathany, 47, has done on the side as a way of making ends meet and supplementing his income for his young family in Southern California. The business is operated by Mathany and partner Jules McLean, and employs a small staff of young, freelance writers who contribute content. Corporate headquarters is Mathany's home office.

"Nobody's getting rich off this," he said.

But if the state were to pass a law and require Fantasy Freaking Football to fork over a $50,000 licensing fee, he would have to close up shop. The same fate would be in store for sites like FantasyAces.com and Star Fantasy Leagues and dozens of other small businesses.

"All they're doing is putting a financial barrier in place for smaller operators," Seth Young, the chief operating officer at Star Fantasy Leagues told the Daily News.

In response to the mounting legislative challenges facing the little guys of the fantasy industry, last month more than 30 of those mom-and-pop shops announced the formation of the Small Businesses of Fantasy Sports Trade Association. It is a coalition that's been lobbying lawmakers to give small businesses a bigger voice in the conversation surrounding state fantasy regulation.

"Our broad goal is to create awareness of the scope of the entire fantasy sports industry beyond what everyone has heard: FanDuel and Draft Kings," SBFSTA co-founder Dave Gerczak said. "We have found that most lawmakers have very little understanding of the nuances of this industry. We want to help them understand and make laws which help this industry continue to grow and flourish."

Small fantasy operators are not at odds with DraftKings and FanDuel. They just want to get a fair shake from lawmakers to be able to build their businesses in a developing industry. They all want a piece of the same pie, so to speak. But the highly publicized legal battles between the two heavyweights is making it much harder for smaller businesses to survive.

"From a legal standpoint, FanDuel and DraftKings have put all small companies at risk," Gerczak said, pointing toward the high fees some laws propose. "Also, fantasy sports has been redefined as 'DFS' which is completely inaccurate as the vast majority of fantasy sports players still play traditional, season-long games. This redefinition has framed the argument whether fantasy sports is gaming or not. This argument was largely settled before the DFS era and should not include the season-long companies."

Small fantasy operators are not opposed to paying a fee. But they feel their payments should more accurately reflect the size of their business. In addition to fighting for a fairer licensing fee structure, SBFSTA is also lobbying for hardship waivers for companies with less than 5,000 customers, a ban on fantasy contests on amateur sporting events and a minimum age of 21 for players.

"Based on our conversations in Albany, we're very hopeful that New York's fantasy legislation will have a small business exemption and we would love to be able to tout New York as the model," Gerczak said. "The bills already passed into laws in Virginia and Indiana would be considered a good bill for fantasy if not for the onerous $50,000 fees without a small businesses exemption, or sliding scale that would have worked for the smaller companies."

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