Fantasy sport firm FanDuel warns of threat from US regulations
One of Scotland's leading technology firms has warned it may not be able to continue as a going concern due to legal obstacles in its American market.
FanDuel was set up in Edinburgh, where much of its technology is developed.
Its headquarters were moved to New York to make it more of an American firm in appealing to a large US and Canadian market for fantasy sports.
It has become one of the two giants of that sector, along with US-based Draft Kings.
They provide a technology platform for fans of the four main American sports to pick fantasy teams from real players, and follow their performances. Changes are allowed from day to day, which helps drive more traffic than fantasy teams which are fixed for a season, and there are significant prizes on offer.
The fantasy sports companies have come under pressure from civil cases along with state regulators and legislators, with effective ban on the online games as being based on chance rather than skill.
Facing action from legal authorities, FanDuel has had to wind down its activities in Texas from the start of this month and in New York State for the past two months.
Last week, members of the US Congress in Washington DC began an investigation into the industry. And with uncertainty about its legality, the companies have faced obstacles from at least one payment processing firm that are a vital conduit to their revenue.
The audited accounts have just been published and state that the legal challenges cast doubt on the continued solvency of the company.
So far, the limits on its activities have only affected states which represent less than half of its revenue. Attorney generals in several states have advised that fantasy sports are illegal, five state legislatures have passed laws to clarify the legal position, with more expected.
But auditors warn that if there is a rise in the share of the market blocked by legal doubts, "such a possibility represents a material uncertainty that casts significant doubt on the group's ability to continue as a going concern".
FanDuel "considers itself to be operating lawfully, is currently defending its position and therefore the directors have reasonable expectations that the group has adequate resources to continue for the foreseeable future."
The accounts say it is making contingency plans, including a cut in variable expenses, likely to include marketing, advertising and prize money ,as well as delaying some operating cost payments.
The most recent accounts cover the 18 months to the end of June last year, before a blizzard of advertising and promotion last autumn brought attention to the scale of the business, and began the legal challenges.
During that time, FanDuel had turnover of $87.7m (£61m), up from $12m (£8.3m) in the preceding 12 months.
The number of active players rose from 253,000 during 2013 to 1.25m to the middle of 2015.
Between January 2014 and June 2015, it paid out $102m (£71m) in "service fees", and spent heavily on a fierce battle to build market share.
There was an operating loss for the 18 months to last June of $77.7m (£54m), up from $10.3m (£7m) during 2013. It continued to raise substantial funds through issuing equity, and remains in discussions on further investor fund-raising.
Facing the risk of being shut down by regulation and law, the company has cut its cash balances from approximately $274m (£190m) in the middle of last year to less than $48m, which it says should be adequate to keep it trading for a further 12 months - assuming it succeeds in its legal defence.