Fantasy Aces Admits to Using Player Funds for Operating Expenses
In January, daily fantasy sports (DFS) site Fantasy Aces suddenly stopped processing customer payout requests. Then, on January 31st, the site declared bankruptcy, leaving its customers in the lurch. According to the Chapter 7 bankruptcy filing, Fantasy Aces had just $2,200 in accounts labeled as “Player Accounts,” leading everyone to believe that the company had used player deposits to pay operating expenses. According to Legal Sports Report, in the latest court filings, Fantasy Aces admitted exactly that.
Here is what the filing says about that situation:
Shortly after his appointment, Trustee met with Debtor’s management team, including Thomas Frisina, Bryan Frisina, and Trent Frisina. During this meeting, the Trustee learned that the Player Database contains approximately 30,900 names.
Debtor’s management explained that each Player had an “account” comprised of money owed by Debtor based on amounts “deposited” by each Player and money won by participating in Debtor’s DFS contests. Although Debtor was supposed to keep the amounts in the Players’ “accounts” in trust and separate from Debtor’s operating funds, it did not do so and all Player funds were used by Debtor to pay operating expenses.
As mentioned in that last sentence, every state regulation having to do with daily fantasy sports requires operators to keep player funds and company funds in separate accounts and ne’er the two shall meet. Even in the absence of regulations, any responsible operator would adhere to this practice. Fantasy Aces didn’t do that, using player deposits to pay the bills.
This isn’t the first time this has happened in the online gambling world, the most noticeable example being Full Tilt’s original iteration. Company executives probably thought they could “borrow” from player accounts and repay the money when profits caught up, but clearly that didn’t happen.
It’s really idiotic – not even just unethical and/or criminal – when you think about it. Unless it’s some trivial amount of money that without a doubt will be made back multiple times or could easily be paid back personally by an executive (and let me clarify that those are not good excuses, either), it should be pretty obvious to anyone with half a brain that the practice of using player deposits to pay operating expenses is going to catch up with the company at some point. And when it does, there will be hell to pay. It would have been infinitely better to just shut the company down when there was no longer enough money to stay afloat and pay all the players back with funds that should have been untouched. Now the company has to shut down, anyway, players are without money, and someone(s) might be in some deep shit.
According to the court filings, somewhere around 31,000 players are owned money, the amount adding up to $1.3 million.
Less than a week before the bankruptcy filing, Fantasy Aces had agreed to be acquired by FantasyDraft, but FantasyDraft cancelled the deal saying that there were “issues identified during our due diligence.”
Hmm…I wonder what those issues were.
A week and a half ago, FantasyDraft announced that it will bail out Fantasy Aces players in exchange for acquiring Fantasy Aces’ player database. In a statement on the FantasyDraft site, the company explained:
As members of the DFS community, committed to doing things the right way, we feel that we need to do our part to protect the lifeblood of the industry: the players.
Through this agreement, we have committed to reimburse Fantasy Aces players up to $1,000 cash to cover missing account balances, this makes 99.6% of the players whole. In addition, to help those with larger balances we are also going to offer the following:
• Players with a Fantasy Aces cash account balance between $1,000 – $5,000:
o We will provide $1,000 Cash + Remaining balance in FantasyCash up to $4,000 ($5,000 total)
• Players with a Fantasy Aces cash balance >$5,000:
o We will provide $1,000 Cash + $4,000 FantasyCash + a Pending Bonus for the remainder of your balance
o Pending Bonus is earned at a rate of 4% for each $1 in entry fees paid in USD, and is paid as FantasyCash
Following Fantasy Aces’ bankruptcy announcement, the New York State Gaming Commission sent letters to DFS operators licensed in the state, requesting proof that their player funds are being kept separate from operating funds. Those operators are DraftKings, FanDuel, Draft, Yahoo!, and FantasyDraft.
The letter, acquired by Legal Sports Report, read, in part:
The Gaming Commission requests documentation that clearly illustrates the legal mechanism and internal controls associated with such a segregated account by which player funds are protected from “corporate insolvency, financial risk, or criminal or civil actions against such operator or registrant.” Accordingly, please include any documentation with banks or other depository institutions that establishes the restricted purposes of any accounts established for players’ funds and prize funds and the identity of all those authorized to transfer funds out of such accounts; a copy of your internal controls governing the receipt and disbursement of player funds to such players and the funding and disbursement of contest prize accounts; your procedures for players to withdraw funds from their player accounts in the event of operator insolvency.