Photo credit: Phelan M. Ebenhack/Getty

Daily fantasy heavyweights DraftKings and FanDuel are in dire financial straits, months behind on payments to vendors and suffering from extreme cashflow problems, according to the New York Times.

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Joe Drape reports that DraftKings and FanDuel are close to a settlement with New York state attorney general Eric T. Schneiderman, in which the two companies have agreed to pay somewhere between $8 to $12 million to satisfy complaints of false advertising. The hundreds of millions of dollars worth of commercials the two companies ran advertised an easy game that anybody could win big money on, but the attorney general’s office actually found that the vast majority of players—approaching 90 percent in 2013–14 on DraftKings, for instance—lost money.

More intriguing than this relatively small settlement, however, is the reporting that the two companies have asked to pay it in installments, and are facing massive financial difficulties:

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DraftKings and FanDuel are so short of cash, according to the two people familiar with the negotiations, that they have asked Mr. Schneiderman’s office if they can pay the final settlement in installments, and they have conceded that they are having difficulty meeting their day-to-day obligations.

Within the past three weeks, the New York-based FanDuel has laid off more than 60 people, and both companies have acknowledged that they are months behind in their payments to vendors, especially to the array of public relations and lobbying firms that they have employed across the nation to persuade individual state legislatures to legalize daily fantasy games — the most critical component of rebuilding their business. 

In June, Bloomberg reported that the two companies were exploring a merger, and Drape writes that they will merge “as soon as possible.” It seems that a merger and a large infusion of cash—together the two companies have already gone through numerous venture capital rounds and raised over a billion dollars—is the only way they will stave off insolvency.

[New York Times]