First of all, it's been awhile since I've been to Nashville and I forgot how there's a starving artist in every restaurant and bar you walk into. Heck, even in the airport restaurant at 8 am there was a band playing for tips. It's a very unique city with a lot of friendly folks. The food was good too and those folks know how to drink.
The conference attracted 250+ industry executives, which wasn't bad, but it was down from our peak of 450+ attendees in June of 2015 in New York City. A lot has changed since the football season of 2015 and all of it has to do with DFS and state-by-state legislation. The DFS space is changing rapidly and you are seeing massive consolidation within the space and many companies leaving the space outright. The #1 and #2 DFS companies, Fanduel and Draft Kings, are waiting for federal approval on their merger, but last week you also saw Draft Day acquire Fantasy Aces. All of these state-by-state regulations, licensing fees and taxes are making it tough for DFS companies to comply and survive.
A lot of players may not realize it but almost a dozen states are currently crafting legislation that would make licensing fees range anywhere from no cost to $2.5 million per company plus a percentage of net revenue for their state customers. Some states are asking for $10,000-$15,000 per company plus anywhere from a 6% tax to a 20% tax on state residents' net revenue. The states see this as a new revenue stream to offset budget deficits, but they don't understand our industry's revenue streams and they don't understand how their laws are shrinking the number of game operators in fantasy.
For the last decade, season-long fantasy games were legal under the federal Unlawful Internet Gambling Enforcement
Act (UIGEA). This law was passed in 2006 and gave guidelines on how season-long games can pay cash prizes and be legal. Everything requested in UIGEA is what we've done with our contests since 2004.
But season-long is now being included in all of these state-by-state laws and soon we'll need to pay a dozen or two additional state fees along with net revenue fees for residents in each of those states. This is all on us before we even pay prizes, and of course once you win prizes you must pay state taxes on those winnings. It's a major squeeze on a business that had very thin margins already.
Right now we do not know how many states will require us to be licensed or what those fees are ultimately going to be. We are negotiating with many of these states that are asking for a license and trying to explain our business model. Some states are open minded; some want that fee up front. It will likely take a year before we really know what this new expense will be and how we'll have to cover for it. At this point we haven't adjusted prize payouts, but a year from now who knows what that total will be. It could be enough to affect us both.
Before we can get licensed in some states we must be in compliance with some of the requests, such as GEO locators for each contest. Many of the requests make sense for DFS companies, but we are being asked to do the same things. We have a lot of work ahead of us to change the web sites to be in compliance with these states, but we're going to do it. We need to if we want to keep offering our games.
The great thing about joining SportsHub Technologies is that we have multiple fantasy games and we need just one license in each state for all of our games. This allows us to spread the expenses around and to be licensed in most of the states. Had we stayed at STATS it would have been very tough to make ends meet as a single-game operator.
What the states have done is enabled the biggest DFS companies to be alone in the states with very high registration fees. The higher the fees the fewer the companies who can afford to compete in those states. The large fees are making it nearly impossible for new companies to enter the space. Heck, even in high-stakes it will be tough for a new company to get licensed in dozens of states before unveiling a new game. These laws were intended for consumer protection, but I think season-long got dragged into these laws without any knowledge of our games. And they are going to hurt the long-term viability of our space.
Nobody is against consumer protection, but I don't think consumers who play season-long games have any more assurances today than they did before some of these bills passed. I hope I'm wrong. It's up to all of us game operators to ensure that our prizes are in safe holdings, our guarantees are fulfilled and our games are in compliance.
There are competitors in the space now that claim to pay out 90-91% on simple games, but it would be impossible to be in compliance at those rates. As consumers, please be careful when you see those type of payouts. The states are not messing around and will shut down pay-to-play games that defy their licensing policies. Those games could be shut down mid-season with no returns.
Nothing is the same as it was before, as we're learning in our own country. The fantasy games space is the same way. We will find out if it's better or worse, but be prepared for these changes in the next year. The DFS laws are here to stay and they've engulfed our games as well.
