What are Fantasy Sports?
Fantasy sports are online games where participants create virtual teams using professional athletes. These real-life athletes are from the major professional sports leagues, including tackle football, basketball, baseball, hockey, and soccer. Teams are typically created at the beginning of the season by each team’s manager through an online draft or auction. Team managers select players based on their position needs and the projected performance of available players. Managers are responsible for setting their daily starting lineup and managing transactions, including pickup, dropping, or trading players throughout the course of the season.
During the course of the season, team managers earn points based on the real-life performance of their team’s athletes. For example, a player in a fantasy football league might earn points based on the number of yards gained or tackles made during the week. Participants usually compete against each other head to head, to finish the season with the most points, qualify for the playoffs and win the league championship.
What are Daily Fantasy Sports
Daily Fantasy Sports (DFS) is a variation of traditional fantasy sports, except results are determined daily. Unlike traditional season-long fantasy sports, DFS competitions typically last just one day or one week, and participants can join and play multiple contests over the course of a season.
In DFS, participants draft a new team of athletes each day or week, using a salary cap system to create a roster of players within a set budget. The goal is to assemble a team that will perform well in real-life games and earn points based on the players’ statistics. The participant with the most points at the end of the competition period wins a cash prize.
DFS has become increasingly popular in recent years, with the largest bookmakers entering the marketplace and offering daily or weekly competitions in various sports, including tackle football, basketball, baseball, hockey, and soccer. Some DFS platforms offer different game types, such as head-to-head contests, multi-player tournaments, or 50/50 contests where the top half of participants win a cash prize. DFS has also been the subject of legal and regulatory debates in some jurisdictions, with some authorities classifying it as gambling.
Are Daily Fantasy Sports Legal?
Since the 2018 Supreme Court ruling that opened the door for sports betting, daily fantasy sports have taken off in most states but may require a gambling license to operate as a business. The regulations are strict, and merchants must be aware of and comply with these laws to remain a viable business entity. Some states might even defer to an attorney’s professional opinion to determine the legality of the DFS business in their state.
The laws are confusing and can frustrate gamers and merchants alike. Regardless of location, many business owners will likely need to register their business in the state where they plan to operate their DFS company. Any information concerning the legality or feasibility of DFS in a state should be discussed with a board-certified lawyer familiar with all State and Federal laws surrounding the industry.
What Types of Payment Methods Are Available for Fantasy Sports?
The payment methods for fantasy sports can vary depending on the gaming type and the merchant’s location. Payment types will vary between payment processors depending on the banks and platforms they use. Many of the most common payment methods include:
- Credit/Debit cards: The most widely used payment method for online fantasy sports. Players can make instant and secure payments using their cards to fund their fantasy accounts. Arguably the most convenient payment method for online transactions.
- E-wallets: e-Wallets can be used to make payments for fantasy sports using credit and debit cards and electronic checks. Digital wallets let users store funds securely and make transactions without sharing their bank or payment card details.
- Bank Transfers: Users can transfer funds to the fantasy sports platform directly from their bank accounts. However, this method takes longer to process due to network limitations, but settlement schedules have been improved, reducing the total time to clear payments.
- Prepaid cards: Some fantasy sports platforms offer prepaid card solutions which can be loaded with funds by clients and used to make payments on the platform. This option benefits users who want convenience but cannot access credit/debit cards or bank accounts.
- Cryptocurrencies: A few fantasy sports platforms accept cryptocurrencies like Bitcoin and Ethereum as payment methods. However, this option is less common and may not be available on all platforms.
The availability of payment methods can vary depending on the user’s country of residence, the registered country of the business, the gaming platform, and the payment gateway being used. While researching online gambling payment processors, merchants will be able to see what types of online payment methods are available. As a fantasy sports merchant, it’s vital to offer a variety of payment methods to your customers so you can be convenient while appealing to as many customers as possible.
Why Are Sports Betting Payments High Risk?
Sports betting payments are considered high risk for several reasons. Fantasy sports fall in the online gambling category, a high-risk business for banks and merchant account providers. The gambling industry has a history of fraud and chargebacks, making many banks nervous about doing business with these companies.
In many countries, sports betting is either heavily regulated or prohibited. Violations can result in fines and legal issues for the payment processor and the merchant, levied against them by either the card associations, governments, or both. This can make it difficult for payment processors to ensure compliance with local laws and regulations, resulting in banks and payment processors avoiding certain countries altogether.
The nature of sports betting results in a higher risk of fraudulent activity and chargebacks. This can occur when customers dispute transactions or merchants fail to deliver the promised payouts or services. Another concern is that sports betting is often associated with negative stereotypes like addiction and problem gambling. This can make it difficult for payment processors to partner with merchants in this industry without damaging their reputations.
A concern that affects every bank and payment processor is the risk of money laundering. Gambling, including fantasy sports betting, can be used to launder money. This concern can result in increased scrutiny from underwriters, bank regulators, and law enforcement agencies. As a result of this increased risk, many payment processors charge higher fees or impose stricter requirements on merchants operating in this space. As a merchant, diligently researching for the right provider will help you find a processor who can serve your needs without price-gouging you.
How to Setup Fantasy Sports Payment Processing
When merchants are ready to start, establishing the payment processing for a fantasy sports business involves a few steps, which can take some time to secure. Every processor is different, but here is a general overview of the process:
- Shop: Look around for a processor specializing in the high-risk industry with experience processing payments for fantasy sports or other forms of gambling. Contacting other merchants in the industry or visiting industry-specific forums can help narrow your search.
- Apply: Payment processors typically require documentation to verify the business and its owners. This generally includes business registration documents, government-issued IDs, bank statements, and tax returns. Once you submit this information, it could take several days for the processor to review it and send it to underwriting for approval.
- Merchant Account Set up: Upon approval, checking all the documents required to finalize the services is essential. Become familiar with the terms set forth by the bank and payment processor, along with the schedule of settlements. This can help prevent many surprises in the future.
- Integration: As merchants familiarize themselves with their new online gambling payment processing services, the payment processor will begin providing instructions on integrating their payment gateway into the merchant website or app. This typically involves adding a few lines of code to your checkout page that can be easily done by a developer.
- Launch: Before launching your fantasy sports business, test your payment processing system to ensure everything works correctly. Merchants may also want to consider hiring a third-party security firm to test the security of their payment processing system to prevent any security breaches.
The specific requirements for setting up payment processing can vary depending on your location, chosen payment processor, and the specific features of your fantasy sports business. Consult a legal or financial professional with any questions or concerns.
Final Thoughts
Fantasy sports are a fantastic way to earn a living if you have the intestinal fortitude to jump through all the hoops to start the business. Setting up the correct type of business entity and finding the right state or country to operate in are essential first steps in the process. From there, you can determine which payment processor best suits your needs and get your business up and running. Remember: this industry is highly regulated, and legal advice is priceless.
