High Stakes Fantasy Football Site AFFL's Payment Issues Heating Up
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By Dan
Posted on: 03-04-08
As the 2007 fantasy football season wrapped up, many fantasy owners settled with their managers and began looking forward to another competitive and grueling season in 2008. The skies weren’t as sunny in Michigan, however. The American Fantasy Football League, or AFFL, a provider of high stakes fantasy football contests, found itself unable to process nearly half a million dollars’ worth of prizes as a result of a lack of capital. The company is now searching feverishly for an investor while many customers patiently wait. FantasyFanatics.com sat down with Neil Wickham, the businessman behind AFFL, to learn more about the situation and its resolution.
Many people are calling this the “AFFL scandal,” but the story behind the issue is anything but a scandal. You might ask yourself how a company like AFFL could almost instantaneously find itself $475,000 in debt. For AFFL, it was a combination of legislative woes and technical overruns. When the Unlawful Internet Gambling Enforcement Act, or UIGEA, was passed in late 2006, it prohibited the transfer of funds for gambling online. Fantasy sports, however, received a special carve-out – with a few catches. One caveat was that prize payouts could no longer be dependent on the number of entrants; rather, they had to be specified ahead of time.
Wickham explains AFFL’s business decisions heading into the 2007 fantasy football season: “We set our prizes based on the projected entries we thought we would have plus the necessary software improvements. We estimated our growth and we knew we couldn’t handle it without software improvements. We dug some holes that we really couldn’t dig out of after getting feedback from computing experts who said we should go in a different direction with regards to our technology. We had to cancel an entire day of a Copper draft and lost a lot of new customers off that. We had a repeat winner the year before, which hurt us too. We didn’t advertise properly, either. We put a lot of our advertising budget into SEO instead of magazines and online advertising, which backfired.”
One option available to businesses under the UIGEA is canceling a contest if the number of entries fails to reach a certain threshold. The option was available to AFFL, so why didn’t Wickham and company use it? “It’s easy for people to say that we should have canceled the contest. The problem is that we frontloaded money as entry fees came in. I shouldn’t have assumed we were going to get a certain level of growth. Had we known we weren’t going to get the growth, we wouldn’t have made software changes. Then, we wouldn’t have set the prizes as high as we did. People think we’re running away with the money. We’re not running away with any money; it went to the business.”
AFFL now owes $475,000 in prize money to 2007 winners and totals $850,000 in current liabilities. On the asset side, the company possesses $850,000 in re-creation costs, which is a technological term that values the source code of a particular program. It takes into account the amount of time needed to re-create the code, factoring in the value of the code itself and the learning curve a programmer would have to go through to develop it in the first place.
AFFL entering bankruptcy also isn’t an option. Wickham counters that he’s in it for the long-haul: “I don’t consider bankruptcy an option. I have too much invested personally and those loans are personal loans that don’t go away in a bankruptcy. The prize debts would go away, but the personal loans that I’ve used to sustain AFFL won’t. We’re not entertaining that option. The only way I’m leaving AFFL is if I’m selling it. We’re in for the long-haul.”
The amount of attention that the issue has received in recent weeks has been monumental. AFFL may be close to securing an investor, which would help rectify the problem: “We have one investor who’s in if we spin off AFFL. There’s a grand opportunity for someone here. There’s been more exposure for us in the last two weeks than we’ve ever gotten. There are a lot of people watching to see what’s going to happen.” A new investor would likely need to pay out $475,000 in cash to prize winners, else risk a potential hazardous situation in the market. Other boutique fantasy sports game operators may also suffer as a result of customers questioning their ability to pay out at the end of the fantasy season.
Scott Atkins is an AFFL customer who finds himself without proper prize payment. He’s owed $3,300 and offers the following thoughts: “I am saddened and disappointed by the current AFFL situation, not only as someone who is owed over $3,000, but as a participant in several high stakes fantasy football events. AFFL had a track record of paying that spanned over five years. It's entirely possible that this could happen to any organization that finds itself in financial distress. The level of trust I once blindly held has been severely diminished.”
A member of FootballGuys.com named aerolaw is due $800 from AFFL as a result of his winnings last season. He commented to FantasyFanatics.com, “My ideal resolution is that everyone gets paid and there is no fallout that affects the industry. If some legislator is a fantasy football enthusiast, he might think that regulation and oversight is a good idea, at best. At worst, he’d think it is interstate gambling and try to put an end to it.” As to whether he would play again on AFFL: “No, I would not play AFFL again unless there was a change in ownership.”
Despite a rocky road, Wickham isn’t fazed. He’s pursuing new venture capital every single day: “I definitely am optimistic as to how it will turn out. It’s been stressful, but it’s always good to get to talk to investors. They’re excited to talk to you, which makes you even more excited to talk to them. I’m handling the public relations work myself. I try to call everyone back and e-mail everyone back myself. I understand why people are frustrated. I don’t blame then one bit. The situation will work out. We’ll find an investor.”
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