The End of DraftKings and FanDuel?

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By: Jenni Lyman,

On Sundays, each NFL play seems to be sandwiched in between a series of incessant testimonials touting the ease of winning thousands of dollars from onlinedaily fantasy football. Both DraftKings and FanDuel are on target to spend $150 million in Q3. [1] It is reasonable to believe these two companies will remain a staple of sportsprogramming considering the amount of cash in their quiver devoted to marketing. However, there appear to be a slew of legal principles tailored to prevent unfairness to consumers that may put an end to the two companies. [2] Recent promo codes such as ‘Win’, ‘Success’, or ‘Fun’ could change to ‘Fraud’.

Online daily fantasy sports are not regulated under the Unlawful Internet Gambling Enforcement Act of 2006 because they are considered games of skill as opposed to raw gambling. Slate. See also. Act. [3]

Last Thursday, Draft Kings player, Adam Johnson filed a class action lawsuit in federal court in Manhattan. [4] The complaint alleges the two companies violated the laws of three states—New York, FanDuel’s corporate headquarters, Massachusetts, where DraftKings maintains its principal place of business, and Kentucky, where Johnson resides. [5]

First, the complaint alleges the two companies acted in concert. [6] Moreover, they follow the same rules regarding employee participation and issue numerous joint statements on their website. [7] The linchpin of the suit is the fact that employees of both companies had access to data and information that is not public. [8] The suit alleges that analytics are run to determine how lineups on FanDuel would fare if they were entered into DraftKings contests. [9] Finally, Johnson alleges the “companies failed to take reasonable steps to prevent insiders from competing against members of the proposed class of plaintiffs.”[10] Shockingly, DraftKings employees have won around $6 million in winnings from the $2 billion awarded by FanDuel so far. [11]

So, if Johnson can prove the two companies had knowledge of the insider trading, he has a successful claim for fraud and could recover his money by proving he would not have paid $100 to play a rigged game. [12]

To add to the legal fire, even if Johnson is unable to prove insider trading exists, there is also a possible claim of negligence. The claim alleges the companies failed to take reasonable steps to prevent competition from insiders against the proposed class of plaintiffs. [13] The suggested class is only those who dished out money in a DraftKings account prior to October 6, 2015. [14] Lastly, violations of the Kentucky consumer protection statute and the New York false advertising law are included in the suit. [15]

As we settle in for another weekend of FanDuel and DraftKings commercials spattered with football, could Johnson v. FanDuel be a season ender?

 

 

 

[1] Anthony Crupi, Fantasy Sports Sites DraftKings, FanDuel September Spend Tops $100 Million, Advertising Age, Sept. 30, 2015, http://adage.com/article/media/draftkings-fanduel-spe/300658/.

[2]John Culhane, The DraftKings Crash, Slate, Oct. 13, 2015, http://www.slate.com/articles/sports/sports_nut/2015/10/the_insider_trading_scandals_could_bring_down_draftkings_and_fanduel.html.

[3]Id.

[4] Darren Rovell, Class action lawsuit filed against DraftKings and FanDuel, ESPN, Oct. 9, 2015, http://espn.go.com/chalk/story/_/id/13840184/class-action-lawsuit-accuses-draftkings-fanduel-negligence-fraud-false-advertising.

[5]John Culhane, The DraftKings Crash, Slate, Oct. 13, 2015, http://www.slate.com/articles/sports/sports_nut/2015/10/the_insider_trading_scandals_could_bring_down_draftkings_and_fanduel.html.

[6]Id.

[7]Id.

[8]Id.

[9] Darren Rovell, Class action lawsuit filed against DraftKings and FanDuel, ESPN, Oct. 9, 2015, http://espn.go.com/chalk/story/_/id/13840184/class-action-lawsuit-accuses-draftkings-fanduel-negligence-fraud-false-advertising.

[10]Culhane, supra note 4.

[11]Rovell, supra note 8.

[12]John Culhane, The DraftKings Crash, Slate, Oct. 13, 2015, http://www.slate.com/articles/sports/sports_nut/2015/10/the_insider_trading_scandals_could_bring_down_draftkings_and_fanduel.html.

[13]Id.

[14] Darren Rovell, Class action lawsuit filed against DraftKings and FanDuel, ESPN, Oct. 9, 2015, http://espn.go.com/chalk/story/_/id/13840184/class-action-lawsuit-accuses-draftkings-fanduel-negligence-fraud-false-advertising.

[15]Culhane, supra note 11.
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