Adam Johnson filed a civil class action in federal district court against FanDuel and DraftKings last week in the Southern District of New York (Manhattan) that alleges the daily fantasy sports (DFS) websites fraudulently induced him to enter a game supposedly based on an individual’s knowledge and skill superior to his competitors.
As the complaint alleges, since employees in DraftKings have access to information on the proprietary percentages of certain professional athletes in a particular contest that the public does not, and since DFS player pricing models are sufficiently similar in design, it then provides a substantial benefit to the employees of DraftKings to participate in contests FanDuel operates, and vice-versa. The Plaintiff, who paid $100 to enter a contest on DraftKings, alleges that he would not have paid that money had he known that employees from FanDuel or other DFS providers were allowed to compete against him because success then turns primarily upon access to that non-public information and not his knowledge or skill.
Here’s the gist of how it works: DFS websites allow individuals to create a line-up of athletes at certain positions in a professional sport until the individual reaches a salary cap for his team. An athlete’s price is set through proprietary models that provides employees with data about the value of certain athletes to which the other players in the contest do not have access. The individual can then enter his team into tournaments with entry fees that range between a quarter and $5,300. The athletes accumulate points for the player based on real-life statistics during a particular sporting event. The players with a line-up that wins the most points in their selected tournament will then win the most money.
The winnings, however, are marginal when a player’s team is substantially similar to the other competitors in the contest. It’s therefore a huge advantage to have the ability to make rosters with enough athletes in a player’s line-up different from the other contestants’ rosters; and, while DraftKings restricted its employees from entering its own contests, it did not (until very recently) restrict its employees from entering contests on other DFS websites like FanDuel. Since the proprietary pricing models are so similar, this allowed DraftKings employees to use information acquired from its own models and attribute that to the ones on other DFS sites when selecting their line-ups.
How much of an advantage is this? Out of 229,883 entrants, a DraftKings employee came in 2nd and won $350,000. (This was one employee in particular that could be tracked because he accidentally posted roster data before he was supposed to one week).
Both DraftKings and FanDuel knew that their employees would enter contests held on the other’s websites. They also knew, or should have known, that those employees from the other sites would have a significant advantage over even the most skilled and knowledgeable competitors on their own sites. In spite of that knowledge, the websites continued to promise the integrity of its process. It held out to the public that the winnings were based on an individual’s skill, knowledge, and research. It made the Plaintiff, for example, believe that he could apply his skill, knowledge, and research to create a line-up, pay to enter a contest, and attempt to cash in on a prize winning.
The Plaintiff, from Kentucky, therefore brought this action in federal district court in representation of the following class: “all persons in the United States who deposited money into a DraftKings account before Oct. 6, 2015 and competed in any contest where other entries were made by employees from DraftKings, FanDuel or any other DFS site.”
These civil issues, however, are all notwithstanding the criminal side of things. All of this recent attention caused the FBI to begin an investigation into the legality of their sites that makes their continued existence questionable.
In reality, this won’t affect me at all. I swore off fantasy sports after my previous league banned me for inactivity. Because I have better things to do on Sunday. Like watch Netflix.