DraftKings, FanDuel Players Specify Claims in Fantasy Sports MDL

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Furious daily fantasy sports player plaintiffs have laid out their grievances in a consolidated class action lawsuit alleging DraftKings and FanDuel duped players into participating in illegal gambling operations that gave an unfair advantage to their own employees who also participated in the daily competitions.

The 273-page complaint sets in motion what will no doubt be a hotly contested legal battle between DraftKings, FanDuel, and various named payment processors as well as a Class of consumers who fell victim to an alleged fraudulent multi-million dollar nationwide advertising campaign.

Like fantasy sports games, where groups of people play against one another, assembling hypothetical teams and scoring points based on how players did in actual games, the two companies have set up online daily and weekly games.

Players pay an entry fee to a website — from 25 cents to several thousands of dollars — to play dozens if not hundreds of opponents, with prize pools that can pay $2 million to the winner. Players whose teams score the most points –- based on the actual statistics of those players –- win the most money.

In the consolidated complaint, 24 separate causes of action were specified that fall into three primary allegations: bonus fraud; so-called “insider” trading; illegal gambling and false advertising over the companies’ marketing that their fantasy sports betting contests are “100% legal, easy, and games of skill that anyone could win.”

“As it turned out, none of those representations were true, and DraftKings and FanDuel knew these representations were not true,” the complaint states. “DraftKings and FanDuel also failed to disclose material information to consumers and acted in concert to defraud consumers about the true nature of their products.”

In doing so, DraftKings and FanDuel allegedly carried out an illegal enterprise, violating federal laws including the Racketeer Influenced and Corrupt Organizations Act.

Additionally, besides DraftKings and FanDuel, the plaintiffs’ complaint names two banks as defendants: J.P. Morgan Chase and Capital One Financial as well as three facilitator defendants: Visa, American Express, and MasterCard. The complaint also names payment processors Aysafecard.com USA Inc. and Vantiv Inc. as defendants.

While the complaint does not include the over 30 investors originally named in the proposed class action lawsuits as defendants, it does allege that these investors (National Basketball Association, the National Hockey League, Major League Soccer and Major League Baseball, and investment firms such as Kohlberg Kravis Roberts LP and Google Capital) played a significant role in promoting DraftKings and FanDuel to consumers.

The plaintiffs contend that if these investors had exercised due diligence, they would have known that DraftKings and FanDuel, among others “were conducting an ongoing illegal gambling operation and that representations otherwise were false and fraudulent.”

The New York Times initially reported the fantasy sports betting scandal, stating that, “[a] major scandal is erupting in the multibillion-dollar industry of fantasy sports, the online and unregulated business in which players assemble their fantasy teams with real athletes.”

In October 2015, the DraftKings and FanDuel were forced to release statements defending their businesses’ integrity after revelations of activity that is being described as effectively insider trading within the industry — that an employee of DraftKings had won over $300,000 by placing bets at rival site FanDuel using information not generally available to the public.

The Times went on to note, the incident “has raised questions about who at daily fantasy companies has access to valuable data, such as which players a majority of the money is being bet on; how it is protected; and whether the industry can — or wants — to police itself.”

As a result, a multitude of individual lawsuits and class action lawsuits were filed across the country against the fantasy sports betting companies. Then in February, the Judicial Panel on Multidistrict Litigation (JPML) reviewed venue requests and consolidated over 80 cases in Massachusetts federal court under U.S. District Court Judge George A. O’Toole Jr.

The order issued from the JPML categorized the cases into three different sections: insider trading cases, illegal gambling cases, and bonus fraud cases.

The insider trading cases claim that DraftKings and FanDuel allowed their employees to gain unfair advantages in contests by using inside information; the illegal gambling cases claim that DraftKings and FanDuel violated anti-gambling laws; and the bonus fraud cases claim that DraftKings misled consumers with a promotional program.

The JPML acknowledged that while the myriad of cases do not all share the same underlying theory of liability, combining them in Massachusetts federal court will promote efficiency and the overall management of the lawsuits.

The plaintiffs are represented by lead counsel from Napoli Shkolnik PLLC, Jones Ward PLC, Stull Stull & Brody and Todd & Weld LLP, among others.

The DraftKings and FanDuel Multidistrict Litigation is In re: Daily Fantasy Sports Litigation, MDL No. 2677, in the U.S. District Court for the District of Massachusetts.

UPDATE: On Dec. 12, 2018, FanDuel players claimed that the company’s user agreement was purposefully obscure, arguing that they are not bound by the arbitration pact.