A settlement has been reached to end years-long litigation alleging leading online fantasy sports contest operator DraftKings misled consumers into believing their products were “100% legal” and “games of chance” that anyone could win.
Under the proposed deal, DraftKings will provide $7.28 million in site credit (also known as “DK Dollars”) for individuals whose accounts are still open. A second fund of $720,000 will be created for those who no longer have open accounts.
Those eligible to submit claims under the deal, which still needs to receive preliminary approval from a judge, consists of anyone in the U.S. who made a first-time deposit into their DraftKings Daily Fantasy Sports account prior to January 1, 2018 and who are not considered “net lifetime winners” according to DraftKings’ records. FanDuel is not part of the settlement.
For two years, DraftKings will be required to limit authorized players to one active and “continuously used” account, prevent “prohibited” employees from entering contests for which an entry fee is required and provide information on its platform regarding responsible play and statistics revealing the percentage of net winners, losers and individuals who broke even over the last 30 days. Importantly, DraftKings must also distinguish “highly experienced” players in any contest by, for instance, adding a symbol next to their usernames.
The proposed deal provides that those eligible for the settlement will be notified via email within 30 days of preliminary approval. A settlement website has not yet been established, so check back soon for updates or sign up for our newsletter for the latest in class action settlements.
At A Glance
This Alert Affects
Anyone who used DraftKings or FanDuel.
What's Going On?
DraftKings and FanDuel have been sued for allegedly allowing their employees and other privileged individuals to compete on the sites, putting regular players at a severe disadvantage.
DraftKings and FanDuel have been hit with multiple class action lawsuits alleging the companies allowed their employees to compete on the fantasy sport sites – cheating regular employees out of a fair game.
The class action lawsuits against DraftKings and FanDuel focus on reports that the companies allowed their own employees to participate in the fantasy sport contests run on their websites – a practice The New York Times has likened to “insider trading.”
How Is “Insider Trading” Happening?
The class actions claim that DraftKings and FanDuel allowed employees who had “material, non-public” information play for prize money, giving them a “distinct edge” over regular fans. These employees had access to privileged information, including data identifying “undervalued” athletes and lineups selected by other competitors, and made up a large percentage of the winners on the websites, according to the class action. For instance, it has been alleged that, during the first half of the 2015 baseball season, these “insiders” scooped up 90 percent of all the winnings.
Suit Says DraftKings, FanDuel Made Money Through “Unfair Games”
DraftKings and FanDuel make money by taking a fee from contest prize pools after participants pay an entry fee. Because the companies promise that they will pay out advertised prize pools, they run the risk of having to pay the difference between what they’ve earned in entry fees and the amount of the prize pool. To help minimize this risk, the lawsuits claim that they try to attract as many participants as possible to avoid having to pay the difference. These inexperienced, new competitors are known as “fish.”
According to the lawsuits, DraftKings and FanDuel tried to recruit as many “fish” as possible to fund its prize pools and to keep its most active users – known as whales – happy. The suits allege, however, that the “whales” are mostly DraftKings/FanDuel employees who “devour” new competitors.
The class actions also claim that, until recently, others with inside knowledge – including athletes, team doctors and trainers, referees and family members of the players – could participate in the prize pools.
What Do the Lawsuits Say DraftKings, FanDuel Did Wrong?
The lawsuits accuse DraftKings and FanDuel of fraud and false advertising. They claim that the companies misled consumers by failing to disclose to participants that the odds of winning were significantly skewed because the companies’ employees – who have access to material, non-public information – could also participate. The suits also allege that the companies’ marketing efforts were false, misleading and deceptive as the contests were advertised as being “fair” and “skill-based.” Months before the lawsuit was filed, the Department of Justice and FBI opened investigations into the companies’ operations.