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.