The Legal Chaos Surrounding Daily Fantasy Sports Giants DraftKings and FanDuel Will Soon Be Put to Rest

Amanda Kapur – After a multitude of lawsuits and class actions have been filed across the country against daily fantasy sports (“DFS”) leaders DraftKings and FanDuel, clarity will finally arrive for all involved.  On February 4, 2016, the U.S. Judicial Panel on Multidistrict Litigation (“JPML”) decided to centralize and consolidate over 80 lawsuits in the U.S. District Court for the District of Massachusetts under U.S. District Judge George A. O’Toole Jr. per a Transfer Order establishing MDL No. 2677 In re: Daily Fantasy Sports Litigation.  This is a considerable benefit for DraftKings and FanDuel who supported the venue choice.  DraftKings is headquartered in the district in Boston and FanDuel is nearby in New York City.

Judge O’Toole will handle all pretrial issues, streamlining the different theories of liability into one efficient line of judicial reasoning.  Although the discovery process will be substantial and complex, DraftKings and FanDuel will be able to focus their expenses and resources on one consolidated action.  The Massachusetts court will have the heavy task of parsing out the inconsistency in the state laws regarding illegal gambling.  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.  There may be different theories of liability, but the JPML found that was not enough to sway away from centralization given the high amount of common factual issues and many of the same putative class members.

The actions of U.S. District Judge George A. O’Toole Jr. will be crucial in any effort by either DraftKings or FanDuel to launch initial public offerings.  After aggressive marketing campaigns targeted at sports leagues and sports venues, both companies have received billion-dollar-plus valuations from investors as big as pro football franchise owners Jerry Jones and Robert K. Kraft; big hedge funds; and media companies like Comcast, NBC, Fox Sports, and KKR.  But the recent legal activity has caused some investors and backers to reconsider.  ESPN recently stepped out of an exclusive advertising relationship with DraftKings after becoming squeamish when lawmakers and attorney generals questioned whether the daily fantasy sports sites have instituted and condoned a form of illegal gambling.

The timing could not be better for DraftKings and FanDuel.  Not only do they need to reassure hesitant investors but they need to get out of the legal spotlight altogether. DraftKings and FanDuel have come under recent fire for their legal strategies by various state attorney generals, plaintiffs’ attorneys, and attendees at a recent Sports Law symposium hosted by the University of Pennsylvania.  Eyes are also on New York, where there are more daily fantasy sports players than any other state.  New York Attorney General Eric Schneiderman succeeded in securing a short-lived preliminary injunction in December to stop both companies from operating in the state.  On appeal, the intermediate-level appellate division granted a temporary stay of that ruling until May at which time the Court will rule on the merits of the case as to whether the DFS sites’ operations constitute illegal gambling.  Judge O’Toole’s actions will likely inform that Court’s decision in May.  Ultimately, the vitality and future success of DraftKings and FanDuel is likely to be determined by the District Court of Massachusetts.

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