DraftKings Files Massachusetts Sports Betting Lawsuit

A Massachusetts sports betting lawsuit has been filed by DraftKings against a former executive hired by Fanatics Sportsbook.

The filing in question is civil and essentially claims the former executive stole DraftKings customer information before absconding for Fanatics. DraftKings elected to bring the suit in Massachusetts, which is where their main headquarters remain located.

Though this is not the first issue of its kind, the allegations may be the most severe we’ve seen. Granted, it behooves us to note that nothing is certain at the moment. Allegations do not equate to guilt. And filing the suit in a civil court suggests DraftKings and their attorneys don’t have the evidence necessary to bring criminal charges.

Still, with sports betting in Massachusetts barely one year old, any developments along these lines could have potential ramifications. Let’s also not forget that the Massachusetts Gaming Commission has been among the most active in investigating compliance issues. Most recently, DraftKings themselves was under investigation by Massachusetts sports betting regulators.

This situation, of course, is obviously much different. And it’s unclear what direct impact, if any, it could have on Massachusetts sports betting moving forward.

Full Details of DraftKings’ Massachusetts Sports Betting Lawsuit

A.J. Perez of Front Office Sports was the first to extensively report on this lawsuit. Here is the full scoop they provided in their breakdown:

“DraftKings accused [a] former executive of hatching ‘a secret plan’ to steal customer information before defecting to Fanatics, according to a federal lawsuit obtained by Front Office Sports. The civil complaint filed in Massachusetts on Monday alleges Michael Hermalyn, who was recently hired as the president of Fanatics VIP, aimed at high-volume bettors, ‘stole many of DraftKings’ most commercially sensitive documents.’ Hermalyn held the same role with DraftKings for over three years before his abrupt departure on Thursday.

“‘Hermalyn knows DraftKings’ playbook on how to engage and retain VIP clients,’ the complaint states. ‘On information and belief, Hermalyn, acting in concert with Fanatics, timed his departure and theft of confidential information to coincide with the critical days leading up to the Super Bowl to further a scheme to irreparably interfere with DraftKings’ customer and business relationships by pursuing those relationships at Fanatics using the confidential information and goodwill that he obtained at DraftKings.’ Hermalyn ‘clandestinely’ met with the Fanatics’ CEO Michael Rubin and other executives at last year’s Super Bowl. The complaint alleges that Hermalyn later ‘improperly’ encouraged his DraftKings subordinates to do the same.”

This is explosive stuff. And that’s not hyperbole. In essence, DraftKings isn’t just alleging that Hermalyn stole confidential information. They’re also inferring that he did so with the knowledge—or at the behest of—Fanatics Sportsbook.

Those allegations raise another interesting question: If DraftKings has a case and is proven correct, does this jeopardize Fanatics Sportsbook’s place in the Massachusetts sports betting market?

Could Fanatics Face Disciplinary Action if DraftKings Wins Their Lawsuit?

Any answers to this question amount to pure speculation. The story itself is still developing. We don’t know how strong DraftKings’ evidence is against Hermalyn. So, we most certainly cannot speak to what might happen to Fanatics.

Still, if there is proof that Fanatics knew or encouraged the pilfering of confidential DraftKings information, you’d expect the Massachusetts Gaming Commission to get involved. They have monitored online sportsbooks in the United States like hawks over the past year-plus. At the very least, we would expect them to open their own investigation into Fanatics.

The nature of this information only complicates matters. If Hermalyn indeed targeted “VIP clients” from DraftKings, we have to imagine a ton of potential business is at stake. And that, in itself, could increase the scrutiny Fanatics eventually faces.
To that end, any affiliation with this case is likely bad news. Fanatics is a relatively fledgling sportsbook. The parent company, Fanatics Inc., basically launched their Massachusetts sports betting operations less than a year ago. And this past June, they purchased PointsBet’s USA sports gambling assets for $225 million. The transaction showed a continued commitment to expanding their market share at a time when DraftKings and FanDuel effectively have a monopoly over online sports betting in the United States.

So, optically speaking, Fanatics’ potential involvement is twofold. For starters, given how ubiquitous DraftKings remains in the Massachusetts sports betting market as well as the USA’s larger gambling industry, it makes sense that they’d want access to potential clients. (Again, we don’t know if they had any knowledge of this, or even if the allegations are true.) Beyond that, if Hernalyn is found liable, it would be the type of bad public relations that could see Fanatics suffer consequences from the Massachusetts Gaming Commission.

What Happens as the Litigation Process Between DraftKings and the Fanatics Employee Continues to Unfold?

We are still so early into this process that even this question wants for concrete answers. However, as Perez also reported, DraftKings is seeking a temporary restraining order against Hermalyn. This move is an attempt to prevent Hernalyn from “directly or indirectly providing any services to Fanatics or its subsidiaries.”

On top of that, the Daily Journal reported that DraftKings’ lawsuit in Massachusetts comes after Hernalyn filed his own lawsuit in Los Angeles County aimed at contesting his no-compete with his previous employer. The findings or resolution of that lawsuit could potentially wind up impacting this one.

For the time being, we can’t be sure how or when this will end. Our guess is it’ll last a while. DraftKings just filed their lawsuit, and it’s clear that plenty of moving parts are at play.

Whatever becomes of this latest Massachusetts sports betting scandal, though, you can be sure of one thing: a precedent, in some for another, is about to be set through the United States’ sports gambling industry.

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