What You Need to Know About the DraftKings Data Leak (Part I)

An inadvertent leak of fantasy football-related data by an employee of a Daily Fantasy Sports (“DFS”) website has triggered a wave of public scrutiny and lawsuits that are likely to have a significant impact on the future of the industry. In this two-part blog post, I will explain Ethan Haskell’s data leak and its immediate implications, and explore the strength of the subsequent legal claims against the two heavyweights in the industry, DraftKings and FanDuel.

Before discussing the leak and lawsuits, I will begin by briefly explaining how DFS work. DFS websites operate weekly guaranteed prize pool contests, in which participants pay an entry fee ranging from 25 cents to $5,300, and draft a hypothetical team of players within a pre-set salary cap (e.g., $50,000) based on pre-determined player values (e.g., in a given week, Peyton Manning may be worth worth $6,600). The strategy in drafting a team is to find “undervalued” and less popular players who have the potential to yield huge stats.1. At the end of the contest, which typically lasts a weekend’s worth of NFL games, the participant that drafted the highest scoring team in the pool wins the grand prize. The grand prize can reach as high as $2 million, but many other participants also win smaller cash prizes.2.

Given that player “value” and, consequently, strategy are largely driven by player popularity, DraftKings and FanDuel do not release player-ownership data – data that shows the prevalence of particular players across all submitted lineups – prior to the start of the contest’s games. Participants are left to draft teams based on publicly available player information and statistics, fantasy sports analysts’ insight, and mere intuition.

Enter Ethan Haskell. On September 27, Haskell, a DraftKings employee, inadvertently released player-ownership data for DraftKings’s “NFL Millionaire Maker” contest prior to the start of many NFL games involved in that weekend’s contest. The issue was immediately spotted by a forum user on RotoGrinders, a DFS online community3. The leak might have slipped under the radar to the general public had Haskell not beat out 229,883 participants that very weekend to win $350,000 in a FanDuel guaranteed prize pool contest. The implication – albeit unsupported by evidence and denied by DraftKings and FanDuel in a joint statement4 – was that Haskell used DraftKings’s player-ownership data, which effectively mirrors FanDuel’s, to draft a winning team in FanDuel’s contest5.

Media attention followed. On October 5, the New York Times published a front-page feature on Haskell’s data leak and $350,000 win, drawing comparisons to insider trading and raising “questions about who at daily fantasy sports companies has access to valuable data . . . how it is protected[,] and whether the industry can – or wants – to police itself.”6 Commentators chimed in, arguing that “even the outside possibility of a rigged contest raises critical questions about the integrity of the daily fantasy industry.”7.

Then came the class action lawsuits – three, as of October 148. The plaintiffs effectively allege the same material facts: that DraftKings and FanDuel (collectively “Defendants”) presented themselves to participants as places where the participants’ skill made the difference between winning and losing; that Defendants’ employees have access to valuable, non-public, “real-time” data and information on lineups, player ownership, player values, winning strategies, return on investment of certain strategies, and even how lineups on FanDuel would do if they were entered into DraftKings contests; that Defendants permitted their employees to use this data to gain an edge over other participants in contests operated on competitors’ websites; and that had plaintiffs known that Defendants’ employees were playing against them, plaintiffs would not have participated in the contests.9. Notably, all three complaints cite Haskell’s leak and $350,000 win, and highlight “remarkable increase in [his overall] winnings” since starting employment at DraftKings.10. The suits assert a number of legal claims including negligence, fraud, misrepresentation, conspiracy, racketeering, unjust enrichment, and violations of various state consumer protection and false advertising laws.11.

The merits of these claims will be addressed in a separate post in November12. I will note here, however, the initial hurdle the plaintiffs will face in seeking to recover the damages, attorneys’ fees, and declaratory relief. Specifically, DraftKings and FanDuel’s terms of use, to which all participants must agree, contain class action waiver and mandatory arbitration clauses13. Of note, one of the complaints specifically attacks DraftKings’s terms of use as unenforceable because the contract was fraudulently induced, and that its terms are both illusory and unconscionable.14

While these cases are unlikely to resolve in the near future, DraftKings and FanDuel are already dealing with their indirect effects, and that of Haskell’s leak and subsequent media attention. Members of Congress quickly commented and called for regulation in wake of the scandal15. Senator Robert Menendez (D-N.J.) and Rep. Frank Pallone (D-N.J.), who in September had requested a Congressional hearing into the DFS industry, wrote a joint letter to the Federal Trade Commission following the leak to request review of DraftKings’ and FanDuel’s business practices16 Additionally, the U.S. Justice Department and the FBI launched a probe into whether DFS operators are violating federal law.17. The New York attorney general began a similar investigation at the state level.18. And the U.S. Attorney’s office in Tampa Bay, Florida reportedly convened a federal grand jury to consider criminal charges against DFS operators19.

It is difficult to imagine that the industry will emerge unscathed from the scandal, in light of the ongoing investigations and calls for Congressional scrutiny. DraftKings and FanDuel will be under close surveillance and subject to increased scrutiny from lawmakers, the media, and their participants, who presumably will have lost faith in the integrity of the industry. Meanwhile, the outcomes of the pending litigation – the merits of which will be discussed next time – will be determinative of the industry’s long-term health.

  1. See Renée Miller, Strategies for Playing Daily Fantasy Football, ESPN (June 17, 2015) http://espn.go.com/fantasy/football/story/_/id/13090670/best-strategies-how-play-daily-fantasy-football (explaining that “game theory is required” and that “in order to be one of the few [participants] that cashes in [], you can’t have all the same optimal players that everyone else has.” 

  2. See, e.g., DraftKings Fantasy Football TV Commercial, ‘Giant Check’, YouTube, https://www.youtube.com/watch?v=nOSJUuqtKX0 

  3. See DraftKings Ownership Leak, RotoGrinders (Sept. 27, 2015) https://rotogrinders.com/threads/draftkings-ownership-leak-850584?page=1#reply-850635 (“So [Haskell] tweeted out millionaire maker ownership which as of 230pm still includes ownership data for games that have not yet started. . . . It seems like something that [Haskell] should probably not have access too [sic], and able to tell his buddies who is owned and who the best [participants] have.” 

  4. DraftKings Statement – 10/6/15, DraftKings (Oct. 6, 2015) http://playbook.draftkings.com/uncategorized/draftkings-statement-10615/ 

  5. See Alex Weldon, DKLeak Scandal: Why Ownership Percentages are so Important, Part Time Poker (Oct. 7, 2015) http://www.parttimepoker.com/dkleak-scandal-why-are-ownership-percentages-so-important (“The actual advantage in knowing about large-scale ownership trends is in being able to selectively bet against the crowd . . . [because the] objective of the game is not to score as highly as possible, but to have a score higher than that of as many opponents as possible. . . . Therefore, the performance of low-ownership players on one’s team has vastly more impact on one’s overall position in the standings than that of one’s high-ownership players.” 

  6. Joe Drape & Jacqueline Williams, Scandal Erupts in Unregulated World of Fantasy Sports, New York Times (Oct. 5, 2015) http://www.nytimes.com/2015/10/06/sports/fanduel-draftkings-fantasy-employees-bet-rivals.html?_r=0 (“It is absolutely akin to insider trading. . . . It gives [Haskell] a distinct edge in a contest.” 

  7. Tim Dahlberg, Lineup Release Raises Questions About Daily Fantasy Contests, Washington Post (Oct. 5, 2015) https://www.washingtonpost.com/national/lineup-release-raises-questions-about-daily-fantasy-contests/2015/10/05/2523925c-6bad-11e5-91eb-27ad15c2b723_story.html 

  8. Complaint, Genchanok v. FanDuel, Inc., No 15-CV-05127, (E.D. La. Oct. 13, 2015); Complaint, Guarino v. DraftKings, Inc., No. 15-CV-01123 (S.D. Ill. Oct. 9, 2015); Complaint, Johnson v. FanDuel, Inc., No. 15-CV-07963 (S.D.N.Y. Oct. 8, 2015 

  9. See id

  10. Id

  11. See id

  12. For a primer, see Michael McCann, What impact will the lawsuit filed against DraftKings, FanDuel have?, Sports Illustrated (Oct. 8, 2015) http://www.si.com/nfl/2015/10/08/daily-fantasy-sports-lawsuit-draftkings-fanduel 

  13. See DraftKings Terms of Use, DraftKings (Aug. 18, 2015) https://www.draftkings.com/help/terms (“Any and all disputes . . . shall be settled by binding arbitration. . . . [They] shall be arbitrated on an individual basis only, and shall not be consolidated or joined with or in any arbitration or other proceeding involving a Claim of any other party. You and DraftKings agree that the arbitrator shall have no authority to arbitrate any Claim as a class action or in any other form other than on an individual basis.”); FanDuel Terms of Use, FanDuel (Aug. 1, 2014) https://www.fanduel.com/terms ([A]ll claims . . . shall be finally settled by binding arbitration. . . . The arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve all disputes arising out of or relating to the interpretation, applicability, enforceability or formation of these Terms, including, but not limited to any claim that all or any part of these Terms are void or voidable, or whether a claim is subject to arbitration. . . . YOU AND FANDUEL AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN YOUR OR ITS INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. 

  14. See Complaint, Johnson v. FanDuel, Inc., No. 15-CV-07963 (S.D.N.Y. Oct. 8, 2015 

  15. See, e.g., Travis Waldron, Congress is Waking Up to the Unregulated World of Draft Kings and FanDuel, Huffington Post (Oct. 6, 2015) http://www.huffingtonpost.com/entry/congress-harry-reid-daily-fantasy-sports-scandal_56141db2e4b022a4ce5fc344 (commenting on the New York Times exposé, Senate Minority Leader Harry Reid suggested “that there’s absolutely scandalous conduct taking place with those programs – fantasy sports. . . . I think it should be a warning shot to everybody that online gaming is a real scary thing and [Congress] better look at all of it.” 

  16. Id. 

  17. Brad Reagan & Devlin Barrett, FBI, Justice Department Investigating Daily Fantasy Sports Business Model, Wall Street Journal (Oct. 14, 2015) http://www.wsj.com/articles/fbi-justice-department-investigating-daily-fantasy-sports-business-model-1444865627?tesla=y 

  18. Joe Drape & Jacqueline Williams, New York Attorney General Opens Inquiry Into Fantasy Sports Sites, New York Times (Oct. 7, 2015) http://mobile.nytimes.com/2015/10/07/sports/draftkings-fanduel-inquiry-new-york-attorney-general.html?smid=tw-share&referer=http://t.co/fVeyU4EGcA 

  19. Chris Grove, Federal Grand Jury Reportedly Considering Criminal Charges Against Daily Fantasy Sports Operators, Legal Sports Report (Oct. 14, 2015) http://www.legalsportsreport.com/4883/dfs-federal-grand-jury-florida/#DraftKings8217_and_FanDuel8217s_presence_in_Florida