In an explosive Monday court filing, DraftKings accuses its head of VIP operations of a yearlong plan to steal confidential information and take it to upstart Fanatics Sportsbook.
DraftKings filed the civil action in the US District Court in the District of Massachusetts. In a 49-page filing, DraftKings alleges that Michael Hermalyn last week took the final steps in an elaborate plot to cripple its VIP operation days before the Super Bowl.
Front Office Sports first reported news of the court filing Monday evening.
DraftKings allegations against VIP head
The introduction to the allegations lays out one of the wildest imaginable sequences in the legal US sports betting era. In brief, the filing alleges Hermalyn intended to take both information and employees with him to Fanatics in violation of his contract:
“Without prompt injunctive relief barring Hermalyn from violating his agreements with DraftKings, Hermalyn will be free to launch an unlawful and targeted attack against DraftKings’ business and divert its most valuable customers immediately prior to one of the most business critical weekends for DraftKings.”
How DraftKings alleges the plot concluded
DraftKings says Hermalyn last week lied about the death of a friend in order to make a whirlwind trip to California. On that trip, Hermalyn allegedly signed a deal with Fanatics and made frantic arrangements to establish California residency in order to file suit there:
Hermalyn, a senior executive compensated millions of dollars by DraftKings to oversee VIP customer acquisition and retention, hatched a secret plan over the past year to steal and use confidential information, solicit customers and employees and join a key competitor, Fanatics, Inc. (“Fanatics”), in brazen violation of his agreements with and duties to DraftKings. Hermalyn’s scheme appears to have started as early as the February 2023 Super Bowl, when Hermalyn clandestinely met with Fanatics’ CEO and leadership team to discuss employment. He took further disloyal steps over the summer, pretending he was “getting out of the industry” and improperly encouraging his subordinates to meet with Fanatics’ CEO about employment there, while at the same time urging DraftKings to pay himself and his subordinates large retention payments, valued in the millions of dollars.
Hermalyn’s disloyal scheme culminated late last week on the eve of this year’s Super Bowl. While he falsely claimed to be mourning the loss of a friend from Pennsylvania, Hermalyn instead secretly traveled to Fanatics offices in Los Angeles, negotiated an employment agreement with Fanatics, downloaded DraftKings’ confidential business plans for the Super Bowl while sitting in Fanatics’ offices, and fraudulently attempted to establish California residency during his 48-hour visit so he could resign from DraftKings and try to invalidate his non-compete agreements in California state court only a few days later.
Hermalyn challenges noncompete in California
Some elements of the complaint against Hermalyn are simple to verify.
For example, a Los Angeles Daily Journal article from earlier Monday details Hermalyn’s attempt to leave for Fanatics right before the biggest day on the sports calendar, including his suit to escape noncompete provisions of his contract:
“These sweeping provisions purport to prohibit Mr. Hermalyn from being employed in the betting and gaming space in which he has worked for 16 years, from engaging in any work pertaining to fantasy sports, betting and gaming, and various other industries and from communicating with his former clients and co-workers.”
The suit contends that Hermalyn agreed to the restrictions in his noncompete agreements “no less than 12 times in exchange for his receipt of millions of dollars in DraftKings equity.”
Fanatics: suit is ‘sour grapes’
A Fanatics spokesperson told LSR Tuesday morning that DraftKings is mad about losing an employee to Fanatics:
“This is just sour grapes. DraftKings is understandably upset that one of its employees left for the greener pastures at Fanatics. The fact that they are trying to drum up ridiculous allegations on one of their well-respected executives in an attempt to ruin his reputation sheds some light on why employees may be choosing to leave that organization.”
Hermalyn allegedly took multiple confidential items
DraftKings says Hermalyn accessed and downloaded “many of DraftKings’ most commercially sensitive documents” beginning on Jan. 23 despite the company saying there was no reason to access the documents.
Included in the downloaded documents:
- A PowerPoint presentation on the “VIP Founders Club,” a presentation created in 2021 on a proposed loyalty program for top-tier VIPs.
- A 181-page chart that includes short-term and long-term priority deals and project, the status of contracts, identification of target markets, media and platforms, and internal questions and comments from DraftKings employees concerning confidential business strategies.
- A spreadsheet concerning all of the company’s plans for entertaining key partners, including athletes, celebrities and influencers, at the upcoming Super Bowl.
- A presentation used to pitch potential business partners on the value proposition of partnering with DraftKings.
DraftKings: Hermalyn out for revenge
Hermalyn learned in the weeks leading up to his departure that he was under investigation for workplace misconduct, DraftKings said in the suit.
On Jan. 26, he learned immediate disciplinary action included reduced compensation and title while his conduct would be further evaluated.
The investigation uncovered multiple areas of alleged wrongdoing:
- Using a corporate credit card for thousands of dollars of wine for personal use and first-class plane tickets
- Ensuring the company’s 2023 holiday gift initiative went through a high-end boutique owned by a friend
- Spending thousands of dollars in company funds on merchandise featuring the DraftKings logo and intellectual property that was not approved
- Multiple allegations against Hermalyn that he made female employees uncomfortable in the workplace.
This is a developing story. We will update with additional information as it becomes available.