EPISODE 224 | LSR Podcast

The (Alleged) Plot To Steal DraftKings Most Valuable Secrets | Sports Betting News


30 min
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The (Alleged) Plot To Steal DraftKings Most Valuable Secrets | Sports Betting News | LSR Podcast 224

One of the wildest stories of the legal US sports betting era explodes into the news, as DraftKings accuses its former head of VIP of stealing secrets to bring to Fanatics. Also, the NFL commissioner talks about employees fired for gambling and the unique setup for Super Bowl betting in Las Vegas.

Full transcript

Matt Brown (00:09):

Hello and welcome to episode number 224 of LSR podcast. My name is Matt Brown, joined each and every week by the brightest minds in all of the gaming industry. With me, as we head into Super Bowl Sunday, is my man, Adam Candee. You can find him on the Twitter machine @AdamCandee, two E’s, no Y. If you hate yourself, you can follow me, @MattBrownM2. Anywhere you find your podcast, we are there, and we are free. So go in, please subscribe, rate, review. We do appreciate that as well.


We will talk about some stuff that went on in the Roger Goodell press conference that came out that was fairly interesting. We’ll talk about that big game that’s happening here on Sunday in Nevada and what’s going on with all of that. But Adam, I want to start things off here with, listen, every now and then we get some drama in the industry. Most of the time we’re reporting news. Most of the time we’re reporting on things that someone found along the way or actually some legislative stuff, but every now and then there’s just a good old-fashioned tussle, and we got some craziness going on right now.

One of the wildest stories of the legal US sports betting era

Adam Candee (01:08):

When I tell you, Matthew, that this is one of the most stunning stories that I’ve ever read, not just in the sports betting business, but in any business that I’ve covered, there is no exaggeration to that. Full credit to AJ Perez at Front Office Sports as the first one upon this. Here’s the gist of this story if you have not been following. And if you have not been following, I suggest going to Legal Sports Report right now and reading through this entire story because we’ve read through the 49-page civil complaint filed by DraftKings so that you don’t have to. And we’ve put together some of the highlights, which I must tell you encompassed a lot of the 49 pages of this complaint. But here’s the long and short of it. The head of VIP operations for DraftKings is accused by DraftKings of a year-long plot to steal confidential secrets, business plans and employees to go to Fanatics Sportsbook and basically take all of those clients and plans and use it to not only hurt DraftKings, but of course to benefit Fanatics Sportsbook.


The contacts that are listed by DraftKings go back to the last Super Bowl and the resignation of Michael Hermalyn, the man at the center of this, happened on February 1st, which DraftKings claims was specifically timed to hurt them right before the Super Bowl, that basically that their head of VIP Operations was going to take all of the clients, or at the very least give Fanatics the information about all of the high-net-worth VIP clients who wager millions upon millions of dollars with DraftKings and bring them to Fanatics at the most inopportune time for any sportsbook to potentially have its VIP clients courted away from them. I cannot overstate the importance of this story, the level of subterfuge that is being accused by DraftKings. Now, we’ve seen Fanatics respond with a statement essentially saying that it’s sour grapes. We’ll see, because the story comes down to a number of things.


First of all, clearly there’s a non-compete in the contract that Michael Hermalyn had at DraftKings. As the lawsuit discusses, he was paid millions of dollars to do that job. He also, according to the lawsuit, cooked up a scheme in which he went to DraftKings higher-ups and told them that he was being recruited by Fanatics and got a package of equity worth millions of dollars from DraftKings as a retention package and solicited the same for other members of his team. It is also accused that on January 29th, he said that he had a death in his close circle and he needed to go attend services for that. It is accused in the lawsuit that he did not attend those services, that he actually traveled to the Fanatics offices in California, did a whirlwind tour in which he attempted to establish residency by signing a lease, by getting a driver’s license, by registering to vote, among other things, for the purpose of trying to break the non-compete in California as opposed to Massachusetts, where DraftKings is of course headquartered and where it believes the law is enforceable.


I will take a beat and a pause right there because there’s so much more to this story, including the fact that Hermalyn was under investigation for workplace misconduct at DraftKings. That is listed in the civil complaint, as well. It is alleged that part of the reason that he left on the timing that he did was that he was attempting to get away from the investigation into those allegations. So, the story is what it is, Matt, and you can go to Legal Sports Report and check that out. But I think what we really need to focus on here is the idea of VIP Operations and what they mean to any particular sportsbook in this industry right now, especially when we’re talking about a brand new entity like Fanatics Sportsbook trying to get itself established, trying to find a way to make its mark in the industry, and being able to essentially recruit the head of VIP Operations from another sportsbook to bring him in and be brazen, as accused in the suit, way of acquiring information from DraftKings that it’s going about doing this.


VIPs, if you don’t know, and I’m gathering if you listen to this podcast, you might, but if you don’t know, we are talking about not just tens of millions, but hundreds of millions of dollars wagered in any given year by high-net-worth clients. I’ve said it on the podcast a hundred times, 90% of the revenue in the US sports betting legal market comes from 10% of the players, and we are talking about not just the 10% of the players, we are talking about the 1% of the 10% of the players in this case. It’s absolutely wild that something like this could potentially be going on in the world of VIP in sports betting.

Matt Brown (06:41):

Yeah, I mean, like you said, you definitely know he had a non-compete in there. My guess would be the non-compete was for years. Yeah, I mean, like probably-

Adam Candee (06:53):

Twelve months. It was a 12 month non-compete. Yeah.

Matt Brown (06:54):

Yeah. I mean, it’s one of those things where because that information and that stuff that he had access to and all that is just, I mean, as valuable in this industry as possibly anything that there is.

Adam Candee (07:10):

Matt, to your point, and the civil complaint filed by DraftKings in Massachusetts lays this out. There were certain presentations and PowerPoint decks that he accessed from the Fanatics offices in California, according to the geolocation data, thousands of DraftKings employees, a total of 23 employees had access rights to the information that was contained within these highly, highly confidential files.

Matt Brown (07:41):

Yeah. I mean that information literally probably the most important information that a sportsbook holds because as you mentioned, these are guys that if they were to leave and go to your competitor, I mean, that’s a massive blow. I mean, it’s just an incredibly, incredibly massive blow. So it is wild, you guys, again, as Adam said, if you haven’t read the story, please go to legalsportsreport.com. There’s more than we’re able to talk about here. Just you can kind of get the nuts and the bolts and it’s still developing. There will be additions made to the story as well as things go on. But yeah, Adam, it’s just I don’t think people really realize just the VIP business of all of these different sports, and listen, it’s not even sportsbooks. There are VIPs in the online poker industry. There are VIPs in the daily fantasy part of it. These guys go out and they just make sure that these people feel special.


You know what I mean? That’s what they do. Their whole job is to go out and make sure that these people feel special. As long as these people feel special, a lot of them are high-net-worth individuals to where it’s play money anyway, right? It’s like the stuff that they’re betting and gambling with, it’s more play money anyway. And all you really want for those guys is just to make them feel special, make them feel happy, make them feel loved, make them whatever, because at the end of the day, the money is inconsequential to the vast majority of them in all of this, and so it’s a really, really important job and a really, really, really valuable client list and all of that. And so if this stuff turns out to be true, if this is proven in a court of law, which it seems like this is definitely going to be tried to be proven in a court of law, it’s crazy. It really is. Like you said, it’s absolutely crazy. And where does Fanatics fit in all this too? That’s even weirder part of it, probably.

Adam Candee (09:28):

Well, think about the history here in which we know that Matt King was running FanDuel, which was of course A) the chief competitor to DraftKings, and then B), the potential merger partner of DraftKings, and then C), once again the primary competitor to DraftKings, and then he went to head up Fanatics betting and gaming. And he is of course at the center of this case as well, even though he’s not named in any of the documents, but we see another piece of this story in which a high-level VIP employee at DraftKings earlier in the year left to go to Fanatics ostensibly to go work in the collectibles area of Fanatics. That was how he was getting around the non-compete, and yet it is alleged by DraftKings that that employee ended up working in the gambling business of Fanatics. This has so many tentacles and so many little ways that you haven’t even considered yet that it affects both businesses that you got to read the story.


The other piece that I think is worth noting here, Matt, is what you said about VIP. I mean, look, if you don’t understand how this works, the VIP hosts that are assigned to these very high-net-worth clients, they are essentially valets for these people. They are out there, whether it is the Wynn in Las Vegas or whether it’s DraftKings or anybody else, they are essentially there to make sure that these players have whatever it is they want. It might be Super Bowl tickets, it might be private reservations to that restaurant that you can’t get in anywhere else, and if you work in the casinos in Las Vegas long enough, like I have, and Matt, you know plenty of people who have the stories get wilder from there. So it is a business that is very lightly understood in the mass market, but certainly vital.

NFL commissioner talks about employees fired for gambling

Matt Brown (11:26):

I can tell you this, this is not the last we’ve heard of this story. This one is going to be around for quite some time. Cannot wait to see how it all plays out. Yesterday, well, actually it was Monday, Roger Goodell takes the stage and Roger Goodell starts talking about just the state of the NFL in general. He ends up dropping a couple of nuggets out there that I didn’t expect him to drop. By the way, there will be a Friday football game from Brazil next year in the NFL. So they will kick off the season Thursday, Friday, Sunday, Monday. So they’re just going to own that first week with the NFL. So that was mentioned. And the NFL expansion, of course, it’s still valid to the stuff that we talk about Adam. There will be, there’s legalized gambling in other parts of the world, so certainly something that isn’t irrelevant to our conversation, but asked about gambling pretty often, asked about gambling multiple times, and through that a little bit of information was revealed as well.

Adam Candee (12:30):

Just to add to the thought that you just mentioned there, Matt, what is the newest hottest gambling market in the world right now? That would be Brazil. So yeah, it’s certainly relevant to our conversation. You know what’s interesting about this Roger Goodell press conference beyond what he actually discussed? For the first time, we saw that this was a really handpicked group of media. That Roger Goodell did not allow for all credentialed media to come in and potentially ask questions. And there was some consternation, shall we say, from a number of the media members that Goodell was trying to cherry-pick the questions. For our purposes, thought it was interesting that he still answered four gambling questions, right? There were still lots of queries about what we talk about here, and one of the nuggets that he dropped was that essentially there have been two dozen NFL employees who have been fired for gambling.


That’s the way that Roger Goodell put it. In addition to talking about the players who’ve been disciplined for gambling and suspended and so on. We know the most famous of those comes from the DFS case involving Amit Patel with the Jaguars, but it also means that the NFL has had a number of employment situations that have ended that we have not heard as much about for folks who have been, I’m not sure exactly whether it’s gambling directly on the NFL, he didn’t really get directly into that, but we certainly see that the NFL, because it has such a prominent place not only in American sports but in American culture, has to take a forward facing role in talking about this, right?

Matt Brown (14:11):


Adam Candee (14:11):

Now, give them credit. They have made up their own ads about having a game plan. You’ve seen the ones with Kurt Warner talking about responsible gambling. And they pointed out, and they are right that they are the only ones who have done that, but I also think proportionally to the amount of gambling that is done on the NFL as opposed to other sports, they probably need to be out there taking that kind of role in talking about responsible gambling. It’s the first Super Bowl in Las Vegas. It used to be an event with the Super Bowl that you couldn’t even advertise for the city of Las Vegas, and now the event is in Las Vegas. And so I think it’s notable that we’re having these discussions about gambling in the NFL.

Matt Brown (14:51):

Absolutely. A couple of thoughts on this for me. First off, good. Obviously I don’t like anyone losing their job, but at the same time, that also lets us know that they’re taking this seriously and anything, whenever impropriety is found, they’re taking the steps necessary to make sure that those people are dealt with. And two, I want to clear up just something that I’ve seen as part of the scuttlebutt of the conversation of all of this, where they’re going, “What do you expect? It’s legalized and people are going to gamble and people…” It was always a rule that you could not gamble if you worked for the NFL. I don’t think people understand that this was not a new rule once gambling became legalized across the United States, it was always known when you took a job with the NFL or any of these sports leagues that you were not allowed to gamble on that.


I think people think that these are new rules, and it’s no, it’s just more front and center now that we have a legalized market and we talk about a little bit more. And as you mentioned, Adam, it’s more front-facing and it’s more front and center in these conversations, but this has always been a rule. So it’s not catching these people off guard or whatever or anything like that, right? I mean, this is something you knew. You knew what you were signing up for, you knew what you were getting into when you took the job along the way. So, again, sympathy for me is at a fairly small level because this wasn’t something like, “Oh, I had no idea.” It’s like, no, man, it doesn’t matter if you’ve been working there a year, which I’m sure they told you a ton or you’ve been working there 10 years because it’s still been the same rules the whole time.

Adam Candee (16:23):

Matt, I think the marijuana comparison is pretty apt here, right? Where certain states have chosen to legalize marijuana and certain workplaces still say, “No, you are not allowed to have marijuana in your system if we drug test you,” right? Private company can still make its own rules. Now, certain states have taken action against that, but the point of the matter is just because it is legal writ large out there somewhere does not mean that your company isn’t going to have its own rules that you have to abide by in order to be employed by that company. And so, yes, it was always the case when marijuana wasn’t legal anywhere and when sports betting wasn’t legal anywhere but Nevada. It’s the same thing when it comes to that.


Andy Reid did one of his press availabilities right before we recorded here today on Wednesday, and was asked by Contessa Brewer from CNBC, “What have your players been told about gambling?” And Andy Reid said that the league representative, basically as soon as the Chiefs got off the plane, the first meeting that they had, talked to them about all the security protocols and one of them was reminding them, “You are not allowed to gamble at any time while you are in Las Vegas.” So even when you have what seems like the most obvious of situations, which is players at the Super Bowl are not allowed to gamble, the league’s still kind of taking the extra step to make sure everybody has it very clearly put in their face.

The unique setup for Super Bowl betting in Las Vegas

Matt Brown (17:45):

All right, Adam, we are four days away from the big game happening. As you mentioned down the street here at Allegiant Stadium, a couple billion dollars put into that big old ship looking thing there on the Strip. And so this was kind of always known, right? If you build it, they will come. And certainly that ended up being the situation. I’m sure there was part of the deal that didn’t actually make it public where it was like, “All right, we build this, we’re going to get a Super Bowl real quick.” And so ended up that being the case. We are hearing now rumors that several team executives have been talked to and that Las Vegas has been added to that rotation of the staples for the Super Bowl. As you know, we’re always going to get it in New Orleans. We’re always going to get it over in LA. Well, we’re going to get it in Las Vegas as part of the regular rotation as well.


And so with that, Adam, I mean we’re looking at a lot of people coming in, a lot of business coming in, a lot of people that are of high net worth coming in to take this in, and what do we expect here once this thing gets going? I mean, today is really kind of the day. Today’s kind the kickoff day. I know we’ve been talking about the lead end to this for a week and a half now, but everybody’s getting in town on Wednesday. All the events start today. All the big, big, big VIP stuff starts on Thursday. It’s about to get crazy around here.

Adam Candee (19:11):

As someone who first arrived to live in Las Vegas in 1989, this is still very hard for me to wrap my head around. Not only seeing $2 billion of the giant Roomba across from Mandalay Bay hosting the Las Vegas Raiders as a home team in the NFL, but of course the NFL’s crown jewel being in a city that it treated like nuclear waste for the longest of times. But Roger Goodell was asked in a press conference about the attitude toward Las Vegas and basically said, “We didn’t make the decision, the Supreme Court did.” OK. Well, in any case-

Matt Brown (19:55):

Yeah. Cool.

Adam Candee (19:55):

… yeah, OK. Super Bowl was always, whether it was being hosted in Las Vegas or not, Las Vegas was at least the number two city in the world for the Super Bowl every single year. Now, it is the number one city in the world for the Super Bowl, if not just this year, then in that rotation that you mentioned, Matt. Our Eric Ramsey at Legal Sports Report did his legal Super Bowl handle forecast. He projects that Nevada will again have the most handle on the Super Bowl with roughly $170 million. We talked about that on the podcast with Eric last week. I think what gets really interesting and what we wrote about at Legal Sports Report this week is a little how-to guide for people who are new to Las Vegas. So you land at Harry Reid Airport, you get to your hotel, you want to open it up and you want to see what the odds look like. And so you fire up your BetMGM or your Caesars app and you go to place a wager and he says, “What? I can’t bet. Why can’t I bet?”


Well, that’s because apparently according to the state of Nevada, even if another state has said that you are good to gamble with BetMGM or Caesars in another place where they have their app, you still have to go to the sportsbook and sign up in person for an account in Nevada so that there is a paper trail on you because of the arcane ridiculous rules in the state of Nevada. It also means your DraftKings and FanDuel apps are just very pretty colorful pictures on your phone in which you cannot process any money for the purpose of wagering this week. In our article at Legal Sports Reports, Sam McQuillan lays out which sportsbooks you are allowed to use, which sportsbooks you are not allowed to use. Just get used to the idea that if you want to bet on mobile in Las Vegas while you’re in the Super Bowl, you will be filling out paperwork at a sportsbook in order to do so. And Matt, I’m sure we can wrap up the podcast right there because you don’t have any opinions on that.

Matt Brown (21:52):

Yeah, there has to be some sort of touchpoint, which is just the most asinine thing on the face of the planet. It continues to be a state which wants to claim to be the leader when it comes to legalized gambling, and instead they continue to fall further and further and further behind. We know once these, it is already no longer the sports betting capital of the world, and as we get Texas legalized, if something ever happens in California to go along with some of these other big states, we know it, Nevada’s going to continue to fall further and further and further behind. Yeah, the tent pole events will always draw people here. Sure. But overall, it’s not going to be a state where you used to have people who would move to Nevada to have access to gambling, to be able to do that for a living, to be able to do that as at least a form of, even if it’s just a nice side income, that’s not the case anymore.


There’s no reason to do that. You go to the other states, you have more options and it’s much easier to do, several more outs and certainly much easier to not only sign up and fund your account, but withdraw as well. It’s wild to me. It’s super, super crazy. I don’t think we’re getting to a point where it’s going to change anytime soon either. So we’re going to just continue to be talking about this for years to come. Adam, one of the things I will say you bring up as we were talking about Roger Goodell and all of that and how he talks about Vegas and different things. The one thing that I’ve never been able to … I understand he makes them billions of dollars, so he’s going to keep his job until he doesn’t want it anymore or whatever, till death does he part.


But the thing that I don’t get what he can’t just say, which is not an endorsement of gambling or whatsoever, but he doesn’t even acknowledge that the sport has benefited mightily from the fact that people pay attention to the sport outside of just the team that they root for. And you cannot go to the water cooler and have just a general conversation about the NBA or a general conversation about Major League Baseball. You can have one about the home team. Bobby, two cubicles down, might know about the home team, and you can have a conversation with him about that. You can have a general conversation about the NFL with just about anybody, and they will have at least some sort of opinion on it because they have been locked in because of fantasy sports and because of gambling and the fact that Roger Goodell can’t at least say somewhere along the way, we do realize the importance of fantasy sports and sports gambling for engagement for the product.


He’s never once said that. That’s the thing. We’ve heard it from other people, we’ve heard it from other people outside the deal. But the man in charge, the guy at the top, like you said, he goes, “Well, we didn’t do it. It was blah blah blah.” There is a reason why your sport is number one. There’s a reason why your sport makes the money that it does and gets the television contracts it does. And it’s because casual fans care and the reason casual fans care, it’s because they are invested outside of just their home team and it’s because of fantasy sports and it’s because of gambling. And the fact that there’s no acknowledgement whatsoever from him. Just every time he says, like he said in that press conference, it just makes my blood boil. I can’t tell if you can tell or not.

Adam Candee (25:13):

No, I rarely can. So you want to know how much this has permeated the national consciousness? You just reminded me of a dream I had literally last night. And that dream that I had last night, you’ll actually enjoy this quite a bit because of the team that I’m going to reference. I had a dream last night that I was in some sort of bar somewhere, sports bar type atmosphere, and I was putting on a pair of New Orleans Saints branded socks. Why was I putting on Saints socks? Great question. I’ll leave that for my therapist. But a guy sitting right next to me saw the socks and was all excited to show me his own New Orleans Saints socks, because that’s what the NFL is, right? You can find somebody just about anywhere that you can talk to about this and whether it is fantasy football, which of course is everyone’s touchpoint, and of course the thing that we probably want to talk to other people about the least, and then gambling.


That’s what has made this what it is. I worked with a man named Bob Blum. You’ve heard this story before. A lot of people haven’t. Bob Blum was a longtime Las Vegas fixture, longtime UNLV broadcaster and was very involved with Al Davis and the early days of the AFL and the NFL. He knew Pete Rozelle before Pete Rozelle was commissioner of the NFL, and actually in his telling of the story, had a role in him getting that job. And the point that I’m getting to is to say that college football predates the NFL. College football naturally played on a Saturday, right? The week is over for the university, we will play on a Saturday. Well, where’s the NFL going to play? Is the NFL going to have a regular day? And those who take wagers didn’t have a lot going on Sundays.


And so was there potentially some influence that went into that? Yes. We know that there was over the course of time. How did the NFL end up on Sundays in a large portion telling of this story because of the fact that we needed something to gamble on Sundays. So it is part of the roots and whether they want to admit that or not and whether they feel comfortable saying it publicly or not, it goes back decades and not acknowledging it just feels disingenuous, but then again, you and I can sit and yell about it and the NFL can continue to make billions of dollars and we’ll just continue to sit and yell about it.

Matt Brown (27:46):

I agree. I agree. It’s just one of the things for me, like I said, I don’t need a wholehearted, I don’t need a full-fledged endorsement. That’s not what I would need. It’s like, just at least an acknowledgement of the fact that that fantasy sports and sports gambling has made you what you are today, or at least that you have benefited greatly from it. Would at least make me feel like this guy isn’t completely full of BS. It’s like it just isn’t completely full of it. Just looking up there like, “Dude, just say it. Just come on, one time. Just one time. You know it, you know it, I know you know it. Just say it.” Deep down.


It’s going to be interesting, man. I’ll be down there. I’ll be seeing you this week as well and it’s going to be good times. Can’t wait to see what it does to this city. Finally, rain has stopped around us here. I know that must have been the, if you follow on the Twitter machine, everyone complaining about that. Rain has stopped, the sun is out. We have a normal Las Vegas again for the actual game day.

Adam Candee (28:38):

Your hair is saved.

Matt Brown (28:39):

It’s good. Look, I have volume today and everything. It’s great.

Adam Candee (28:43):

There is zhush for days, baby.

Matt Brown (28:45):

Yes, I do. I love it. Guys, everything we do, absolutely free, so please hit that subscribe button. Do appreciate that a ton. And really and truly go in, read the stories that we talked about here today. Some of the stuff you’re just going to be like, “Man, that is wacky.” Legalsportsreport.com, everything free over there as well. For Adam, I’m Matt. Talk to you guys next week.

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