US Sports Betting’s Days In Court | Sports Betting News
Legal happenings from around the US and UK lead the news around the sports betting landscape this week, including a disgraced former NFL employee suing FanDuel, the ongoing battle over the 2018 FanDuel sale, DraftKings winning a round against its former head of VIP, and a settlement between the SEC and DraftKings.
Full transcript
Matt Brown (00:11):
Hello, and welcome to episode number 251 of the LSR podcast. My name is Matt Brown, joined each and every week with the brightest minds in all of the gaming industry. With me, I got Adam Candee, your friend and mine. Find him on the Twitter @AdamCandee, two E’s, no Y. Hate yourself, you can follow me @MattBrownM2, and as always, everything we do, absolutely free. So please hit that subscribe button. You can rate and review if you want to, so long as it’s not a three or lower. If that’s the case, just keep it to yourself. We’re going to talk some Canadian bill stuff going on here. We’re going to talk some DraftKings, a couple of different rounds of that and a couple of different rounds of some FanDuel stuff here, Adam. So let’s kick things off here with a lawsuit towards FanDuel.
Disgraced former NFL employee suing FanDuel
Adam Candee (00:53):
Well, this was probably one of the more interesting stories of the week, maybe of the month when you just take the facts on-
Matt Brown (01:01):
I would say so. Yeah, I would say so.
Adam Candee (01:02):
Yeah. Yeah.
Matt Brown (01:02):
Yeah.
Adam Candee (01:02):
So let’s just say that you steal, I don’t know, what would you say, Matt? A pack of baseball cards or a little more, $22 million perhaps?
Matt Brown (01:13):
22 mill.
Adam Candee (01:13):
$22 million.
Matt Brown (01:13):
Whatever. Yeah. Yeah.
Adam Candee (01:13):
OK. Let’s just say that you managed to steal $22 million to fund your daily fantasy sports habit and your otherwise lavish lifestyle. Let’s just say hypothetically that you were an employee of the Jacksonville Jaguars who did that. Amit Patel, that not-so-hypothetical employee of the Jacksonville Jaguars, who admitted to that being his crime is now suing FanDuel, the company through which he played most of his DFS for $250 million in damages claiming that they enabled his lifestyle. So I’m going to give you some of the facts of what’s in this filing from Amit Patel because I think that’s the more interesting part of the story than the actual suit itself.
(02:03):
According to the lawsuit, FanDuel provided Patel with $1.1 million in bonus credits and VIP perks, including trips to the Super Bowl and the Masters. These are the sorts of things we’ve heard about before with high dollar DFS players, but here’s part of it that I thought was interesting. They talk about the FanDuel VIP host, Brett Krause, who doesn’t work for the company anymore, but according to the lawsuit, Krause communicated with Patel up to 100 times per day between 2021 and 2023. Now, when we say 100 times per day, you think about when you get into a text exchange with somebody that you know, you could send 100 messages pretty quickly about a meme for all it matters, but we can go ahead and assume that this was more about the money that was being put through.
(02:50):
Look, overall you know the facts of this case already, if you’ve been following us for any length of time. I do think it is a reasonable discussion topic to talk about how exactly was it that this person who does not have verifiable income at the level that we are discussing for, the level at which he was playing DFS, how does that person get through whatever verifications and checks that you have? However, the flip side of saying that FanDuel is now legally responsible, OK, put the big siren up here, the air quotes, everything you need to do for a disclaimer. We’re not lawyers; we are not attorneys. I am not going to weigh in on the legal merits of this case. It does feel pretty brazen, we’ll say, to come back seeking $250 million in damages from FanDuel for what happened here. We’re talking about $22 million in theft and then $250 million in sought damages in response. Matt, you’ve been involved in the DFS game for a while. You’ve been watching this case happen in particular. I would think you have some thoughts here.
Matt Brown (04:12):
Yeah, you and I are in lockstep on this. I mean, it is, I think it is fair to say, hey, this guy is probably not worth a couple hundred million dollars, so how was he able to get that much money in play? I do think that that is fair. At the same time to say that FanDuel is responsible for all of this and should pay for this guy being, by the way, let’s… The guy stole the damn money from the, I mean, the guy is a thief. I mean, to say that they are responsible for this guy being a thief, and I’m glad you also put in there as well. They went and when this story originally hit Adam, we did see it wasn’t just the gambling stuff. This guy was going on huge vacations and buying cars, so the money was not going straight to one thing. The dude enjoyed living the lifestyle as well with all of that.
(05:11):
So I’m with you 100%. It’s like, sure. I think we need to have that conversation. Guys, I don’t know if somehow he tricked you along the way or whatever it might be, to think that he actually was worth this amount of money. Obviously that needs to be buttoned up, but do you think that they are liable for this guy thieving the money to do all of this? I just can’t get there. Bridge too far for me, buddy.
Adam Candee (05:34):
Well, that bridge would have to extend to prison as well where he is facing a six-and-a-half-year federal prison sentence as well as pending the outcome of a civil case up to $87.7 million in damages. So suing for 250, you owe 87. I can do the math on that and figure out where some of this might come from. It’s just, it’s wild because again, there is a reasonable level to have a discussion about how this happened, but this in response is just absolutely nuts.
(06:09):
And again, in the era of legal sports betting that we’re talking about, all of this in DFS is pretty crazy as well because he was in Florida at the time. It was not legal to bet on sports in Florida at the time, so he couldn’t have gone and gotten the Hard Rock app and been betting through there. It had to be through DFS, and the fact that this guy is going to serve a six-and-a-half-year federal prison sentence for stealing money and is going to come back and try to get that money out of FanDuel is again, brazen and woo. Ah, I’ll stay there.
Ongoing battle over 2018 FanDuel sale
Matt Brown (06:47):
I know. We don’t want to say something that sounds like we don’t have any sympathy for this. Like we said, there’s questions that need to be asked and answers that need to be answered, but yeah, we’ll move on from there. Another story involving FanDuel, which is pretty interesting. If you guys have been around the block, if you were OGs in the gaming industry, you probably know the name Nigel Eccles, a guy that was one of the founders of FanDuel. He did in fact sell FanDuel somewhere along the way, and Nigel Eccles though, when it was all said and done, Adam, he was coming out and saying, “Hey man, I’m owed some cash in all of this deal. I feel like me and some of the original guys that were there from the beginning are owed a little bit more money in all of this.” And what it has done is, as we always say, there will be lawyers.
Adam Candee (07:36):
Matt, did you ever have the Choose Your Own Adventure books growing up?
Matt Brown (07:39):
Oh, absolutely.
Adam Candee (07:40):
Yeah. Yeah. So I’m going to do a little choose your own adventure.
Matt Brown (07:43):
I cheated though. I cheated-
Adam Candee (07:43):
Of course you did.
Matt Brown (07:43):
I would look at the best one.
Adam Candee (07:44):
Of course you did.
Matt Brown (07:46):
Yeah, I’d look at the best one and then I would go to that adventure, obviously. Yeah, of course. Yeah.
Adam Candee (07:51):
Always looking for an edge. It’s why he’s sharp folks, it’s why he’s sharp. I’m going to do a little choose your own adventure for the listeners and viewers here. You could choose for me to go down the road of doing the deep, deep dive on the legal part of this and giving you all of those details. And if you want that, well, I’m actually going to say turn the page to legalsportsreport.com because that’s where you’re going to get all of the deep legal dive on what’s in the filings that I’m about to talk about. If you would like to go to the part where Matt and I have a pithy little discussion about this, then stay right here because that’s where we’re going to go with this. So Nigel Eccles and a group of former employees of FanDuel and others with interest have filed suit, this has been going on for quite a long time, in court saying that FanDuel’s primary shareholders essentially manipulated the value of the company to ensure that certain people, including Nigel Eccles, would not get paid out when the purchase was made by Paddy Power Betfair.
(08:58):
Again, there’s a lot more that goes into this, but he’s saying that the value was deflated because certain people had preferred shares that would get paid out first, and so other people ultimately wouldn’t get paid out. We heard from Nigel Eccles’s side, and now more recently, we have a story at legalsportsreport.com right now from Matthew Waters talking about the response to what Nigel Eccles filed, and I think that’s got some big words in it.
Matt Brown (09:22):
Yeah.
Adam Candee (09:23):
For example, they claim, do the respondents, that Nigel Eccles nearly destroyed, and those are their words, “nearly destroyed,” FanDuel in the process of what was going on with that company leading up to pre-PASPA in 2018. So I’ll read directly from the story here so that we get this right. They discuss mismanagement by Eccles. Here’s the quote from the filing. “The reality, as their new documents show, is that after Lead Plaintiff Nigel Eccles mismanaged FanDuel Limited into the ground, the Director Defendants were forced to step in, pursue a buy-out that Plaintiffs had facilitated, and accept the highest available offer—indeed, the only lifeline that would save FanDuel Limited from collapse.” And they claim that because of that, the claims fail from Eccles and company.
(10:16):
So essentially what the other side of this, Shamrock and KKR, are saying is that we had to come in and take whatever deal was there because this guy was about to tank it to the point where there wouldn’t have been any deal to make. There are further details in the story discussing that there’s some language in the deal that was made that was essentially irrespective of what happens with PASPA. This would be the deal. Remember, if you do, that it was only days after PASPA fell that the Paddy Power Betfair-FanDuel deal was originally announced. Again, Matt, lawsuits tend to bring out some wild claims and some big words, but this one was pretty hefty. We reached out to both FanDuel and to Nigel Eccles. FanDuel says it doesn’t comment on pending litigation. Nigel declined comment when we reached him.
Matt Brown (11:13):
Anybody that does remember DraftKings and FanDuel were both in pretty bad shape and were trying to merge because of how bad things were going out there. This other stuff they did that just, I have to read it out because it’s just, “FanDuel was in financial ruin. The defendants undisputedly pursued FanDuel’s best and only viable lifeline so as to obtain the best result for FanDuel Limited and all shareholders.” And says, “Plaintiffs may be disappointed, but in reality, FanDuel was on its last legs and had no better option. There was no wrongdoing.” I just love that it’s like he might be disappointed, but.
Adam Candee (11:51):
Don’t you like it? It’s like when you get into a fight with your significant other and they’re like, well, I’m sorry if you feel that way.
Matt Brown (11:57):
Yeah. Yeah. Yeah.
Adam Candee (11:58):
No, no, no. I’m sorry if I hurt you. No, no, no, no, no. You did.
Matt Brown (12:02):
Yeah.
Adam Candee (12:03):
You hurt me. I definitely am disappointed that I did not get paid out at the level of FanDuel’s valuation today, which depending on what you use, is approaching $40 billion.
Matt Brown (12:15):
Yeah.
Adam Candee (12:16):
So yeah, I could see where a valuation in the 550s might be disappointing.
Matt Brown (12:20):
Yeah. And but like you brought up, I mean, FanDuel wasn’t at the time what we think of FanDuel today. We have been covering this so intently since all this went down that we’re like, oh, FanDuel this behemoth and blah, blah, and FanDuel was not FanDuel then when this was happening, and FanDuel certainly didn’t have anywhere near the prestige that even DraftKings did where like DraftKings was looked at as kind of like the premier brand and premier company and all of that, and so it’s interesting in all of this to, I think some people might look at this and go, dude, there’s no way. I certainly deserve more and yada, yada, but again, it wasn’t the same company. It wasn’t the same brand. It wasn’t the same deal that we think of when it comes to FanDuel here in 2024.
Adam Candee (13:06):
Well, no, and think about the fact that it was Paddy Power Betfair and then Flutter, et cetera. It was the heft of that company. It was the dollars of that company that allowed FanDuel to grow into the market leader that it is today. That’s not to say that the foundation that Nigel Eccles and the other founders put in didn’t lead to all of this and we’ll let the courts decide where all of that falls, but it certainly is notable that FanDuel has become the clear US market leader because Matt, I think you and I and Dustin when we were doing the podcast, I don’t know that any of us would’ve said that that was a sure thing in 2018.
DraftKings winning a round against its former head of VIP
Matt Brown (13:44):
No, not at all. For sure. That one will be fun to watch just like this one. We said we knew that we were going to be updating this one somewhere along the way. If you guys remember a story of us talking about DraftKings and its former VIP head, and we were saying, hey, listen, outside of the actual code itself to the app and the website, perhaps the most valuable thing that they have is a list of VIP people that put an incredible amount of money into the ecosystem and certainly pay a bunch of people’s salaries with the action that they put on the site, Adam. So we knew that this was not going away. We knew that this story was going to come back around, and we have at least a little bit more to talk about with this.
Adam Candee (14:27):
Yes, last week we found out that Michael Hermalyn, who was of course the man at the center of this case, the former DraftKings VIP head, where if you don’t recall, during Super Bowl week earlier this year, Michael Hermalyn abruptly left DraftKings for Fanatics and attempted to pull some maneuvers that allowed him to get out of the non-compete that he has with DraftKings, which of course was signed in Massachusetts. He claimed he had moved to California, which in the long-term, we know he’s moved to California. However, he was essentially trying to claim that on a 24-hour trip, as DraftKings put it, he went out, got a driver’s license, tried to establish residency, and tried to use that for the purpose of being able to get out of the non-compete that he had with DraftKings.
(15:16):
Here’s what happened. Last week, the district court of Massachusetts ruling that the non-compete does include California … that was actually, I should say the First Circuit Court of Appeals ruling that the district court of Massachusetts did that correctly. The non-compete goes through February 1st of 2025, and part of what we’ve discussed with all of this is that Michael Hermalyn had been initially enjoined by the courts from doing any of the VIP work at Fanatics that he had been doing at DraftKings, and this upholds that, that there is a one-year non-compete at the end of his contract.
(15:54):
So we discussed all along the road here, could he potentially come into a different part of the company and work for somewhere else in the Fanatics behemoth and not work in casino VIP, or I should say sports betting VIP, casino VIP, whatever it is that Fanatics wants to get into in the iGaming world. He certainly could, but this continues to be battled out in court. It feels like in some ways, this is going to be battled out in court well beyond February of 2025 when we get to the next Super Bowl.
(16:26):
But they’re definitely, from the point that you mentioned, Matt, the idea that this sets precedent in the world of VIP, in the world of poaching, both someone who runs that area and the clients who come with that person, that even if we end up beyond the terms of the non-compete, this is one where DraftKings — and I would think every other major operator in the space who has high-value players — wants the precedent established here that if you try to poach someone’s head of VIP, or if someone conversely, as the head of VIP tries to cook up a scheme where they’re going to leave and injure you in some way, or as has been claimed in some other court filings, maybe Michael Hermalyn was facing internal discipline at DraftKings and used that as a reason to try to get out when he did. That those are going to be court cases that are enforced vigorously.
Matt Brown (17:23):
Yeah. And the thing that really stood out to me about this too is I know people are going to read this. They’re going to like, oh, big deal February 2025. It’s like, well, that’s still four additional months from today, Adam, that they can go in, try to figure out what lists he might’ve had, what clients he might’ve already contacted, what would, I mean, that’s still four months for DraftKings to do a bunch of work behind the scenes and ensure that those VIPs, ensure that those whales, ensure that those high rollers are all still firmly team DraftKings, right? And so I mean, if you have a guy that is not able to operate in doing what he does for four months, that’s still a big head start on DraftKings trying to retain all those people, do whatever they have to do to make sure that they’re not going to jump ship.
Adam Candee (18:04):
You get a little Rod Tidwell, Jerry Maguire feel to this one, right? When Jerry Maguire gets fired and everyone’s on the phone, they’re both calling, can I keep him? Can I keep him? Can I get them? Yeah. Interesting situation here for sure. We’re continuing to follow all of the court machinations between DraftKings and its former head of VIP.
A settlement between the SEC and DraftKings
Matt Brown (18:26):
Sticking with DraftKings here, we got a little slap on the wrist here for DraftKings to talk about.
Adam Candee (18:33):
So this is an interesting story from a number of angles Matt. We first wrote about the potential for DraftKings having violated SEC rules back in July of 2023. Matthew Waters had noticed that some information that typically would go out with the release of DraftKings’ quarterly earnings had come out on Jason Robins’ Twitter account and then been deleted shortly after. When we pursued the story, DraftKings essentially tried to tell us, there isn’t a story here. It’s not that big a deal. And when we contacted the SEC, the SEC, the way they handle these things, basically said to us, we can’t confirm that there was an investigation. We can’t confirm that we exist. We can’t confirm that DraftKings exists. Jason Robins might be a figment of your imagination, like the SEC tells you nothing when you call them. But what we saw late last week was that the SEC did investigate what it considered to be a violation of the Fair Disclosure Regulation, and it did charge DraftKings.
(19:45):
We want to make sure we read this accurately from the story that Matthew wrote this week following up on the news that he broke back then. It ended up being settled, by the way, with a $200,000 fine, but DraftKings said they’re pleased to have the matter resolved, but according to the ruling from the SEC, “According to the order, even though regulation FD,” fair disclosure, “Require DraftKings to promptly disclose the information to all investors after it was selectively disclosed to some, DraftKings did not disclose the information to the public until seven days later when it announced its financial earnings for the second quarter of 2023.”
(20:29):
And so that was a violation according to the SEC of Section 13A of the Exchange Act and Regulation FD. Notably DraftKings did not admit or deny the findings, but agreed to pay the fine, cease and desist from future similar violations, and comply with certain provisions, including, “Required regulation FD training for employees who have access to corporate communications responsibilities.” And the last part of that is because it was being blamed on the PR firm that DraftKings uses to manage the Twitter accounts for the source of that violation.
(21:08):
In any case, just want to give some kudos to Matthew Waters, who, Matthew knows the financial side of what goes on with legal sports betting as well as anyone in the industry. He’s the first one that noticed this. He contacted an expert in the field at Duke University who said, “Yeah, this looks like it could potentially be something that would pique the interest of the SEC.” We faced some resistance in terms of reporting on the story. I think we reported it pretty accurately, pretty straight down the middle, and Matthew followed up on that story. Of course, this week you can read more about that at legalsportsreport.com.
Matt Brown (21:49):
Yeah. One of the interesting things I learned from the article, Adam, which I did not know, was that you actually can make these statements on social media. That is fair game. It’s just it has to be known to people beforehand that statements like this will be coming out from said accounts or something, which Jason before that had not really used the Twitter account to do stuff like that, so I actually learned that. I thought probably that social media would be awful limits actually, I didn’t know, but yeah, I guess you can do it. It just has to be known to shareholders that, hey, I might be sharing stuff on the Twitter every now and then, so that needs to be publicly announced to everyone so that they know that that might be hitting the waves every now and then.
Adam Candee (22:33):
Yeah, I think that’s well laid out in the story. A good catch by you to point that out as well. It’s something that now that I think everyone has seen what came out of this situation, that there’re going to be extra cross t’s and dotted t’s, not just for DraftKings, but for any publicly traded company in the gaming space to get this sort of thing buttoned up.
Matt Brown (22:57):
And finally, we didn’t forget about you, Canada. I know I said it at the top of the show. Don’t you worry. We got something to talk about with you as well.
Adam Candee (23:06):
Oh, Canada. It’s not just that hockey is about to start again-
Matt Brown (23:10):
It is. It is.
Adam Candee (23:11):
Devils in Prague on Friday. The return of Hockey Matt, I’m sure.
Matt Brown (23:15):
Guess what? I have one, actually I made a second one today. I have two bets in my account, both on the Devils.
Adam Candee (23:23):
What?
Matt Brown (23:25):
Both on the Devils.
Adam Candee (23:25):
I am so excited that we’re aligned this year.
Matt Brown (23:28):
Both on the Devils.
Adam Candee (23:28):
I have no bets on the Devils, but they’re my team. So good for you.
Matt Brown (23:31):
The division and to win it all. So there you go.
Adam Candee (23:33):
Oh, baby.
Matt Brown (23:34):
Yeah. Yeah.
Adam Candee (23:34):
Oh, baby.
Matt Brown (23:35):
I’ll just check in with you every few weeks and you can tell me how they’re doing.
Adam Candee (23:38):
Yeah, let’s just get a little scheduled text going, be like, how are they doing? Not good, buddy. Up in Canada where we are talking about there being some expansion of the market from Ontario to Alberta for a second regulated province with an open market, there is a bill working its way through the Canadian Parliament to limit advertising. Now, this was of course in response to what happened, not just in the United States, but in Canada when we saw the expansion of legal sports betting and the expansion of advertising around legal sports betting. Now, the bill itself I don’t think is particularly clear about what it would restrict. Right now the way that the bill is written, the one that’s being considered at the moment talks about restricting advertising, “In number, scope, or location.”
(24:30):
Now, there will be, of course, some meat put on these bones as it goes along because this bill is just being discussed at the moment. But I think two notable things to discuss about this. One of them is that you have Kevin Desjardins, the president of the Canadian Association of Broadcasters, saying that actually there’s been a pretty noticeable dip in demand for advertising over the last couple of years, and that might take care of the concern about just how much advertising there is without the government getting involved. Also notable is that the National Football League has sent a letter into the discussion encouraging the Canadian Parliament not to restrict advertising in the way that it is discussing. Now, of course, we’re talking about this at the federal level. The market is only open in Ontario right now for commercial operators. And in Ontario, there already are significant restrictions about how sports betting and online gambling can be advertised. Essentially, you can’t go out there to customers in Ontario with an offer and pitch them an offer.
(25:40):
If they come to you and say, yes, I would like to hear more about your offers, then you can go out there and say, $1,000 in refund or bonus bets, or whatever the case might be. But initial offers that go out to people in Ontario have to just be brand awareness sorts of things. Hey, we’re DraftKings. Hey, we’re FanDuel. Hey, we’re BetMGM, et cetera, et cetera. You already have to play by a stricter set of rules for advertising in the province of Ontario, and now we’re talking about Alberta potentially launching later this year. We’ll see what ultimately happens with that market if they choose to go the same direction as Ontario has. But interesting to see that the discussion of how do we regulate at the federal level versus how do we regulate at the state or provincial level, also going on in Canada in the same way that it’s going on in the United States.
Matt Brown (26:31):
That, and all of the stories that we hit here on the podcast, you can find over at legalsportsreport.com. So be sure, go over there, take in all the words Adam and company are writing over there. They read everything and listen to everything and watch everything so you don’t have to. You can head to legalsportsreport.com. We used to talk a ton of numbers on here. You can check out Nevada numbers over there as well. That is up on the front page if you want to take a sneak peek at that. For Adam, I am Matt. Talk to you guys next week.