DraftKings, Fanatics Battle On Display In New Lawsuit

February 7, 2024
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The simmering war between DraftKings and Fanatics has taken a new turn, with DraftKings suing a former company executive claiming he stole confidential information and took it with him to a new position at the rival operator.
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The simmering war between DraftKings and Fanatics has taken a new turn, with DraftKings suing a former company executive claiming he stole confidential information and took it with him to a new position at the rival operator.

In a lawsuit filed in a federal court in Massachusetts, where DraftKings is headquartered, the company alleged that Michael Hermalyn, a senior executive who led the company’s VIP team, downloaded sensitive company documents in the days before resigning on February 1 as part of a plan to use the information in his new position at Fanatics.

Those documents, the company asserts, include information on how the company values VIP customers, partnership agreements the company has entered into, and details company plans for entertaining key business partners at this week’s Super Bowl in Las Vegas. 

“The trade secrets and confidential information that Hermalyn learned and accessed in his role leading DraftKings’ VIP team are among the most valuable owned by DraftKings, and correspondingly, the most attractive that any competitor — like Fanatics — could hope to steal,” the company wrote in its filing.

Although the company frequently mentions Fanatics acting in concert with Hermalyn, Fanatics is not a named party in the suit.

DraftKings claimed that the plan dated back a year, when Hermalyn met with Fanatics executives at a Super Bowl party in February 2023.

Hermalyn filed his own suit in federal court in California on the same day as his resignation seeking to free himself from non-compete restrictions in his DraftKings employment agreements, which his attorneys called “overbroad and illegal” in the filing.

California law typically frowns on non-compete clauses against state residents, but DraftKings charged that Hermalyn’s California residency is “fraudulent,” claiming that it was established during a 48-hour period prior to his resignation where he told others that he was dealing with the death of a friend.

In Hermalyn’s filing, he claims that before accepting a position as president of Fanatics VIP and the head of Fanatics’ Los Angeles office, he moved to Los Angeles on January 29, including signing a lease for an apartment, purchasing a car, registering to vote, and scheduling an appointment with a California physician.

DraftKings called the move “a transparent effort to flee a jurisdiction that enforces non-competition agreements to one that does not,” claiming Hermalyn is a New Jersey resident and has been since he began working for DraftKings in September 2020.

“What Hermalyn would have this court believe is that anyone with some spare cash and a phone can become a California resident in less time than the average trip to Disneyland,” the company wrote.

In his filing, Hermalyn also said that he took steps to return any confidential information to DraftKings prior to his departure.

“Prior to resigning, Mr. Hermalyn took steps to ensure he was no longer in possession of any DraftKings property or confidential information,” Hermayln’s attorneys wrote. “He returned any DraftKings issued devices. He worked with his counsel to ensure that any documents and information developed in connection with his work for DraftKings were no longer in his possession.

“He even sent his personal phone to his counsel, and bought a new phone, to ensure that it did not contain any DraftKings information.”

DraftKings also claims that, on January 26, Hermalyn was told his compensation and title would be reduced due to an investigation for workplace misconduct, including allegations of mistreating women and using a corporate credit card to purchase wine for personal use with friends and first-class plane tickets. 

A Fanatics spokesperson called the lawsuit “sour grapes.”

“DraftKings is understandably upset that one of its employees left for the greener pastures at Fanatics,” the spokesperson said. “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.”

A hearing has been scheduled in Massachusetts Thursday (January 8) regarding DraftKings' request for a temporary restraining order that would prevent Hermalyn from working for Fanatics pending the result of the case.

The lawsuit is hardly the first time the two companies have publicly clashed. The pair were reportedly in merger talks in 2021, before Fanatics ultimately withdrew from the discussions. 

Then, last year, after PointsBet announced a $150m deal to sell its U.S. operations to Fanatics, DraftKings made a $195m offer, forcing Fanatics to increase its offer to $225m to complete the deal.

Fanatics CEO Michael Rubin said at the time that the move was designed to delay Fanatics' entry into the U.S. sports-betting market, and that it indicated “they are more concerned about us than I would have thought.”

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