CONGRESSIONAL HEARING REQUEST, CLASS ACTION COMPLAINT TAKING FUN OUT OF DAILY FANTASY SPORTS

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Two new developments have put the nascent fantasy sports industry’s two major competitors under an unwanted legal spotlight, just a month after a federal lawmaker asked for a congressional hearing into the relationship between professional sports, fantasy sports and sports betting.

As we predicted here, the legal ground underneath the multibillion dollar fantasy sports industry began to shift last month, when Rep. Frank Pallone (D-N.J.) sent a letter Sept. 14 to House Energy and Commerce Committee Chairman Fred Upton (R-Tex.),  requesting the hearing.

Then, on Oct. 4, an employee of DraftKings Inc. won $350,000 in a contest sponsored by FanDuel Inc., his company’s primary competitor. He hit that jackpot a week after accidentally posting user statistics on DraftKings’ blog more than an hour before the information should have been available.

The leak prompted the rival sites to issue a joint press release announcing that employees of one site would no longer be allowed to play on the other—a measure that even some investors were surprised to hear hadn’t been in place from the start.

The incident has caused a legal uproar, spawning accusations—akin to insider trading--that site employees have had an unfair advantage in playing fantasy sports games by using information not available to the general public.

At least one class action complaint has been filed in federal court in New York, alleging fraud, negligence, unfair business practices and false advertising claims against the two competitors. The crux of the complaint is that users were promised a fair game, but instead had to compete against players with access to nonpublic information about optimal strategies and possibly real-time access to data about current and upcoming contests. The case is Johnson v. Fanduel, Inc. et al, Docket No. 1:15-cv-07963 (S.D.N.Y. Oct 08, 2015).

On Capitol Hill, Upton hasn’t responded yet to Pallone’s hearing request, but a committee aide told Bloomberg BNA that the committee is keeping a close eye on the developing situation.

"Recent reports raise additional questions about the safety, fairness, and integrity of these new platforms for fan engagement,” the aide said. “We have a responsibility to protect consumers and ensure that those participating are not being taken advantage of. Our staff is looking into these issues.”

Stayed tuned for more fantasy sports action in the courts—and, maybe, in Congress too.