Fantasy player files lawsuit against FanDuel, DraftKings

Brent Schrotenboer | USA TODAY Sports

A daily fantasy sports customer in Kentucky has filed a lawsuit against DraftKings and FanDuel, accusing the companies of fraud because they failed to disclose that their employees had access to insider data the suit claims could help them help win millions at the expense of regular customers.

Adam Johnson, the plaintiff, is seeking unspecified damages on behalf of himself and others “similarly situated” after a controversy about insider trading erupted this week in the growing new field of daily fantasy sports. The federal lawsuit was filed in New York on Thursday and is proposed as a class action.

An employee for DraftKings had won $350,000 in a contest on FanDuel – the same week that he had inadvertently leaked insider data about the hottest players to own that week. The companies denied any wrongdoing took place, but the data breach raised questions about whether their employees had access to valuable information that could be used to gain an advantage.

The suit said DraftKings employees have won at least $6 million playing on FanDuel, a rival site that has a similar business model to DraftKings. It also noted that FanDuel profiled one of its own employees who played on other sites and had won $50,000 in a short period of time – an article that has since been removed from FanDuel’s website, the suit said.

“Plaintiff and the proposed classes would not have deposited money or engaged in any activity on Defendants’ websites if they had known that they were competing against individuals with insider knowledge, access and use of non-public data,” the suit said.

FanDuel and DraftKings announced this week have hired outside law firms to review their internal controls against fraud and have since forbidden employees to play fantasy games for money.

With access to data about which players are the hottest to own that week, the theory is that insiders can use that information to capitalize on market inefficiencies and improve their chances of beating those without such access.

DraftKings declined comment through a spokeswoman. FanDuel didn’t immediately return a message seeking comment about the lawsuit.

The case is “going to have to survive a motion to dismiss,” said attorney Daniel Wallach, an expert in sports and gaming law. “FanDuel and DraftKings are going to be pointing to their terms of use, which say, `If you sue us, it can only be decided by mandatory arbitration and no class action.’”

The lawsuit calls such terms of use “an illusory contract” that are “procedurally and substantively unconscionable.”

Follow sports reporter Brent Schrotenboer on Twitter @Schrotenboer. E-mail: bschrotenb@usatoday.com