We can all keep burying our heads in the sand and pretend that daily fantasy sports "wagering" is not actually sports betting. We can keep pretending that the ability to choose a winning make-believe roster is somehow more skillful than hitting a multi-team parlay and thus totally not gambling.
Gambling or not, if paid daily fantasy websites like DraftKings and FanDuel want to operate in the United States they must accept that there are rules. This isn't 'Nam after all.
One of those rules, and perhaps the most basic of rules businesses must follow is the "don't be a douchebag" rule, or as we lawyers like to say, don't engage in deceptive and unfair trade practices against your customers.
Yet for anyone that has deposited money into DraftKings or FanDuel, you know that all those commercials about free sign-up bonuses promising to match 100 percent of deposits are complete BS.
In reality, both DraftKings and FanDuel utilize a system in which players are all but guaranteed to never receive the promised 100 percent deposit bonus. The sites do so by only releasing four percent of every dollar played. This means that someone who deposited $600 initially would actually have to deposit $14,400 more, then gamble with all $15,000 to receive the "guaranteed" $600 bonus. That sure does not sound like a double deposit bonus to me, which is where attorney Mason Kerns comes in.
Kerns recently filed a class action lawsuit in the United States District Court for the South District of Florida, Jose Aguirre v. DraftKings, Inc., alleging that Boston-based DraftKings, Inc. violated the Florida Deceptive and Unfair Trade Practices Act. Specifically, Kerns' lawsuit accuses DraftKings of deceptively using the term "free" in its advertisements and making false and misleading statements intended to induce consumers into depositing money to the website. (The full Complaint is below.)
"Our intention isn't to bring down the daily fantasy sports industry," Attorney Kerns told the Broward Palm Beach New Times. "Given how big it is, that wouldn't be possible. I think they provide a great service, I just think it should be done in process that doesn't make someone think they're getting double their deposit."
The lawsuit seeks class action certification for a class of 20,000 to 100,000 Florida consumers whose damages average about $25 each. Keep in mind that the daily fantasy sports industry is expected to rake in $31 billion in entry fees by 2020. So this Florida lawsuit, which could be duplicated throughout the U.S., represents just a tiny fraction of the consumers allegedly harmed by deceptive fantasy sports ads.
Kerns' lawsuit definitely has some merit as DraftKings has peppered television, radio, and the Internet with ads touting free sign up bonuses and 100% deposit matching. On its face, the way DraftKings handles its deposits certainly seems deceptive and unfair.
However, this lawsuit will likely be dismissed thanks to American Express and Supreme Court Justice Antonin Scalia.
In the final paragraph of Kerns' lawsuit, he states, "The cost of litigation will render individual actions - even in a small claims court - economically unviable. DraftKings can only effectively be deterred from deceiving and defrauding customers through maintenance of a class action."
These are not throw-away statements. Those two sentences are exactly why this lawsuit will fail.
Yes, it is true that the cost of litigation would deter almost all fantasy sports players from pursuing individual claims. But DraftKings binds players with a mandatory arbitration agreement.
Any and all disputes, claims or controversies arising out of or relating to this Agreement, the breach thereof, or any use of the Website (including all commercial transactions conducted through the Website) ("Claims"), except for claims filed in a small claims court that proceed on an individual (non-class, non-representative) basis, shall be settled by binding arbitration before a single arbitrator appointed by the American Arbitration Association ("AAA") in accordance with its then governing rules and procedures, including the Supplementary Procedures for Consumer-Related Disputes, where applicable. In agreeing to arbitrate all Claims, you and DraftKings waive all rights to a trial by jury in any action or proceeding involving any Claim. The arbitration shall be held in Suffolk County, Massachusetts
Justice Scalia, writing for the majority, specifically noted that "the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy."
In other words, even though a class action is the most cost effective way to pursue claims for thousands of consumers who are seeking $1 to $600 in damages, those consumers must pursue their claims individually at arbitration in Massachusetts. So even though filing individual claims is not economically viable for someone who got screwed out of a $50 deposit bonus, well, too damn bad.
Kerns is certainly well aware that he will somehow have to overcome the corporate-friendly American Express decision in order to achieve class action status. It is a long shot for sure.
But if Kerns is willing to go the distance in a fight against an extremely profitable DraftKings company, I would love to see Justice Scalia analyze the legality of a non-gambling gambling website enforcing an arbitration provision to defend against claims that it used deceptive advertising practices. His head might actually explode.
Ultimately, DraftKings will likely prevail. Although its advertising is slimy, it is not necessarily illegal. More importantly, the American Express decision seemingly shields DraftKings from class actions. Without class action certification, there is really not enough skin left in the game to make Kerns' lawsuit worthwhile.
Steven Silver, Esq. is the founder of TheLegalBlitz.com. He is a former sports reporter for the Las Vegas Sun and is now a lawyer in the Philadelphia office of McBreen & Kopko. He is licensed to practice law in Pennsylvania and New Jersey. You can reach him at firstname.lastname@example.org or on Twitter@thelegalblitz.
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