iFantasy sports ("fantasy") is a dynamic industry that has surged in popularity in North America. In 2005 there were an estimated 12.6 million fantasy players in the U.S. and Canada – that number exploded to 41.5 million players in 2014. The most popular fantasy sport by far is football with a market share of nearly 70%. Most recently, the landscape of fantasy sports has changed drastically with the advent of "daily fantasy sports." Instead of maintaining traditional season-long rosters for any given sport, daily fantasy sports give players a daily or weekly roster to manage, often in a head-to-head format with cash incentives.
DraftKings, founded in 2011, is the second largest online site to offer daily fantasy sports. The Boston-based company is backed by $35 million in venture capital, and awarded a staggering $300 million in prizes to its nearly 1 million registered users in 2014, with DraftKings pulling in $30 million in revenue over that same time period. DraftKings raised the stakes in 2014 through blockbuster acquisitions of DraftStreet and StarStreet, two former competitors, solidifying the successful start-up's place amongst the fantasy elite. The company is projected to hit $1 billion in payouts and bring in nearly $100 million in revenuein 2015.
DraftKings's market share is partly attributed to its bold, yet effective, advertising. Through November 2014, DraftKings had run 1,782 separate television ads in 2014 alone. Unfortunately, at least according to one legal complaint, some of these ads may require the industry titan to cash out users who believe they were dealt a bad hand.
In a class action complaint filed on January 29, 2015 in the United States District Court in the Southern District of Florida, a DraftKings user ("Plaintiff") claims the company's advertising practices are deceptive and fraudulent. Plaintiff contends that DraftKings violated various state consumer protection laws, including the Florida Deceptive and Unfair Trade Practices Act, by making numerous false statements of material fact on its website, and in online video and television advertisements. (Aguirre v. DraftKings, Inc., No. 1:15-cv-20353-DPG (S.D. Fla., filed Jan. 29, 2015)).
The complaint specifically targets a DraftKings commercial that claims, inter alia, that if a customer signs up for a DraftKings membership, the site will "double [his or her initial] deposit . . . up to $600." Plaintiff alleges that upon signing up on the site and making the initial deposit, the 100% matching bonus is never realized and customers receive no additional money immediately upon deposit. Rather than receive the guaranteed instant 100% deposit-match, the complaint asserts that customers must enter fantasy contests to receive incremental bonuses, which are a mere 4% of every dollar they put into play. Plaintiff claims, for example, that in order to receive a free matching bonus of $600 for making an initial $600 deposit, a customer would have to deposit an additional $14,400, and then wager the entire $15,000 to receive the $600 deposit bonus – an act, Plaintiff claims, requiring users to deposit 25 times more than the advertised amount, per the DraftKings's offer terms. Plaintiff argues that this roundabout way of awarding the promised bonus is an unfair or deceptive practice under Florida law.
In addition, Plaintiff also relies on the Florida Free Gift Advertising Law, which "recognizes that the deceptive misuse of the term 'free' and words of similar meaning and intent in advertising" may be deemed a deceptive trade practice under Florida law. According to Plaintiff, the gift advertising law requires that advertising promoting free items that are tied to conditions or obligations must include a clear and conspicuous statement of any such conditions or obligations, a legal requirement which DraftKings purportedly failed to abide by.
DraftKings is now on the clock to respond to these allegations – but they may have an ace up their sleeve. Before registering for a DraftKings's account, users must agree to be bound by the site's Terms of Use, which include a mandatory arbitration clause that contains a class action waiver. If the arbitration agreement is found to be legally binding and enforceable, users would be compelled to pursue their claims individually at arbitration, driving a spade through the heart of the class action. It will now be up to the court to determine whether Plaintiff's lawsuit is a bust or if DraftKings will be forced to ante up.
