DraftKings Accuses VIP Exec of Corporate Espionage, Says Staffer Sold Secrets to Fanatics

Posted on: February 6, 2024, 04:56h. 

Last updated on: February 7, 2024, 08:32h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

In a new court filing that reads like the script for a Hollywood thriller, DraftKings (NASDAQ: DKNG) claimed former executive Michael Hermalyn sold trade secrets to Fanatics in an effort to procure a job with a direct rival to his employer.

Michael Hermalyn
Former DraftKings executive Michael Hermalyn (right) in an ad for a company podcast. He’s being sued by the sportsbook operator for allegedly selling secrets to Fanatics. (Image: DraftKings Careers)

In a civil complaint filed Monday in the U.S. District Court in the District of Massachusetts, Boston-based DraftKings said Hermalyn, who oversaw the gaming company’s efforts to attract and retain VIPs, hatched a scheme that purportedly started at the 2023 Super Bowl. There, he  met with high-ranking Fanatics executives, including CEO Michael Rubin, to “discuss employment.”

He took further disloyal steps over the summer, pretending he was ‘getting out of the industry’ and improperly encouraging his subordinates to meet with Fanatics’ CEO about employment there, while at the same time urging DraftKings to pay himself and his subordinates large retention payments, valued in the millions of dollars,” according to the legal document.

The gaming company said Hermalyn’s nefarious deeds continued as of last week to sink DraftKings’ VIP operations in advance of the upcoming Super Bowl. The Super Bowl is the most wagered-on athletic contest in the U.S. and is a marquee event for all sportsbook operators.

DraftKings asserts that last week, Hermalyn took a clandestine trip to Los Angeles to meet with Fanatics executives, using the purported death of a friend in Pennsylvania as cover.

Rift Underscores Industry Competition

While in Los Angeles, Hermalyn is said to have “negotiated an employment agreement with Fanatics, downloaded DraftKings’ confidential business plans for the Super Bowl while sitting in Fanatics’ offices, and fraudulently attempted to establish California residency during his 48-hour visit so he could resign from DraftKings and try to invalidate his noncompete agreements in California state court only a few days later,” according to DraftKings.

If that’s what Hermalyn did, in theory, it was a shrewd move because, likely owing to California’s status as home to a slew of technology companies, it forbids enforcement of noncompete agreements. Last September, Gov. Gavin Newsom (D-CA) signed two bills to that effect.

“Together, the bills come amid a nationwide push to ban noncompete agreements and other restrictive covenants in employment and further California’s leading public policy stance against such agreements,” according to law firm Ogeltree Deakins.

Fierce Competition

The rift between DraftKings and Hermalyn underscores the point that the U.S. sports betting industry is fiercely competitive and that competition is amplified regarding employees and attracting big bettors — the latter of which were described in the DraftKings legal document as scarce resources.

Hermalyn led DraftKings’ VIP team, responsible for acquiring and retaining DraftKings’ most loyal and high-value potential players,” added the company in the complaint. “In the fantasy sports, mobile sports betting, and iGaming industry, businesses can sink or swim on the strength of their customer relationships. DraftKings is one of only a few prominent companies competing for extremely scarce resources, especially the patronage of the relatively small number of high-net-worth customers who wager significant sums on sporting events.”

While employed with DraftKings, Hermalyn knew the identities of the operator’s largest customers and their betting proclivities.

More Bad Blood

The suit against Hermalyn also extends bad blood between DraftKings and Fanatics. There was a time when DraftKings cofounder and CEO Jason Robins was supposedly friendly with Rubin, and the two companies nearly sealed a massive $48 billion merger in 2021.

Late in the negotiations, Rubin halted the plan. Now, his privately held company is worth an estimated $31 billion, while DraftKings has a market capitalization of $19.56 billion.

The animosity lingered and was displayed last year when Fanatics attempted to acquire PointsBet US. The suitor originally offered $150 million for that business, but DraftKings later bid $195 million. While Fanatics ultimately won PointsBet US, it was forced to raise its $150 million proposal because of the DraftKings offer.

In a statement on DraftKings’ civil complaint against Hermalyn, Fanatics called it “sour grapes.”