The War Of The Roses
The DraftKings and Fanatics rivalry is becoming one of the biggest subplots in US sports betting.
The Bulletin Board
NEWS: DraftKings and Fanatic is becoming a full-blown rivalry.
BEYOND the HEADLINE: The EKG Line newsletter’s Chart of the Week helps explain the fight over VIPs.
LEGISLATIVE UPDATES: Minnesota isn’t done trying; Georgia is running out of time; Hawaii efforts come up short; An end to the DC monopoly?
VIEWS: Are membership poker rooms legal? Texas and other states are trying to answer that question.
AROUND the WATERCOOLER: Rubber meets the road.
STRAY THOUGHTS: Poker is not like business.
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DraftKings and Fanatics Feud Heats Up
It’s not Yankees-Red Sox, at least not yet, but DraftKings and Fanatics are becoming bitter rivals.
The rivalry is still new, blossoming in 2023 when Fanatics hired former FanDuel CEO Matt King to run its betting and gaming division. King brought the bad blood formed when DraftKings and FanDuel battled for DFS supremacy.
That bad blood has become a full-on feud over a DraftKings turned Fanatics employee named Michael Hermalyn.
If you haven’t followed the story, the gist is that Fanatics wooed and won the hand of Hermalyn, who was already employed as DraftKings’ Head of VIP.
In the latest legal filing, DraftKings requested an injunction preventing Hermalyn from working for Fanatics. DraftKings alleges Hermalyn violated his non-compete agreement and “hatched a secret plan over the past year to steal and use confidential information, solicit customers and employees, and join a key competitor, Fanatics.”
DraftKings has also ramped up the charges, calling it corporate espionage and claiming Hermalyn contacted at least one of DraftKings’ VIPs to let them know he was leaving for Fanatics.
Hermalyn countered that the DraftKings’ lawsuit “improperly constrain Mr. Hermalyn from pursuing a lawful profession of his choosing with Fanatics VIP in California and to improperly restrict Fanatics VIP from employing him.”
In February, Fanatics called DraftKings’ claims “sour grapes,” telling Legal Sports Report, “The fact that they are trying to drum up ridiculous allegations on one of their well-respected executives in an attempt to ruin his reputation sheds some light on why employees may be choosing to leave that organization.”
Hermalyn alleges DraftKings has a “culture of retribution” and, according to CNBC’s Contessa Brewer, “is making an example of Hermalyn to instill fear in other “DK employees looking to jump ship.”
“The evidence against Mr. Hermalyn is open-and-shut. He stole valuable trade secrets, destroyed evidence to cover his tracks, and then lied about it all,” Orin Snyder, an attorney with Gibson Dunn representing DraftKings, told CNBC in a statement.
Beyond the Headline: VIPs Are Worth Fighting Over
The Eilers & Krejcik Gaming EKG Line newsletter’s Chart of the Week might help explain why both companies are willing to go to the mattresses over Hermalyn.
Author’s note: EKG is a newsletter sponsor.
Per EKG, Fanatics “suddenly generated nearly $30 million in GGR” in January (pre-Hermalyn), “good for a 17.5% market share.”
EKG went on to say, “We understand that the swing was VIP-driven, with Fanatics recently ramping up VIP program strategic development.” It noted that VIP spending in New Jersey has resulted in massive swings in H2 of 2023, when “DraftKings nabbed some VIP business from FanDuel that temporarily made DraftKings the state’s OSB GGR share leader.”
Of course, the value of VIP customers is beginning to draw attention from the prying eyes of regulators and watchdog groups. I wrote a feature column in February titled Pulling Back the VIP Curtain.
Legislative Updates: MN Still Trying; GA Running Low on Time; HI Fails; An End to the DC Monopoly?
Minnesota: As I wrote last week, changes are not always positive developments. Minnesota lawmakers are seemingly throwing everything and anything against the wall to get a sports betting bill, HF 2000, across the finish line. The most recent changes are supported by charities but opposed by the racing industry, and as noted, haven’t improved sports betting’s chances in Minnesota, even with Rep. Zach Stephenson, who is leading the sports betting charge, saying “momentum is building.”
Georgia: The Georgia House Higher Education Committee met on Monday to discuss sports betting. Despite several amendments, the meeting was adjourned without a vote. The Committee is expected to meet again on Wednesday, but the legislative clock is ticking, with the legislature set to adjourn on Thursday.
Hawaii: Efforts to bring online gambling to Hawaii are over, but Rep. Daniel Holt is sponsoring a resolution to conduct a comprehensive gambling study and create a Sports Wagering Working Group in the Department of Business, Economic Development, and Tourism. [Narrator voice] Hawaii is a notoriously anti-gambling state.
Washington DC: Say goodbye to the DC sports betting monopoly? That would happen if Council member Kenyan McDuffie’s new bill were to pass. According to an X post, McDuffie’s proposal would “allow current Class A retail sportsbook operators (located at Audi Field, Capital One Arena, and Nationals Park) to provide their mobile apps city-wide” and create a “Class C mobile sports wagering license to sports teams who meet certain criteria.”
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Questions Swirl Around the Legality of Texas Poker Rooms
The legal-illegal gambling debate isn’t confined to DFS, sweepstakes, and “skill games.” Another newish model under scrutiny is membership poker rooms, which started appearing in Texas in 2019 and now number around 30. The membership model has also spread to other states, including Kentucky.
The presence of these cardrooms has some asking questions and others taking action. The legality of these rooms is being argued in the courts, and local lawmakers are also weighing in, like Dallas City Councilmember Cara Mendelsohn, who wants to restrict the location of the cardrooms.
As Odds On Compliance noted in a recent blog entry, the crux of the argument is Texas’s gambling laws, which state:
“(1) the gambling must occur in a private place; (2) no person may receive any economic benefit other than personal winnings; and (3) except for the advantage of skill or luck, the risks of losing and the chances of winning must be the same for all participants.”
Because they charge a membership fee, the cardrooms argue they circumvent #2, as the games themselves are not proceeds; the membership fees are.
Not everyone agrees. A cardroom in Watagua, Texas, was raided in 2022, and the owner, Joe Vongkaysone, recently reached a plea deal after legal expenses racked up. All charges were dropped, but Vongkaysone had racked up nearly $200,000 in legal fees and will forfeit the $132,000 seized.
Basically, this is the beginning, not the end. As Odds On Compliance wrote, “As private card rooms continue to proliferate, the stage is set for potential legal showdowns between other operators seeking legitimacy and lawmakers aiming to enforce existing gambling laws.”
Around the Watercooler
Social media conversations, rumors, and gossip.
We may have reached critical mass. Yesterday, I reported on the comments by ESPN’s Rece Davis and the bigger context in the US sports betting space, noting:
The industry is dealing with bad PR from all angles, with March Madness amplifying every signal from Shohei Ohtani to Temple Basketball to Rep. Paul Tonko’s federal effort to crack down on gambling advertising to states prohibiting college prop bets to the long list of problem gambling stories that have been written over the last couple of years.
And now we have the Jontay Porter story.
Per ESPN, “Toronto Raptors forward Jontay Porter is under investigation by the NBA following multiple instances of betting irregularities over the past several months.” At issue are games on January 26 and March 20, where all prop bets on Porter hit the under. Porter props were the biggest moneymakers for bettors at DraftKings both nights, with betting irregularities reported as people tried to get massive bets down on Porter.
It’s safe to say that the rubber is about to meet the road. As Dustin Gouker tweeted:
Stray Thoughts
This quote came up in a Facebook memory recently, and I thought it was worth sharing:
“To succeed in business, surround yourself with geniuses. To succeed in poker, surround yourself with morons.” - Anon