Photo credit: https://www.flickr.com/photos/yodelanecdotal/

Photo credit: https://www.flickr.com/photos/yodelanecdotal/

By William Saldutti*

If you have watched any sporting event, especially football, over the past few months, you will have seen them – an onslaught of advertisements from daily fantasy websites DraftKings and FanDuel.  To be exact, you have seen roughly one ad every one-and-a-half minutes promising huge payouts for only one week or one day of play.[1]  Many of these ads promise free entry for their leagues, even though players appear to pay no money upfront.[2]  Some users of these sites, however, have brought their own blitz of lawsuits against the companies, alleging false advertising and could bring many more.[3]

Daily fantasy sports are a relatively recent entry into the world of fantasy sports, condensing the usual season-long format into one week or even one day, depending on the sport.[4]  In the past few years, both Draft Kings and FanDuel, the two biggest daily fantasy websites, have entered into major deal with various professional sports leagues.[5]  Major League Baseball (the “MLB”) was the first to get involved, signing a deal with DraftKings.[6]  The MLB’s deal was closely followed by similar agreements between the National Basketball Association and FanDuel, and the National Hockey League and DraftKings.[7]  The National Football League (the “NFL”) has yet to sign a deal on a league-wide level, but many NFL teams have already signed individual deals with either league.[8]

The Class Action Lawsuits Against DraftKings and FanDuel

The recent bombardment of ads may have left many viewers annoyed, but annoyed viewers might be the least of DraftKings’ and FanDuel’s worries.[9]  These ads have exposed both companies to a great deal of potential liability, as some viewers believe that the ads DraftKings and FanDuel are constantly running are misleading and violate state-level truth in advertising laws.[10]

There are currently multiple class actions lawsuits pending against both DraftKings and FanDuel alleging violations of the truth in advertising laws in various states.[11]  For example, a putative class action lawsuit recently brought against DraftKings in Florida claims that DraftKings violated the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”) with its advertisements of a “Free Bonus”.[12]  While the offer itself may have been free, the Plaintiff was allegedly required to put down money and play DraftKing’s fantasy games in order to claim the free offer.[13]  The lawsuit alleges that “Plaintiff and the Class, having been promised a free good, were forced to undergo additional ‘conditions or obligations necessary to acceptance,’” which they allege is a per se violation of the FDUTPA.[14]

FanDuel is facing similar lawsuits.  In California, there is a putative class action lawsuit against FanDuel alleging a violation of the Business and Professions Code for false and misleading advertising.[15]  The complaint alleges that FanDuel’s advertisements promise a “Welcome Bonus” upon signing up for the website, but in reality users had to pay a fee and spend money on the website in order to receive the “Welcome Bonus.”[16]  The complaint also alleges that the promise of this bonus “was material with respect to the decision to purchase or engage in FanDuel” and that FanDuel knew and relied on that fact.[17]  That is, FanDuel relied on the fact that consumers would misinterpret the advertisement, in hopes of getting more people to sign up and spend money on the website.

Potential Federal Action

In addition to state-level lawsuits, both DraftKings and FanDuel may also have to worry about federal action.  DraftKings advertises that the site is “100% legal” which in and of itself may constitute false advertising.[18]  DraftKings  is legally prohibited in five states (as is FanDuel): Arizona, Iowa, Louisiana, Montana, and Washington.[19]  This fact alone makes DraftKings’ statement that it is “100% legal” blatantly false, and opens them up to further allegations of false advertising.[20]

Indeed, this statement may put DraftKings in violation of the Federal Trade Commission Act (the “FTC Act”).[21]  The FTC Act states that “it shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false advertisement.”[22]  At face value, the statement that DraftKings is “100% Legal” is false, and could be held to be a false advertisement, putting DraftKings in violation of the FTC Act.[23]

Further, the allegations that the various plaintiffs have made against DraftKings and FanDuel could put them further in violation of the FTC Act.[24]  The FTC Act states that “it shall be unlawful for any person, partnership, or corporation to disseminate . . . any false advertisement . . . [b]y any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in or having an effect upon commerce . . .”[25]  Any “person, partnership, or corporation,” DraftKings and FanDuel in this case, that does so shall be in violation of the FTC Act and subject to suit by the Federal Trade Commission (FTC).[26]

In order to successfully bring action, the FTC would have to show that the ads are “likely to mislead consumers, acting reasonably under the circumstances, in a material respect.”[27]  According to allegations by the putative classes in California and Florida, the ads did just this, as the false statements about “Free Bonus[es]” and “Welcome Bonus[es]” were material to the class members spending money and participating in the websites.[28]  If the FTC were to bring action, they could likely succeed based on these same facts, as long as the FTC could establish the same facts from its own reasoned analysis.[29]

What Is Happening Now

 The blitz of ads has given the daily fantasy sports industry more visibility, and money, than ever, while at the same time exposing them to potentially greater liability than ever.  Recently, the members of the Pac-12 opted not to air ads for DraftKings and FanDuel on their networks.[30]  If other conferences begin to follow suit, it could end up costing the companies millions in lost potential revenue.

FanDuel is also wrongfully using images in their advertisements.  It has recently come to light that FanDuel is using the images of two former Georgia Tech football players without permission, or compensation, of the players or the school.[31]  The images were reportedly taken directly from Georgia Tech’s 2011 schedule calendar.[32]  While no action has been taken yet, the lawyers for Georgia Tech are currently looking into the mater.[33]

On top of all this, DraftKings and FanDuel still have to deal with state-level lawsuits, and potential federal action.  To defend against these, both DraftKings and FanDuel may need to present hard evidence that their ads are truthful and non-misleading.[34]  DraftKings and FanDuel will also have to be wary of what they advertise both on television and on their websites, to make sure they comply with federal laws.[35]  Annoying advertisements are one thing, false and misleading advertisements are another.


* Staff Writer, Jeffrey S. Moorad Sports Law Journal; J.D. Candidate, May 2017, Villanova University School of Law.

[1] Dustin Gouker, DraftKings’ TV Blitz: One Commercial Every 1.5 Minutes; $82 Million Spent In ’15, Legal Sports Report (Sept. 2, 2015, 7:20 PDT), http://www.legalsportsreport.com/3483/draftkings-tv-commercial-blitz/ (describing DraftKing’s advertising plans for 2015).

[2] See, e.g., John Dorn, Sports Fans Are Overwhelmed With All These Daily Fantasy Advertisements, AOL (Oct. 1, 2015, 1:45 PM), http://www.aol.com/article/2015/10/01/sports-fans-are-overwhelmed-with-all-these-daily-fantasy-adverti/21243628/ (“Do you watch sports?  Do you know anybody that watches sports?  Do you own a television?  Or a radio?  Or go outside?  If the answer to any of those is yes, then there’s about a 100 percent chance that you can rattle off at least five promo codes that will get you free entry into this week’s [daily fantasy] contest!”); see also John McDuling, The Bizarre, Multibillion-Dollar Industry of American Fantasy Sport, Quartz (Dec. 13, 2014), http://qz.com/298042/the-bizarre-multi-billion-dollar-industry-of-american-fantasy-sports/ (explaining how daily fantasy sports operate)..

[3] See Dustin Gouker, Nothing But The Truth? DraftKings Faces New Class-Action Lawsuit For Alleged False Advertising, Legal Sports Report (Apr. 28, 2015, 7:27 PDT), http://www.legalsportsreport.com/1205/draftkings-faces-new-class-action-lawsuit-advertising/ (discussing lawsuit brought against DraftKings in April 2015, and briefly describing other suits brought against DraftKings and FanDuel).

[4] See McDuling, supra note 2 (explaining how daily fantasy sports operate).

[5] See DFS Partnership / Sponsorship Tracker, Legal Sports Report, http://www.legalsportsreport.com/dfs-sponsorship-tracker/ (last visited Oct. 4, 2015) (listing current deals and partnerships that daily fantasy sports have in place with professional sports leagues).

[6] Darren Heitner, DraftKings And Major League Baseball Extend Exclusive Partnership, Forbes (Apr. 2, 2015, 12:55 PM), http://www.forbes.com/sites/darrenheitner/2015/04/02/draftkings-and-major-league-baseball-extend-exclusive-partnership/2/ (discussing MLB and DraftKings deal).

[7] See DFS Partnership / Sponsorship Tracker, supra note 5 (detailing deals made between NBA and FanDuel, and deals that NHL has made with both DraftKings and FanDuel).

[8] See id. (detailing deals NFL teams have made with DraftKings and FanDuel).

[9] See Daniel Roberts, Why ESPN is Running Back-to-Back DraftKings and FanDuel Ads, Fortune (Sept. 22, 2015, 2:24 PM EDT), http://fortune.com/2015/09/22/espn-draftkings-fanduel/ (discussing advertising of DraftKings and FanDuel, and providing examples of tweets from annoyed viewers).

[10] See Gouker, supra note 3 (discussing suits that have been brought forward against DraftKings and FanDuel concerning misleading advertisements).

[11] See id. (listing examples of lawsuits against DraftKings and FanDuel).  For further discussion of class actions lawsuits brought against DraftKings and FanDuel, including specific examples, see infra notes 12-17 and accompanying text.

[12] See Class Action Complaint at paras. 35-48, Aguirre v. DraftKings, Inc., No. 1:15-cv-20353-DPG (S.D. Fla. filed Jan. 29, 2015), ECF No. 1 (allegations in support of FDUPTA claim against DraftKings).

[13] See id. at para. 42 (alleging that plaintiff was required to put down significant amounts of money in order to claim DraftKings’ “free offer”).

[14] Id. at para. 43 (citing Fla. Stat. § 817.415(5)) (describing specific actions that put DraftKings in violation of FDUPTA).

[15] Class Action Complaint at paras. 33-57, Ex. 1, Defendant Fanduel, Inc.’s Notice of Removal, Leung v. FanDuel, Inc., No. 5:15-cv-835 (C.D. Cal. filed Apr. 28, 2015), ECF No. 1 (allegations supporting claim for violation of California Business and Professions Code).  Plaintiff originally filed his complaint in California state court on March 13, 2015.  Following FanDuel’s April 28 removal to the United States District Court for the Central District of California, plaintiff filed an amended complaint on August 17, 2015.  See First Amended Class Action Complaint, Leung v. FanDuel, Inc., No. 5:15-cv-00835 (C.D.Cal. filed Aug. 17, 2015), ECF No. 33.

[16] See Class Action Complaint, Leung, supra note 15, at para. 35 (describing alleged requirements to claim “Welcome Bonus”).

[17] See id. at paras. 35-39 (alleging that FanDuel made knowing misrepresentations).

[18] See Why is it Legal?, DraftKings.com, https://www.draftkings.com/help/why-is-it-legal (last visited Oct. 4, 2015) (description on DraftKing’s website of why DraftKings and daily fantasy sports in general are legal, and stating that DraftKings is “100% Legal”).

[19] See Daily Fantasy Sports: Blocked / Allowed States, Legal Sports Report, http://www.legalsportsreport.com/daily-fantasy-sports-blocked-allowed-states/ (last visited Oct. 4, 2015) (listing state in which certain daily fantasy sports website and leagues are banned).  The legality of daily fantasy sports is currently up for debate, however, that issue is beyond the scope of this work.

[20] See supra notes 12, 15 and accompanying text (giving two examples of laws that DraftKing’s “100% Legal” statement would violate); infra notes 21-29 and accompanying text (giving example of federal law that this statement would violate).he Lanham Act specifically statesds that it is a violation if the promotion “he legality of daily fantasy sports is beyond the s

[21] 15 U.S.C. §§ 41-58 (provision of Federal Trade Commission Act).

[22] 15 U.S.C. § 52(a) (prohibiting “[d]issemination of false advertisements”).

[23] See supra note 18 (describing DraftKings’ assertion that it is “100% Legal”).

[24] See supra notes 11-17 (discussing various false advertising lawsuits brought against DraftKings and FanDuel).

[25] 15 U.S.C. § 52(a)(2).

[26] 15 U.S.C. §§ 53(a), 54(a) (stating consequences for any dissemination that violates § 52).  The Federal Trade Commission can enjoin the dissemination, or “the causing of the dissemination” of a false advertisement, and it may seek civil penalties for violations of § 52.  See 15 U.S.C. § 53(a) (providing FTC with authority to enjoin violations of § 52); 15 U.S.C. § 54(a) (providing FTC with authority to seek civil penalties for violations of § 52).

[27] See, e.g., Kraft, Inc. v. Federal Trade Commission, 970 F.2d 311, 314 (7th Cir. 1992) (citations omitted) (describing what FTC must show to establish violation of FTC Act).  In Kraft, the Seventh Circuit held Kraft misrepresented the amount of calcium present in its cheese slices, and that the amount of calcium was material to consumers buying the cheese.  Ultimately, the Seventh Circuit upheld the FTC’s cease and desist order.  See id. at 321-27.

[28] See supra notes 11-17 (discussing allegations against DraftKings and FanDuel). The FTC and its attorneys would have to be the one to actually bring the lawsuit in this case, as they have the right bring suit under the FTC Act. See 15 U.S.C. § 53(a), supra note 26 (stating that FTC and its attorneys have right to bring suit against violators of § 52).

[29] See Kraft, 970 F.2d at 319 (holding that FTC “may rely on its own reasoned analysis to determine what claims, including implied ones, are conveyed in a challenged advertisement, so long as those claims are reasonably clear from the face of the advertisement”).

[30] Zach Barnett, Pac-12’s Larry Scott pushes back against onslaught of daily fantasy ads, NBC Sports (Sept. 20, 2015), http://collegefootballtalk.nbcsports.com/2015/09/20/pac-12s-larry-scott-pushes-back-against-onslaught-of-daily-fantasy-ads/ (detailing how Pac-12 has stated that it will not allow DraftKings and FanDuel ads during their games).  The Pac-12’s issue with daily fantasy leagues stems from the question of their legality, and the fear that they may constitute unlawful gambling.  See id.

[31] Timothy Burke, FanDuel Ads Use Georgia Tech Football Players’ Images Without Permission Or Compensation, Deadspin (Sept. 28, 2015, 10:30 AM), http://deadspin.com/fanduel-ads-use-georgia-tech-football-players-images-wi-1733347904 (describing how FanDuel wrongfully used images of players).

[32] See id. (stating where image of two players came from).  Reportedly, FanDuel also did not get permission from, or compensate, the company that originally made the poster.  See id.

[33] See id. (detailing steps Georgia Tech has taken in looking into FanDuel’s use of players images).

[34] See Marc Edelman, Daily Fantasy Sports Must Change Its Ad Strategy: Showcasing Average Joe Winners Hurts Legal Claims, Forbes (Sept. 18, 2015), http://www.forbes.com/sites/marcedelman/2015/09/18/daily-fantasy-sports-must-change-its-ad-strategy-showcasing-average-joe-winners-hurts-legal-claims/ (stating that DraftKings and FanDuel will have to present hard evidence to back up claims in their ads).

[35] See supra notes 21-28 (detailing federal laws DraftKings and FanDuel may be violating).

 

Comments are closed.



Sports Law Publications

From the newest issues of the Jeffrey S. Moorad Sports Law Journal to insightful books by Villanova Law Faculty, there’s something for everyone. View...

Annual Jeffrey S. Moorad Sports Law Symposium

Every Spring, the Jeffrey S. Moorad Sports Law Journal holds its annual symposium on current issues and hot topics in the world of sports law. Past Symposia have covered issues with concussions in sports, agent representation, and more. Check back in the Spring for more information on the next symposium.

Events

Be sure to keep up with Sports Law events at Villanova School of Law and other Philadelphia-area law schools on our events page. View...