Daily fantasy sports generated over $355 million in revenue in 2019. Given the size of the industry, it is not surprising that it has generated litigation. Recently, such litigation has spilled over to professional sports franchises and leagues, as DraftKings fantasy baseball participants sued the Houston Astros, Boston Red Sox, and Major League Baseball over baseball’s sign-stealing scandal.
In January, Major League Baseball fined the Astros $5 million, took away its first-round draft picks through 2021, and suspended the team’s general manager and field manager for using cameras to steal their opponents’ pitch signs during the 2017 season. Infamously, the stolen signs were then sent to batters by banging on a trash can. The Red Sox were also caught using smart watches to send signals to their dugout in 2017 and are awaiting discipline from Major League Baseball.
In Olson v, Major League Baseball, No. 1:20-cv-00632 (S.D.N.Y.), the plaintiffs, a group of DraftKings daily fantasy baseball participants, are pursuing a putative class action against the Astros, Red Sox, and Major League Baseball alleging claims for unfair and deceptive practices under state consumer protection statutes, unjust enrichment, and negligence. The suit contends that the sign stealing undermined the plaintiffs’ daily fantasy wagers. It stresses the close relationship between Major League Baseball and DraftKings. Major League Baseball was the first professional sports league to partner with DraftKings in 2013, including ballpark and online promotions. Major League Baseball also acquired an equity interest in DraftKings that it later sold. The plaintiffs claim that the financial relationship between Major League Baseball and DraftKings created a duty to DraftKings participants to ensure games were played fairly.
Major League Baseball, the Astros, and the Red Sox have predictably challenged both the existence of such a duty and the plaintiffs’ ability to prove that the cheating caused them financial damages. But the defendants also are relying on another argument that might seem to be foul to sports fans. The defendants contend that everyone is aware that professional athletes cheat, and therefore the plaintiffs could not have been deceived into participating in DraftKings. In making this argument, the defendants noted that clubs were publicly disciplined for electronic sign-stealing violations during the 2017 regular season. The defendants also rely on precedent from another infamous cheating incident, the New England Patriots Spygate scandal, where a disgruntled New York Jets season ticket holder sued the Patriots, their coach, and the NFL. The Third Circuit affirmed dismissal of the claims, finding that sports fans understand that “players often commit intentional rule infractions in order to obtain an advantage over the course of the game.” Mayer v. Belichick, 605 F.3d 223, 236 (3d Cir. 2010).
The plaintiffs in Olson face an uphill climb to prove that they were directly damaged by the sign-stealing scandal and that Major League Baseball and the teams involved owed them any legal duty. However, with the popularity of daily fantasy sports and a 2018 United States Supreme Court decision paving the way for states to legalize sports gambling, the likelihood of on the field cheating leading to off the field litigation is likely to increase.