Former DraftKings Exec Sued for Stealing Trade Secrets for Competitor
Corporate Espionage In The Sports Betting World
Usually, the most exciting news that comes from the world of sports betting involves what happens on the field, court, rink, or diamond. However, when a top-ranking employee of one major sports betting company steals secretive information from said company and takes it with him to a competitor, it is worthwhile to discuss. A headline of “DraftKings sues ex-exec for stealing trade secrets” is just as interesting as a crazy last-second cover or a huge underdog winning outright.
According to a civil lawsuit filed by DraftKings in U.S. District Court in Massachusetts this week, Michael Hermalyn — who used to manage VIP clients at DraftKings — allegedly downloaded proprietary company documents pertaining to business planning and online gambling strategy prior to meeting with Fanatics Betting and Gaming about potential job opportunities. Hermalyn now is the president of Fanatics VIP, a position he started last week.
It is a fascinating trade secrets case with Super Bowl LVIII coming up on Sunday in, where else, Las Vegas. Hermalyn — like with all gaming companies’ managers of VIPs — will be incredibly busy trying to drum up bets on Chiefs-49ers, all while this new lawsuit hangs over everything. Considering that Hermalyn is also accused of trying to get other DraftKings employees to move with him to Fanatics, the timing is truly crazy.
What Exactly Did Hermalyn Do?
Well, it all seems to start at Super Bowl LVIIÂ when Hermalyn was accused of secretly meeting with Fanatics CEO Michael Rubin to pursue a job at Fanatics. He then reportedly started to speak with DraftKings co-workers to get them to do the same and change from one of the biggest gambling sites to a relatively new entrant in the space.
Then, in late January 2024, Hermalyn told DraftKings higher-ups that he was taking time off to mourn the death of a friend when he was actually traveling from New York to Los Angeles to meet with Fanatics executives. The complaint alleges that this was a lie by Hermalyn, who is also accused of downloading sensitive DraftKings documents that outline the company’s strategy to attract and maintain high-value betting clients as well as documents setting forth DraftKings’ plan for marketing the Super Bowl from a sports betting perspective. He resigned from DraftKings on February 1, 2024, and was immediately hired by Fanatics.
The documents allegedly included critical information about influencers, team/league employees, celebrities, and athletes that DraftKings planned to use to facilitate its plans for the single-biggest betting day in the world. So, it makes sense why DraftKings sued an ex-executive with the big day coming up this weekend.
What Could Happen?
Much of the complaint focuses on how Hermalyn signed numerous non-compete and non-disclosure agreements with DraftKings as part of his employment there, which — in DraftKings’ legal theory — makes Hermalyn’s actions both prior and subsequent to his hiring by Fanatics illegal.
DraftKings focuses on various charges of breach of contract at common law as well as Hermalyn’s alleged violation of the federal Defend Trade Secrets Act and the Massachusetts Uniform Trade Secrets Act. DraftKings also accuses Hermalyn of misappropriating confidential business information, breaching the duty of loyalty owed by employees to employers, and for committing conversion (by stealing the DraftKings documents and turning them over to Fanatics). Those are a lot of charges for DraftKings to sue an ex-executive for.
In terms of relief, DraftKings is seeking a temporary restraining order and an injunction to essentially stop Hermalyn from using any of his knowledge of DraftKings’ business plans/models/strategies to help Fanatics’ sports betting business or from contacting DraftKings’ clients about bringing their business to Fanatics as well as forcing him to return any stolen documents. DraftKings is also seeking financial damages owing from Hermalyn’s actions, including the return of any DraftKings equity that Hermalyn received when he signed the allegedly breached “loyalty” agreements.
DraftKings would love for the temporary restraining order to be issued in time for Super Bowl LVIII but, in all likelihood, the cat is out of the bag — so to speak — and if Hermalyn did use DraftKings’ proprietary information to help his new employer, it would be almost impossible for even a legally binding restraining order and injunction to ensure that Fanatics does not use the new information to its gain. This case will likely take some time to properly play out and we will not know the extent of Hermalyn’s actions, and their effects on both DraftKings’ and Fanatics’ bottom-lines, for a while.
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