Legal War Between DraftKings And Fanatics Over Former VIP Boss Nearing Settlement

One of the most highly publicized feuds in the entire U.S. sportsbook industry may be headed for an imminent resolution.

On Tuesday, attorneys for both DraftKings and Michael Hermalyn — the former DraftKings VIP executive who departed for sportsbook rival Fanatics Betting & Gaming in early 2024 — informed a federal judge that the once-combative enemies “are negotiating a potential resolution” of the dispute.

DraftKings has claimed in a number of court filings this year that Hermalyn was hired in significant part so that he could improperly persuade his highest-spending gambling VIP clients — or “whales” — to switch sides to relative upstart Fanatics.

Hermalyn gained a strategic advantage recently when Los Angeles County Superior Court Judge Tony Richardson declared in a court filing that the executive was “likely to prevail on the merits” of a separate case challenging the enforceability of the non-compete clause in California.

On Tuesday, U.S. District Court Judge Julia Kobick accepted the stay request from both parties to delay the Massachusetts case until Nov. 20.

Current state of affairs

At the moment, Hermalyn and Fanatics remain limited by a one-year non-compete clause that does not expire until Feb. 1, 2025 and that minimizes Hermalyn’s ability to communicate with many of his biggest former clients.

Kubick ruled in April that “Hermalyn will not be enjoined from working for Fanatics; rather, he will be enjoined from providing services to Fanatics that relate to any aspect of DraftKings’ business for which he performed services or received confidential information, as defined in the agreement, during the six months before Feb. 1, 2024.”

In response, Fanatics proclaimed in a press release that “It’s unfortunate that DraftKings’ cheap attempt at petty retribution against a former employee — who simply wanted to take advantage of a better opportunity for himself and his family — will now undoubtedly continue to be used to instill fear and intimidation across DraftKings’ entire employee base. Those employees, now scared into staying in that toxic culture, will be the real losers in this case.”

DraftKings countered almost immediately: “Today’s ruling by the Court is another victory for DraftKings in its effort to hold Mr. Hermalyn accountable for his brazen attempt to clone DraftKings’ successful VIP program by stealing DraftKings’ employees and trade secrets. 

“We are pleased the Court enforced Mr. Hermalyn’s non-competition obligations in the United States, including ordering him to cease providing services for Fanatics relating to the work he performed for, or the information he obtained from, DraftKings. 

“The Court also correctly ordered Mr. Hermalyn not to solicit DraftKings employees, not to use any confidential company information, and not to destroy or delete documents containing DraftKings’ confidential information.”

A key aspect of the dispute is that Hermalyn changed his residence from New Jersey to California just before his departure from Massachusetts-based DraftKings. California law greatly restricts the validity of most non-compete clauses, so if the case ultimately is decided there, Hermalyn would presumably have a home-court advantage.

But if DraftKings were to be successful in having the case heard in Massachusetts, that legal edge would seem to go to them given that state’s laws being more amenable to upholding even strict non-compete agreements between employee and employer.

Each side undoubtedly has spent hundreds of thousands of figures in legal fees this year, and the bad blood has been clear in several filings. And presumably neither side wants testimony related to the inner workings of its businesses spilling into the public domain.

Just days after Fanatics announced it had hired Hermalyn, DraftKings’ court filing claimed that Hermalyn “stole many of DraftKings’ most commercially sensitive documents.”

“Hermalyn knows DraftKings’ playbook on how to engage and retain VIP clients,” DraftKings claimed in a filing. “On information and belief, Hermalyn, acting in concert with Fanatics, timed his departure and theft of confidential information to coincide with the critical days leading up to the [2024] Super Bowl to further a scheme to irreparably interfere with DraftKings’ customer and business relationships by pursuing those relationships at Fanatics using the confidential information and goodwill that he obtained at DraftKings.”

Attorneys for Hermalyn countered that he was “shocked and disappointed” by the accusation of DraftKings, which he described as “completely false and fabricated accusations.”

But if this tentative truce holds up, then DraftKings, Fanatics, and Hermalyn each would be able to put this contentious chapter behind them.