Fanatics founder and CEO Michael Rubin in his New York office.
The Washington Post | fake images
Sports merchandise giant Fanatics strikes back at sports betting giant DraftKings in an ongoing legal fight over high-level hiring by Fanatics DraftKings executive.
In a legal brief filed Thursday night in U.S. District Court in Massachusetts, Fanatics accuses DraftKings of distorting facts and defaming the reputation of its former senior vice president of business development, Michael Hermalyn.
In February, Hermalyn accepted the position of president of Fanatics VIP and head of the Fanatics Los Angeles office. She reports directly to CEO Michael Rubin.
DraftKings is suing Hermalyn in federal court, alleging that she downloaded confidential company documents and tried to recruit other employees outside of DraftKings.
Fanatics alleges in its filing that DraftKings has a “culture of giving back” and is setting an example for Hermalyn to instill fear in other “DK employees looking to jump ship.”
By their count, 186 DraftKings employees have applied to work at Fanatics since the company announced in 2021 that it would launch a sportsbook, according to the document.
In the rapidly expanding sports betting industry, Fanatics is the newcomer, late to the game but backed by billionaire Rubin and an enviable database of customers who buy team jerseys and caps online or sports memorabilia through of his collectibles business.
The entrance from the elevators, designed to look like a tunnel entering a stadium, is shown at the DraftKings office in Boston.
David L. Ryan | The Boston Globe via Getty Images
DraftKings ranks second in sports betting market share, behind FanDuel, owned by Flutter. But those two leaders dominate, with roughly 80% market share between them.
And the competition is fierce, even with well-known gaming brands like Caesars and BetMGM fighting for clients' money. They are investing in technology to improve their applications, individualize marketing and promotions, and facilitate deposits and withdrawals. Much of that is ownership.
But sports players are notoriously promiscuous. They chase promotions or the best odds and many have more than one betting app downloaded on their phones.
The most valuable customers, VIPs, work with casino or sports betting hosts, who build relationships and try to generate loyalty.
DraftKings alleges that Hermalyn contacted one of DraftKings' most valuable customers to alert him that Hermalyn would be leaving his employer.
“The evidence against Mr. Hermalyn is clear and shut. He stole valuable trade secrets, destroyed evidence to cover his tracks, and then lied about it all,” Orin Snyder, a Gibson Dunn attorney representing DraftKings, said in a statement to CNBC.
In a brief filed on March 14, DraftKings details what it describes as corporate espionage. Fans, he insists, are trying to steal his VIPs, his valued employees and his strategy to clone the DraftKings business.
In its response, Fanatics vehemently denies those allegations and says DraftKings is intentionally distorting reality and defaming its reputation.
“To be clear, this is not a case where an employee was hired to move a portfolio of business from one company to another: Fanatics already has 100 million customers in the US, both DK and Fanatics have dozens of thousands of VIP customers, and it is well known that many, if not all, of those customers overlap,” the company said in its filing.
DraftKings had asked the court to prevent Hermalyn from working for Fanatics. The judge denied that request but issued a temporary restraining order to prevent Hermalyn from soliciting clients or employees from his former employer.
