Fanatics fires back at DraftKings’ claims of corporate espionage

Sports merchandise giant Fanatics is firing back against sportsbook giant DraftKings in an ongoing legal fight over Fanatics’ hiring of a top DraftKings executive.

In a legal brief filed late Thursday in U.S. District Court in Massachusetts, Fanatics accuses DraftKings of distorting reality and character assassination of its former senior vice president of business development, Michael Hermalyn.

In February, Hermalyn accepted a position as the president of Fanatics VIP and head of Fanatics’ Los Angeles office. He reports directly to CEO Michael Rubin.

DraftKings is suing Hermalyn in federal court, arguing he downloaded confidential company documents and tried to recruit other employees away from DraftKings.

Fanatics alleges in its filing that DraftKings has a “culture of retribution” and is making an example of Hermalyn to instill fear in other “DK employees looking to jump ship.”

By its count, 186 DraftKings employees have applied to work at Fanatics since the company announced in 2021 it would launch a sportsbook, according to the filing.

In the rapidly expanding sports gambling 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 ball caps online or sports memorabilia through its collectibles business.

DraftKings ranks No. 2 in sports betting market share, behind FanDuel, which is owned by Flutter. But those two leaders dominate, with roughly 80% market share between them.

And the competition is fierce — with even well-known gambling brands like Caesars and BetMGM fighting for customers’ dollars. They’re investing in technology to improve their apps, individualize marketing and promotions, and make deposits and withdrawals easier. Much of that is proprietary.

But sports gamblers 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, the VIPs, work with casino or sportsbook hosts, who build relationships and try to engender loyalty.

DraftKings alleges Hermalyn reached out to one of DraftKings’ most valuable customers to alert him that Hermalyn would be leaving his employer.

“The evidence against Mr. Hermalyn is open-and-shut. He stole valuable trade secrets, destroyed evidence to cover his tracks and then lied about it all,” said Orin Snyder, an attorney with Gibson Dunn representing DraftKings, in a statement to CNBC on Thursday.

In a brief filed March 14, DraftKings details what it describes as corporate espionage. Fanatics, it insists, is trying to steal its VIPs, its valuable employees and its strategy to clone DraftKings’ business.

Fanatics in its response vehemently denies those allegations, and says DraftKings is intentionally distorting reality and engaging in character assassination.

“To be clear, this is not a case in which an employee was hired to move a book of business from one company to another: Fanatics already has 100 million customers in the U.S., each of DK and Fanatics have tens of thousands of VIP customers, and it is well known that many if not all those customers overlap,” the company said in its filing.

DraftKings had petitioned the court to keep Hermalyn from working for Fanatics. The judge declined that petition but issued a temporary restraining order to keep Hermalyn from soliciting clients or employees from his former employer.