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Fanatics hits back at DraftKings corporate espionage allegations in bitter legal battle

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Michael Rubin, founder and CEO of Fanatics, in his New York office.

The Washington Post | Getty Images

Sports Products Giant Fanatics Strikes Back Against Sports Betting Giant DraftKings in an ongoing legal battle over Fanatics’ hiring of a top DraftKings executive.

In a legal brief filed Thursday evening in U.S. District Court in Massachusetts, Fanatics accuses DraftKings of distorting reality 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. He reports directly to CEO Michael Rubin.

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

Fanatics alleges in its filing that DraftKings has a “culture of retribution” and uses the example of Hermalyn to sow fear among other “Denmark employees looking to jump ship.”

According to the filing, 186 DraftKings employees have applied to work at Fanatics since the company announced in 2021 that it would launch a sportsbook.

In the booming sports gaming industry, Fanatics is the new kid on the block, arriving late but backed by billionaire Rubin and an enviable database of customers who buy team jerseys and caps online or sports memorabilia through its collectibles business.

The elevator entrance, designed to resemble a tunnel entering a stadium, is photographed at the DraftKings office in Boston.

David L. Ryan | The Boston Globe via Getty Images

DraftKings ranks No. 2 in sports betting market share, behind FanDuel, which is owned Beat. But these two leaders dominate, with around 80% market share between them.

And competition is fierce, even with well-known gambling brands like Caesars And PariMGM fighting for customer dollars. They invest in technology to improve their apps, personalize marketing and promotions, and facilitate deposits and withdrawals. Much of this is proprietary.

But sports players are notoriously promiscuous. They look for promotions or the best odds and many have multiple betting apps downloaded to their phone.

The most valuable customers, VIPs, work with casino or sportsbook hosts, who build relationships and try to retain them.

DraftKings alleges that Hermalyn contacted one of DraftKings’ most valuable customers to warn 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,” Orin Snyder, a Gibson Dunn attorney representing DraftKings, said in a statement. statement to CNBC on Thursday.

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

Fanatics, in its response, vehemently denies these allegations and claims that DraftKings is intentionally misrepresenting reality and engaging in defamation.

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

DraftKings had asked the court to prevent Hermalyn from working for Fanatics. The judge denied that motion but issued a temporary restraining order to prevent Hermalyn from soliciting clients or employees of her former employer.

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