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Astros Scandal Lawsuit Highlights League Ties to Fantasy Sports

Jan. 28, 2020, 6:30 PM

Major League Baseball’s business ties with the sports betting industry is central to a new lawsuit alleging the league promoted wagers on fantasy platform DraftKings Inc. while failing to stem a Houston Astros sign-stealing scandal.

Major League Baseball became the first professional sports league to partner with DraftKings in 2013, a relationship that broadened to include promotions at ballparks and online. MLB also took an equity stake in DraftKings, which it sold privately last year.

This lawsuit wouldn’t “get off the ground” if not for the business ties between DraftKings and Major League Baseball, according to Marc Edelman, a law professor at Baruch College in New York who consults on sports and gaming law issues. His consulting clients include smaller daily fantasy sports competitors to DraftKings and its main rival FanDuel.

“There’s a broader question here about whether the owners of a sport should also be involved in the business of running bets on those same games,” Edelman said. “From a legal perspective, we’re walking down uncharted territory.”

The case could have implications beyond professional baseball. Other U.S. sports leagues including the National Basketball Association and the National Hockey League that historically opposed sports betting as a threat to the integrity of games, have embraced fantasy sites like DraftKings as a way to bolster ticket sales and TV deals.

The baseball league didn’t return requests for comment on the lawsuit. A spokesman for DraftKings, which isn’t named in the suit, said the company is “reviewing the situation.”

Playing Field

DraftKings user Kristopher Olson filed suit Jan. 23 in a Manhattan federal court against MLB, the Astros, and the Boston Red Sox. He seeks to represent bettors like himself, who pay an entry fee to compete for cash based on the performance of professional athletes in their fantasy line-up. The suit argues cheating on the field undermined these fantasy wagers.

Earlier this month, the league fined the Astros $5 million, took away top draft picks through 2021, and suspended the team’s general manager and field manager for using cameras to steal their opponents’ pitch signs during the 2017 season, tipping off batters by banging on a trash can. The Astros fired the two managers the same day. The Red Sox were also caught using smart watches to send signals to the dugout in 2017.

One challenge that could derail the would-be class action is showing the sign-stealing scandal’s impact on DraftKing bets, according to Darren Heitner, a lawyer who’s represented athletes from the National Football League and NBA.

The Astros and Red Sox may have gained an unfair advantage on the playing field, but that didn’t extend to the fantasy context where users all had access to the same data, Heitner said.

“In the fantasy world, it seems as though everybody was on an equal playing field,” he said, assuming bettors didn’t know about the cheating.

Legalized Gambling

Lawsuits from sports fans typically don’t fare well in court because of the uncertainties involved in each matchup.

John Holden, a business professor at Oklahoma State University, said lawsuits from “aggrieved bettors” like Olson could show up more often after a 2018 U.S. Supreme Court decision paved the way for states to legalize sports gambling.

Gamblers had little recourse when sports betting was illegal. Now that more than a dozen states permit regulated sports betting and leagues are partnering with betting platforms, policymakers in other states considering legalization are likely to pay attention to the outcome of this suit, Holden said.

“This is just the beginning,” Holden said.

-- With assistance from Sam McQuillan

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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