Last week, popular fantasy sports sites DraftKings and FanDuel made headlines for some unsportsman-like conduct. The companies are facing scrutiny over alleged false advertising and what amounts to insider trading, unseemly business practices that could affect millions of users nationwide. These allegations led to a class action suit filed last week in federal court, in which a potentially nationwide group of fantasy sports fans seek to recover money they lost because of these unfair and unlawful practices.
But these consumers are likely to find that their relationship with these fantasy sports sites has been on an uneven playing field from the moment they clicked “accept” on the sites’ terms and conditions, and that securing justice is as illusory as all the big winnings they were promised.
DraftKings and FanDuel, like many other consumer sites, have forced arbitration clauses and class action waivers buried deep in their user agreements. DraftKings’s forced arbitration clause, for example, reads as follows:
Any and all disputes, claims or controversies arising out of or relating to this Agreement, the breach thereof, or any use of the Website (including all commercial transactions conducted through the Website) (“Claims”) . . .shall be settled by binding arbitration before a single arbitrator appointed by the American Arbitration Association . . . . In agreeing to arbitrate all Claims, you and DraftKings waive all rights to a trial by jury in any action or proceeding involving any Claim. The arbitration shall be held in Suffolk County, Massachusetts. …
Any and all claims shall be arbitrated on an individual basis only, and shall not be consolidated or joined with or in any arbitration or other proceeding involving a Claim of any other party. You and DraftKings agree that the arbitrator shall have no authority to arbitrate any Claim as a class action or in any other form other than on an individual basis.
Thus, when fantasy sports players want to call foul on the companies running these sites, they find themselves locked out of court. Instead of vindicating their rights before an impartial judge and jury, users are pushed into private arbitration proceedings. There, they face an arbitrator that is paid for and chosen by the company, and the final decision is kept secret. The arbitrator is not required to follow the law, and there is virtually no right to appeal. Consumers are also prevented from banding together and pursuing their claims as a class, making it all but impossible to recover losses that are relatively small on an individual basis, even if they are enormous in the aggregate. In other words, when consumers sign up for these fantasy sports, they also sign up, albeit unknowingly, for fantasy courts.
This latest suit wouldn’t be the first time DraftKings has tried to hide behind its forced arbitration clause. Earlier this year, a Florida resident filed a class action on behalf of himself and other Florida users of DraftKings, alleging deceptive trade practices and the use of misleading statements. Were the class to prevail, the damages awarded could easily be in the millions of dollars. But the complaint estimates that each individual class member’s damages averages to about only $25 per person. Thus, as the complaint explains, “[t]he cost of litigation will render individual actions—even in a small claims court—economically unviable. DraftKings can only effectively be deterred from deceiving and defrauding customers through maintenance of a class action.”
Nevertheless, because of the user agreements these Florida residents were forced to accept, their day in court is now in jeopardy. Early in the litigation, DraftKings cited these agreements and moved to compel arbitration. Just recently, the district court in Florida decided to transfer the case hundreds of miles away to the District of Massachusetts, which will make the final call on whether the class action suit can proceed in federal court or must be dismantled and kicked to arbitration. If DraftKings has its way, these Florida residents will be forced to make the trek to Suffolk County, Massachusetts, and attempt to vindicate their rights, individually, in the fantasy courts of arbitration.
Thankfully, forced arbitration agreements like these are facing government scrutiny across a variety of industries. Just last week, the Consumer Financial Protection Bureau announced that it’s considering rules that would make class waivers illegal in the arbitration clauses used by financial services providers. While the agency should go further and ban forced arbitration entirely, restoring the ability of consumers to join claims in class actions would be a major step toward leveling the playing field and holding big corporations accountable.
Until that time comes, however, we’re going to continue seeing cases of consumers locked out of court and forced into arbitration where they are unable to fully vindicate their rights. As for the fantasy sports fans currently suing DraftKings and FanDuel, they’re at risk to become just another example of real people, suffering real injuries, being relegated to fantasy courts.