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February 26, 2020
Michael McCann | Sports Illustrated (Feb 7, 2020) -- The wide-ranging implications of sign-stealing scandals continue to be felt.
The electronic sign-stealing scandal in Major League Baseball is now the subject of multiple federal lawsuits.
DraftKings contestant Kristopher Olson recently filed a 52-page complaint that directly links the cheating scandal to consumer rights. Olson argues that MLB, the Houston Astros and the Boston Red Sox engaged in unlawful business practices at the expense of himself and other daily fantasy sports contestants. Olson aims for his lawsuit, which will be tried in the U.S. District Court for the Southern District of New York and presided over by Judge Jed Rakoff, to become certified as class action. Olson hopes that the case culminates in a successful jury trial where he and more than 100 other class members are collectively awarded at least $5 million in monetary damages.
While this story is focused on Olson v. MLB, on Wednesday a fantasy sports contestant named Christopher Clifford filed a similar lawsuit against MLB, the Astros and Red Sox in the same court. Like Olson, Clifford intends for his case to become a class action. Clifford’s proposed class includes both DraftKings and FanDuel contestants on grounds that MLB is in contract with both companies. Clifford, who is from Florida, is represented by the New Jersey-based Radice Law Firm, which specializes in complex litigation and class actions.
Olson and Clifford could be joined by other fantasy sports contestants who file lawsuits, either in the Southern District of New York (where MLB is headquartered) or elsewhere. If MLB believed it could control the aftermath of the electronic sign-stealing scandal, these lawsuits are a reminder that the legal system may have something to say about it.
The financial relationship between MLB and DraftKings is crucial to the lawsuit
The theory of illegal conduct proposed by Olson (and now Clifford) primarily rests in (1) the contractual relationship between MLB and DraftKings and (2) MLB profiting from fans wagering on the statistical performances of players.
Olson’s complaint details MLB’s financial investment in DraftKings and how MLB has gradually cultivated a close partnership with DraftKings. The complaint also stresses how MLB actively promotes DraftKings DFS competitions and permits DraftKings to use various intellectual property, including league and club logos. Further, the complaint details how MLB assigned to DraftKings an exclusive right to sign individual contracts with MLB clubs, 27 of which, including the Astros and Red Sox, would later sign deals with DraftKings.
The complaint goes on to assert that many fans relied on MLB’s endorsement of DraftKings to collectively spend millions of dollars on DFS contests. They did so, Olson maintains, while under false pretenses. These fans invested their money—not to mention their time, energy and emotion—believing that DFS contests were predicated on honest competitions between MLB clubs. They weren’t aware that player statistics generated in Astros games during the 2017 season were warped through the use of a hidden camera and other measures that provided Astros batters with advance knowledge of pitches. Had DFS contestants been aware of those transgressions they would have selected different players and outcomes. Also, as MLB continues to investigate the Red Sox, it’s possible the Sox utilized similar strategies in 2018 and thus likewise deceived DFS contestants.
Olson’s complaint, which Sports Illustrated has obtained, highlights reporting by Sports Illustrated writer Tom Verducci. In a story last month, Verducci uncovered that as many as eight teams electronically stole signs in contravention of MLB rules. If other teams are eventually accused by MLB, Olson could add them as co-defendants.
To be clear, DraftKings is not alleged to have engaged in wrongdoing. Also, Olson is neither challenging the legality of DFS as a form of entertainment nor raising questions about sports wagering more generally. This is a case about the rights of consumers who play DFS and MLB’s possible legal exposure by partnering with DraftKings when at least one MLB team cheated. The complaint therefore focuses on MLB allegedly failing to ensure the honesty and integrity of games that served as the basis of DFS competitions.
Olson is not an ordinary fan using the legal system to take on baseball. A graduate of Duke University and Boston University School of Law, Olson is an attorney in Massachusetts. He is also a journalist with Massachusetts Lawyers Weekly and has analyzed a wide range of legal issues in his reporting. Olson is represented by attorney David Golub of Silver Golub & Teitell in this litigation.
Unpacking the legal claims
Olson’s complaint contains seven claims stemming from the contractual relationships between DFS contestants, DraftKings, MLB, the Astros and the Red Sox. These claims fall within three basic categories.
First are claims for unfair and deceptive practices in violation of state consumer protection statutes. Olson resides in Massachusetts, which features Chapter 93A, one of the most robust consumer protection statutes in the United States. He charges that while MLB promoted DraftKings fantasy contests, MLB was sufficiently on notice of electronic sign stealing. The league, Olson maintains, failed to take corrective actions and neglected to disclose the extent of wrongdoing to the public. This predicament allegedly led to “compromised and dishonest MLB player performance statistics” that, in turn, yielded “corrupt and tainted” DFS contests. It is a violation under 93A for a business to knowingly mislead consumers or to fail to provide relevant information prior to purchase.
For similar reasons, Olson asserts that the Red Sox violated 93A and the Astros violated the Texas Deceptive Trade Practices and Consumer Protection Act. Both teams, Olson insists, deceived consumers by promoting, and profiting from, DraftKings fantasy games while they simultaneously skewed player stats.
The second category of claims are for unjust enrichment. Olson maintains that MLB (and the Astros and Red Sox) received ill-gotten gains through their contractual agreements with DraftKings. As MLB fans spent money playing DFS that relied on corrupted games, MLB earned monies from the DraftKings partnership. Olson demands that MLB “be compelled to disgorge” into a fund “all unlawful, inequitable and unjust proceeds.”
Negligence constitutes the third category of claims. As Olson sees it, MLB either knew or should have known that DFS contestants “relied on the honesty and accuracy of MLB player performance statistics” in their decision to pay to play. This argument draws on both common sense and the legal concept of duty. It is common sense that DFS is predicated on players’ statistical achievements. Therefore, the integrity of those achievements is paramount to DFS contestants. Olson also stresses that MLB’s “ownership in and partnership with DraftKings” elevated the league’s legal obligation to safeguard DFS contests. This obligation, Olson maintains, produced a legal duty on the part of MLB to—at a minimum—adopt the following four measures:
(a) Take reasonable steps to ensure that player stats were “honest and accurate and not compromised by team or player misconduct”;
(b) Investigate any misconduct that might compromise player stats;
(c) Take reasonable steps to prevent and deter teams from misconduct that endangers the integrity of player stats; and
(d) Disclose to potential DraftKings’ DFS contestants any information MLB knew or should have known about misconduct that might “compromise the honesty and fairness” of player stats.
As Olson tells it, MLB breached all of these responsibilities and thus failed in its duty to him and to other DFS players.
Anticipating MLB's likely defenses
In the coming weeks, MLB will answer Olson’s complaint and, over time, detail defenses that attempt to rebut the accusations. MLB will hope that Judge Rakoff dismisses the case before it advances into pretrial discovery. During discovery, MLB officials would be required to offer sworn statements and share emails with Olson. It is imperative, MLB attorneys no doubt reason, that they persuade Judge Rakoff to dismiss the case.
As a general defense, MLB will insist that it has behaved reasonably and prudently in response to learning about electronic sign stealing. The league has thoroughly investigated sign-stealing allegations, including by interviewing numerous witnesses and reviewing tens of thousands of emails, texts and other electronic communications.
MLB has also repeatedly warned, and at times punished, teams that it found guilty of wrongdoing. The Astros’ recent punishment, which includes a $5 million fine and forfeiture of two first round picks and two second round picks, is by far the most consequential sanction issued by MLB for this type of transgression. MLB also fined the Red Sox and New York Yankees for similar types of misconduct, albeit on a lesser scale. The two longtime rivals’ were accused of misusing technology to steal signs during the 2017 season—the Red Sox allegedly used Apple Watches while the Yankees allegedly utilized cameras provided by the YES Network. The Red Sox are also alleged to have engaged in sign stealing during the 2018 season and are awaiting a ruling by commissioner Rob Manfred on that front.
MLB will maintain that it has reacted seriously to electronic sign stealing claims and addressed them through sensible measures. The more reasonable MLB appears in responding to, and attempting to curb, electronic sign stealing, the stronger the league’s legal position.
MLB will likely also contend that Olson lacks standing to sue the league. In law, standing refers to a person possessing a legitimate legal interest in a dispute. MLB will probably highlight that Olson wasn’t in contract with baseball for purposes of DFS. He was in contract with DraftKings. Analogously, MLB could stress, DFS players and gamblers essentially “free ride” off the playing of MLB games. These individuals aren’t involved in the production of those games but rely on them to partake in secondary markets—the DFS and sports wagering markets.
Olson (and his attorney, Golub) clearly anticipate this type of defense in the complaint. The complaint maintains that MLB’s investment in DraftKings, and promotion of the company and its games, provide a sufficient nexus between DraftKings contestants and MLB. Also, even if Olson wasn’t a direct consumer of MLB, he and other DFS players were foreseeable consumers of MLB’s partnership with DraftKings. It remains to be seen how a court will address standing.
MLB will also be inclined to flag any contractual waivers for Olson and other DraftKings players. As I recently discussed with respect to a disputed result in DraftKings’ “Millionaire Maker” challenge, DraftKings contestants contractually agree to binding arbitration as a condition of playing. If compulsory arbitration extends to potential claims against DraftKings’ business partners, MLB would maintain that no court should hear Olson’s claims. Instead, MLB would insist, those claims must be pursued through arbitration.
MLB might further contend that too much time has elapsed under applicable statutes of limitation for Olson to bring claims. Anticipating this argument, Olson asserts that because MLB “concealed the existence of their conduct” he and other DFS contestants were unaware of the wrongdoing and, as mere fans, had no reasonable way of uncovering it. For that reason, Olson maintains that any time bars to litigation should be extended.
Lastly, MLB is poised to argue that fantasy sports players assume various risks related to player statistics and that no game is entirely insulated from distortions. For instance, games are imperfectly officiated, with called strike zones sometimes differing from the rule book strike zone. Umpires also vary in their quality and consistency. Weather can also impact player statistics. Player injuries and off-field issues also alter player performance. Meanwhile, teams are incentivized to take all possible steps to gain advantages, and some are better at doing so than others. The list goes on. MLB will warn that any court that recognizes MLB liability for DFS would open the floodgates to similar lawsuits in all leagues.
Next steps, including the possibility of class certification
In addition to MLB answering Olson’s complaint and enunciating defenses, the litigation will involve both sides offering arguments as to whether Olson’s case ought to be certified as a class action. Judge Rakoff would ultimately make that determination.
Olson would like to sue on behalf of all persons who participated in—and who paid entry fees and entered lineups—in DraftKings MLB DFS contests held between April 2, 2017 and Oct. 30, 2019. As a class action, Olson’s case would become much more threatening to MLB. The league would face the risk of substantially higher monetary damages and possible harm to the league’s relationship with the DFS community.
Whether Olson’s case will be certified as a class would depend on him being able to comply with Rule 23 of the Federal Rules of Civil Procedure, a rule that governs federal class action petitions. Under Rule 23, Olson must establish: his (proposed) class has so many people that joining individual claims would be impracticable; there are questions of law or fact common to the class; his claims are typical of claims in the class; and that he and his attorneys would fairly and adequately protect the interest of the class. Cases involving proposed class certification often take many months, and sometimes years, to litigate.
If the litigation advances, expect MLB to be inclined to offer Olson settlement terms. The league would be unlikely to wish to enter pretrial discovery given the risk of testimony and sharing of emails.
Sports Illustrated will keep you posted on the Olson and Clifford cases and any others filed in the weeks and months ahead.