DraftKings Wins Partial Dismissal in California Fantasy Sports Case, but Injunction Risk Remains

A federal judge has dismissed several claims in a class action against DraftKings over paid daily fantasy sports in California, but left in place a path to public injunctive relief. For PSPs and operators, the important part is simple: the court has not closed the door on an order that could stop DraftKings from offering paid contests in the state.

1. On July 29, US District Judge Charles Breyer threw out claims seeking recovery of gambling losses, citing California’s longstanding public policy against enforcing gambling debts. He wrote that the policy bars claims seeking recovery of losses “in any form, whether it is damages or restitution.”
2. The case was filed by two DraftKings users, Zhicheng Zhen and Jonathan Smith, who say the company did not properly present the legality of its daily fantasy sports contests in California. They claim they entered the contests after relying on DraftKings’ representations that the games were lawful in the state.
3. Breyer allowed parts of the suit to continue under California’s Unfair Competition Law and Consumer Legal Remedies Act. He found the plaintiffs had sufficiently alleged economic injury and could seek public injunctive relief, which is a court order aimed at stopping unlawful conduct that threatens the public, rather than awarding damages.
4. That matters because the injunction claim could, if it survives, force DraftKings to stop offering paid fantasy contests in California if the court ultimately decides the products violate state law. Breyer described the state’s legal position on daily fantasy sports as “murky.”
5. The judge also pointed to California Attorney General Rob Bonta’s nonbinding opinion last year, which concluded that daily fantasy sports contests involving players physically located in California are prohibited under California law and should be banned. No California court has definitively ruled on the issue, and state authorities have not taken enforcement action.

Breyer also let fraud allegations move forward, saying the plaintiffs adequately claimed reliance on DraftKings’ statements about the legality of its products. He noted DraftKings’ support for a 2022 ballot initiative to legalize online sports betting in California as evidence the company may have understood the legal uncertainty around its operations.