Lawyers will exploit weaknesses in DraftKings' & FanDuel's Terms of Service. Here's why.

Dec 17, 2015 1:30:00 PM

 Author: Brian Powers, Founder and CEO of PactSafe, Inc / licensed attorney

© 2015 PactSafe, Inc, All Rights Reserved

By now, you're likely familar with daily fantasy sports powerhouses DraftKings and FanDuel and the controversy surrounding the two in recent weeks. Added capital, wild success, and a relentless advertising blitz helped to raise suspicions about the companies' practices—some of which were confirmed when reports surfaced that employees of the companies were using inside information to win large sums of money playing the games on the competitors’ platform. Since that time, the two companies have been served with a number of lawsuits for fraud, negligence, racketeering, and false advertising, in turn, facing heightened scrutiny from regulators. A federal inquiry is already underway into the industry's practices. Nevada has already demanded the sites become properly licensed in the manner of a sports book. But, the industry's most threatening move might come from the state of New York, where the state's Attorney General has requested an injunction to keep the sites from operating within the Empire State's borders.

While the legal battle will likely be mired in a debate on whether or not the sites host a game of "skill" or "chance," there are a number of provisions built into the sites Terms and Conditions that users allegedly assent to when signing up. Undoubtedly, plaintiffs' counsel will try to invalidate some of these provisions, such as arbitration or indemnification clauses, by attacking the validity and enforceability of the terms. This is a common legal tactic — companies like Safeway and Zappos have been thumped in class action lawsuits because they failed follow best practices for display and tracking that left their Terms of Use unenforceable. For FanDuel and DraftKings, one company might have the winning combination, while the other lags far, far behind.

The FanDuel Click-through Registration Form is ripe for lawyers’ picking.

A good click-through agreement form has one job: to obtain enforceable acceptance of a legal agreement from a user. To do that, all you really need to do is:

1. Make it clear that there is a legal agreement being accepted when the user takes an action (such as clicking a button or checking a box.)

2. Give the user an opportunity to review the legal agreement, and—

3. Track that the user took the action needed to actually accept the agreement.

Sometimes, though, designers and product folks will get cutesy and blow these simple concepts into oblivion. While FanDuel's click-through doesn't exactly reach oblivion, it is certainly not awesome.

FanDuel's Click-through agreement

Let’s break it down.

The first problem is that the form says "joining" confirms a user's agreement to the Terms of Service. Where do you join? The form says "Create an Account." The button says "Play Now." Other pages on FanDuel talk about joining leagues, so that's probably why they use the word "join" here. But then, some conversion expert probably created a "Play Now" button, which to a reasonable person may mean something completely different than "joining". Yes, it's a pretty technical argument, but it's not unheard of— just ask Transunion.  

The second problem is that nothing about the GIANT GREEN BUTTON makes it obvious that there are any legal terms being accepted by clicking on it. Similarly, the link to the Terms of Service is grey text that is just a little darker than other grey text around it, which when contrasted to the blue hyperlinked text above and below, does not look like something a user can/should click on.  It's just not obvious that any legal terms are at play here, which can be a problem—just ask GoGo Internet.

However, inside FanDuel's terms, there's a little "lifehack" that every legal team should consider a best practice. Courts have been very critical of online legal terms that allow a business to make modifications “at any time” without any reasonable mechanisms in place for customers to receive notice of the terms or to review and accept them. In fact, in Safeway’s recent $30,000,00 class action loss, a California judge specifically refused to enforce an arbitration provision in Safeway’s terms because those terms purported to allow Safeway to change any term, including the arbitration provision. FanDuel clearly was aware of this decision, because Section 2 of their Terms of Service says they can change their terms at any time — except for Section 15, which contains the arbitration provision.

FanDuel's modification of Terms of Use

A provision like this has yet to be tested in court, but it’s some crafty drafting that could really help FanDuel (assuming someone doesn’t blast their click-through form to pieces).

DraftKings didn’t leave your agreement to terms up to chance.

People that win money on daily fantasy sports are often "full-time" players that spend an other-worldy amount of time doing research into the minutiae of player trends. DraftKings showed some of that attention-to-detail in developing their initial "SIGN UP" page. And while you might be sick of their in-your-face advertising, DraftKings' Term of Use should be a "high-round draft pick" when it comes to presenting a click-through agreement in an enforceable manner.

DraftKings' Term of Use

Unlike the FanDuel "CREATE YOUR ACCOUNT" form, this form makes it crystal clear what the user is doing here when checking the box — accepting legal terms. The checkbox is large and the text is in big, bold black letters stating "I AGREE TO THE TERMS OF USE AND PRIVACY POLICY" on the top line of the paragraph, not buried somewhere else in the form. Accepting legal terms and signing up require two distinct actions. Want a way to actually win money on DraftKings? It's a safe bet that even a savvy lawyer won't be able to invalidate this click-through form.

When it comes to DraftKings’ actual Terms of Use, they fumble the ball. Check out this provision:

Screen_Shot_2015-12-17_at_11.46.57_AM.png

Here, DraftKings not only reserves the right to change terms whenever, it also puts the burden on the customer to review the Terms of Service periodically for changes. This is not a good practice, and it is one to which courts have not been receptive. The bad news for DraftKings is that there are plenty of examples (including the Safeway case mentioned earlier) of legal terms being thrown out completely over provisions like these. If that happens here, DraftKings will be stuck defending a class action rather than simply arguing its case in front of an arbitrator—and defending a class action is not cheap!

DraftKings and FanDuel clearly have some legal issues to tackle. Their Terms of Use are intended to reduce legal risk by, among many other things, forcing customers to forego their right to form a class action against them. Unfortunately for FanDuel and DraftKings, those Term of Use have weaknesses that could leave them exposed.  

Request a demo of PactSafe.  

Brian Powers

Written by Brian Powers

PactSafe CEO & Founder