DraftKings Survives Damages Claims in California Daily Fantasy Sports Lawsuit

A federal judge has handed DraftKings a partial victory in a class action lawsuit challenging the legality of its daily fantasy sports offerings in California, though the ruling leaves open a potentially more damaging path for plaintiffs seeking to shut down the company's operations in the state.

On July 29, U.S. District Judge Charles Breyer dismissed claims seeking to recover gambling losses from DraftKings users Zhicheng Zhen and Jonathan Smith, relying on California's longstanding public policy that courts generally will not enforce gambling debts. In his order, Breyer wrote that "the public policy against gambling loss recovery bars plaintiffs' claims to the extent they seek recovery of their losses in any form, whether it is damages or restitution."

However, the judge allowed the lawsuit to proceed on more consequential grounds. Breyer determined that the plaintiffs had adequately alleged violations of California's Unfair Competition Law and Consumer Legal Remedies Act, and permitted fraud allegations to advance as well. Critically, he found that the plaintiffs had sufficiently alleged economic injury to pursue public injunctive relief - a court order that could prevent DraftKings from offering paid fantasy contests in California if the company is found to be violating state law.

The core dispute centers on DraftKings' representation of the legality of its contests. The plaintiffs claim the company misrepresented that daily fantasy sports were lawful in California, inducing them to participate. Judge Breyer characterized California's legal landscape surrounding daily fantasy sports as "murky," noting that while California Attorney General Rob Bonta issued a nonbinding opinion last year concluding that daily fantasy sports contests involving players physically located in the state are prohibited under California law, no state court has definitively ruled on the matter and state authorities have not taken enforcement action.

Breyer also cited DraftKings' support for a 2022 ballot initiative to legalize online sports betting in California as evidence the company may have understood the legal uncertainty surrounding its operations. "In a technical sense, this case is about a class of losers," Breyer wrote in his opening. "In a legal sense, this case is about games that were prohibited by the California Penal Code."

The ruling highlights the precarious regulatory position daily fantasy sports operators occupy in California, a state with substantial consumer demand but no clear legal framework governing the activity. While DraftKings avoided immediate financial liability, the injunction pathway represents genuine operational risk. Public injunctive relief differs from traditional damages - it focuses on preventing future unlawful conduct rather than compensating past harm, making it a powerful tool for plaintiffs seeking to eliminate the underlying business practice entirely.

For the broader daily fantasy sports industry, the California case underscores the persistent ambiguity plaguing the sector in major markets. Despite years of litigation and regulatory discussion, the fundamental question of whether daily fantasy sports constitute gambling under state law remains judicially unresolved in California. For operators like DraftKings, this uncertainty creates ongoing legal exposure even in cases where monetary recovery is barred by public policy. The next phase of litigation will test whether California courts ultimately agree with Attorney General Bonta's legal assessment, potentially reshaping the competitive landscape for daily fantasy operators across the state.