DraftKings Set to Face Stern Regulatory Hurdles With MGC

DraftKings is vying with rival brands like FanDuel, BetMGM, and more to claim a majority market share of the online sportsbook segment in the United States. As an American daily fantasy sports contest and betting company, DraftKings enables its users to participate in various games. It recently launched a new feature called Progressive Parlay within its sportsbook app.

With the Bet Builder, bettors on DraftKings can make Over/Under picks on anywhere between three and 12 plays. The player is told that six additional picks are necessary to create a progressive parlay, after which their odds change with each subsequent pick they make. Licensed to operate in almost 20 jurisdictions in the US, DraftKings’ latest major concern has emerged in its own backyard: Boston, Massachusetts.

The regulated gambling jurisdiction of Massachusetts is supervised by the Massachusetts Gaming Commission (MGC). The regulator has monitored its market strictly for over 10 years, and its primary aim is maintaining the integrity of the market by creating and implementing a transparent process of licensing and regulation, which is entirely based on the gaming law that the Legislature passed after being signed into the law by the Governor of the state.

MGC Opts for Player-Centric Rules to Fight Harmful Gambling

Under the gambling law of the jurisdiction, there are several regulations the licensed operators have to abide by. Many obligations and limitations are put in place to ensure player safety standards of the highest order. The MGC also focuses on studying player patterns and tries to understand the social and economic effects of online gambling. After years of assessments, the regulator has implemented multiple initiatives that can be used to curb the problem of harmful gambling and help increase the player safety standards of its jurisdiction.

The Voluntary Self-Exclusion (VSE) and Play Management System are some of the effective initiatives MGC has implemented to increase the quality of its gambling market. Over the years, many operators have knowingly or unknowingly flouted the regulations and faced disciplinary action initiated by the regulator. The latest operator that could face a similar penalty is DraftKings.

The Boston-based operator is set for an adjudicatory hearing after it enabled its players to gamble on its platform using funds deposited via credit cards. It is against the gaming law of Massachusetts for an operator to allow this method of payment for any online gambling activity. However, DraftKings failed to fix the issue, which the operator itself had self-reported to the MGC in May this year.

Over 200 Players Placed More Than 240 Bets Using Credit Cards

In March this year, the DraftKings Sportsbook Massachusetts went live in the MGC’s jurisdiction, becoming one of the first legal sports betting operators in the market. Two months after the launch, the operator self-reported the compliance failure but claimed that the situation was in the process of being resolved. However, two months later, the operator returned with another report, confirming that it had failed to fix the problem.

During that span, many users capitalized on the situation and used funds from their respective credit cards to gamble on DraftKings’ sports betting platform. There were a total of 242 bets that were placed by 218 users using credit card funds. The total amount wagered was $83,663, including all bets. To make matters worse, this is not the only compliance failure DraftKings is guilty of, as there is another regulatory issue revolving around an alleged misleading promotion.

DraftKings Firmly Denies Misleading Promotion Claims

Many gambling operators use welcome bonuses to lure new customers to expand their base in different regulated gambling jurisdictions. Hence, many regulators have capped welcome bonus offers to ensure player safety, and the misleading campaigns are completely against the law. After the credit card controversy, DraftKings was accused of running a misleading promotional campaign, which the operator strongly disagrees with.

According to reports, the Boston-based operator assigned a $1,000 bonus to new users who signed up on the DraftKings platform. However, after signing up, the operator revealed that the players must gamble with at least $25,000 to unlock the welcome bonus. DraftKings has firmly denied the accusations and has also stated that it is ready to defend the allegations in court if needed.

DraftKings Recorded a Substantial Revenue Spike in Q3 2023

All gambling segments of DraftKings, including online sports betting and iGaming, have recorded substantial growth this year. In the third quarter of the year, a 57 percent year-on-year (YoY) spike drove the revenue from $502 million to $790 million. As a result, the operator raised its FY2023 revenue guidance from the range of $3.67 billion to $3.72 billion to the range of $3.46 billion to $3.54 billion, marking a YoY increase of 64 to 66 percent.

While the operator is confident against the alleged misleading promotion claims, what awaits DraftKings regarding the credit card policy violation is uncertain. For over 10 years, the MGC has focused on player safety by implementing various measures like VSE, PlayMyWay, Play Management System, and the GameSense program. It will be difficult for DraftKings to get off the hook without a penalty after a violation that puts player safety at risk.

About the Author
Nikhil Kalro

Nikhil Kalro

Nikhil Kalro covers the sports betting industry and revenue reporting at Gaming Today. Much of his work analyzes state revenue information, including betting activity and revenue for individual states and sportsbook operators. In addition, Nikhil provides news updates on the gambling industry itself, including product launches and legal issues. Nikhil’s previous experience includes five years with ESPN.

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