DraftKings Faces Allegations of Deceptive Practices and Consumer Exploitation

DraftKings, a leading name in the U.S. online sports betting industry, is once again under legal scrutiny. The company, along with its subsidiary Crown NY Gaming LLC, is facing a class-action lawsuit filed in the Southern District of New York. Spearheaded by Clara De Leon and Eric W. Mirsberger Jr., this lawsuit accuses DraftKings of engaging in deceptive advertising practices and manipulating consumers, raising serious ethical and legal concerns about its promotional strategies.

Questionable Marketing Tactics at the Core

At the heart of the lawsuit are DraftKings’ marketing promotions, particularly the “Risk-Free Bets” and “Deposit Matches” offers. According to the plaintiffs, these promotions fail to deliver on their promises and instead mislead consumers. Rather than providing refunds in cash for “Risk-Free” bets, users reportedly receive non-cash “Bonus Bets.” This practice, as alleged, pushes consumers to reinvest these credits into further wagers, creating a cycle of habitual gambling. Vulnerable groups, including individuals already grappling with gambling problems, appear to be disproportionately affected by these tactics.

Adding to the controversy is the claim that DraftKings leverages player data to identify customers with addictive tendencies. These players are then assigned “VIP Hosts” who are trained to encourage increased betting through personalized offers, such as free bets, luxury gifts, and exclusive experiences. Such practices, according to the lawsuit, are designed to maximize user engagement at the expense of those at risk of gambling harm.

Similar Legal Challenges on the Rise

This is not the first time DraftKings has faced legal action over its business practices. In December 2024, Lisa D’Alessandro filed a lawsuit against the company, accusing it of enabling her husband’s gambling addiction. The case revealed that her family lost nearly $1 million due to high-stakes betting allegedly encouraged by DraftKings’ VIP Hosts. These representatives reportedly paid daily attention to her husband, persuading him to continue wagering larger amounts.

The D’Alessandro lawsuit highlighted the broader issue of aggressive marketing within the online sports betting industry. Critics argue that companies like DraftKings disproportionately profit from problem gamblers, despite their public commitments to promoting responsible gambling. DraftKings, in response, has reiterated its dedication to providing entertainment for casual bettors while emphasizing its responsible gambling measures. However, these statements often fail to appease critics and advocacy groups.

Industry Under Increasing Scrutiny

The latest lawsuit comes amid growing regulatory and public scrutiny of the U.S. sports betting industry. As online wagering becomes increasingly mainstream, concerns about aggressive advertising and the exploitation of vulnerable populations have intensified. Regulatory bodies and consumer advocacy groups are calling for stricter oversight of marketing practices to ensure that operators prioritize consumer protection over financial gains.

This legal action also brings attention to the ethical dilemmas surrounding the rapid expansion of the sports betting sector. The balance between encouraging consumer participation and safeguarding against gambling-related harm is a delicate one. If successful, the lawsuit could compel DraftKings to reassess its promotional strategies and adopt more transparent and responsible marketing practices.

Responsibility of Gambling Operators

The legal challenges faced by DraftKings are part of a broader conversation about the responsibilities of online gambling operators. While the industry has grown significantly, with revenues reaching billions annually, the potential for consumer exploitation has also increased. Recent reports indicate that problem gambling rates have risen in parallel with the industry’s expansion, prompting calls for tighter regulations.

States like New York, where the latest lawsuit was filed, have been at the forefront of implementing consumer protection laws. However, advocacy groups argue that existing regulations are insufficient to address the complexities of modern online gambling platforms. They emphasize the need for robust measures to prevent companies from targeting vulnerable individuals and exploiting behavioral data.

Several gambling operators have faced legal challenges and regulatory actions due to improper marketing practices. In Australia, Sportsbet, owned by Flutter Entertainment, is confronting a class-action lawsuit for allegedly offering illegal in-game bets through its Fast Code service. This service permitted betting after events had commenced, contravening Australian regulations that restrict such practices unless conducted entirely by telephone. The lawsuit claims that Sportsbet misled customers by presenting this service as legal and seeks refunds for affected bettors. Previously, in 2022, Sportsbet was fined $2.5 million for sending unsolicited marketing communications to customers who had attempted to unsubscribe.

In the United Kingdom, BGO Entertainment Ltd faced a £300,000 fine from the UK Gambling Commission for misleading advertising. This marked the first financial penalty imposed by the Commission for advertising failings. The fine was levied due to BGO’s failure to include significant terms associated with promotions in their advertisements, leading to potential consumer misunderstanding. The Commission emphasized the necessity for operators to present clear and transparent promotional content to ensure consumers are not misled.

Additionally, Tabcorp, a leading Australian gambling company, was fined a record $4.6 million by the Victorian Gambling and Casino Control Commission for repeated breaches of Victoria’s gambling code between August 2020 and February 2023. The violations included inadequate staff training on responsible gambling and sending marketing materials to a customer who had opted out. The Commission highlighted systemic deficiencies within Tabcorp and mandated improvements in their internal systems and harm minimization measures.

The Potential Impact of the Lawsuit

The outcome of this case could set a significant precedent for the industry. If the plaintiffs succeed, DraftKings may be required to make substantial changes to its marketing and consumer engagement practices. The lawsuit’s demand for injunctive relief and significant damages highlights the gravity of the allegations. Beyond financial repercussions, the case raises important questions about the ethical responsibilities of sports betting operators in a rapidly evolving market.

About DraftKings

DraftKings, established in 2012, has evolved into a prominent player in the U.S. online sports betting and daily fantasy sports market. The company has experienced substantial revenue growth, reporting $1.175 billion in the first quarter of 2024, a 53% increase from the same period in 2023. This growth is attributed to effective customer acquisition strategies, product expansion into new jurisdictions, and enhanced promotional offerings.

In terms of customer engagement, DraftKings reported an average of 3.4 million monthly unique paying customers (MUPs) in the first quarter of 2024, marking a 23% increase compared to the previous year. The average revenue per MUP was $114, a 25% rise from the same period in 2023. This increase is primarily due to a higher structural sportsbook hold percentage and improved promotional reinvestment for Sportsbook and iGaming.

In the competitive landscape, DraftKings holds a significant position, controlling about 25% of the U.S. sports betting market as of 2022, second only to FanDuel, which holds 43%. The company has invested heavily in marketing and technology to secure its market share.