A court in Massachusetts has rejected DraftKings' attempt to dismiss a class action lawsuit, paving the way for the case to proceed. The lawsuit, initiated by the Public Health Advocacy Institute (PHAI), accuses the Boston-based sports betting company of deceptive marketing practices in its registration offers. This legal battle highlights the ongoing scrutiny of promotional practices in the rapidly expanding online betting industry.
The lawsuit was originally filed in December 2023 in Massachusetts, primarily alleging that DraftKings misled customers through a registration promotion that offered new users a $1,000 bonus. According to plaintiffs Shane Harris and Melissa Scanlon, the terms of the promotion were not fully disclosed, making the offer potentially deceptive. PHAI argues that the offer required substantial financial commitments, which were not clearly explained to customers beforehand.
It is alleged that to receive the $1,000 bonus, new customers had to deposit $5,000 and then wager $25,000 on specific eligible bets within a certain timeframe. Only after meeting these stringent conditions could users receive non-withdrawable points, which could only be used on the DraftKings platform, not as direct cash rewards. The plaintiffs argue that these terms were not adequately communicated, leading to misleading advertising.
Court Ruling and Next Steps
According to EGR Global, DraftKings had filed a motion to dismiss the lawsuit, but the Massachusetts Superior Court rejected this motion, allowing the case to continue. The next hearing is scheduled for December 10, 2024. With the dismissal motion rejected, the case will now enter the discovery phase, during which PHAI will have the opportunity to gather evidence, subpoena involved parties, and investigate how the contract offers were conceived and promoted.
PHAI Chairman and Northeastern University law professor Richard Daynard is confident in the plaintiffs' allegations. Daynard stated, "This false promotion is designed to lure customers into an addiction trap, requiring new users to gamble hundreds of dollars daily at great risk to obtain points that can only be used for more gambling. We believe this will be an easy case to prove."
Concerns Over Responsible Gambling
The lawsuit also raises serious concerns about responsible gambling practices. Dr. Harry Levant, PHAI's gambling policy director, criticized the nature of the promotion, arguing that it encourages behavior contrary to responsible gambling principles. Levant said, "This promotion requires new customers to make a $5,000 deposit and gamble between $15,000 and $25,000 within a limited time, which by any definition is not responsible gambling."
He added that although DraftKings frequently publicly encourages customers to "gamble responsibly," this practice is more likely to foster gambling addiction rather than promote safe gambling.
DraftKings also faces a similar lawsuit in New York, filed in April, accusing the operator of deceiving its new customers into believing their first bet would be risk-free.
DraftKings' Recent Financial Performance
The lawsuit comes after DraftKings reported strong financial performance, with revenues of $1.1 billion in the second quarter of 2024, a 26% increase year-over-year. However, the earnings period also sparked controversy due to the company's plan to impose gambling tax surcharges in several states, including New York and Pennsylvania. The policy was quickly withdrawn after receiving negative customer feedback, indicating DraftKings' challenges in balancing profitability with customer satisfaction and regulatory compliance.
Industry Impact
This lawsuit could have broader implications for the sports betting and online gambling industry, particularly in how companies design and promote their products. As the industry continues to evolve, regulatory bodies and advocacy groups may intensify scrutiny of marketing practices to ensure they adhere to responsible gambling standards.
As the legal proceedings against DraftKings continue, this case may become a critical test of the legal boundaries of promotional practices in the gambling industry and could set a precedent affecting future marketing strategies. DraftKings has not yet publicly commented on the court's decision to reject its motion to dismiss the lawsuit.
