DraftKings Faces Legal Battle After Court Rejects Motion to Dismiss Deceptive Marketing Lawsuit

A Massachusetts court has rejected DraftKings’ attempt to dismiss a class action lawsuit, paving the way for the case to proceed. The lawsuit, filed by the Public Health Advocacy Institute (PHAI), accuses the Boston-based sports betting company of deceptive marketing practices related to a sign-up offer. This legal battle highlights the ongoing scrutiny of promotional practices in the rapidly expanding online gambling industry.

The lawsuit, originally filed in December 2023 in Massachusetts, centers on claims that DraftKings misled customers with a sign-up promotion offering a $1,000 bonus to new users. According to the plaintiffs, Shane Harris and Melissa Scanlon, the terms of this promotion were not fully disclosed, leading to a potentially deceptive offer. The PHAI, representing the plaintiffs, argues that the offer required a significant financial commitment that was not made clear to customers upfront.

To qualify for the $1,000 bonus, new customers allegedly had to deposit $5,000 and then wager $25,000 on specific qualifying bets within a certain timeframe. Only after meeting these stringent conditions would users receive non-withdrawable credits, which could only be used on the DraftKings platform, rather than as a direct cash bonus. The plaintiffs argue that these terms were not adequately communicated, leading to misleading advertising.

Court Decision and Next Steps

DraftKings had filed a motion to dismiss the lawsuit, but the Massachusetts Superior Court denied this motion, according to EGR Global, allowing the case to move forward. The next hearing is scheduled for December 10, 2024. With the dismissal motion denied, the case will now enter the discovery phase, during which the PHAI will have the opportunity to gather evidence, depose those involved, and investigate how the sign-up offer was conceived and promoted.

Richard Daynard, president of the PHAI and a law professor at Northeastern University, expressed confidence in the strength of the plaintiffs’ case. “This bogus promotion, designed to lure customers into an addictive trap, required new users to risk large amounts of money and gamble hundreds of dollars – each and every day – to qualify for credits that could only be used for more gambling,” Daynard stated. “We think this will be an easy case to prove.”

Concerns Over Responsible Gambling

The lawsuit also raises significant concerns about responsible gambling practices. Dr. Harry Levant, PHAI’s director of gambling policy, criticized the nature of the promotion, arguing that it encourages behavior contrary to responsible gambling principles. “The very sort of gambling this promotion requires of new customers, including a $5,000 deposit and gambling $15,000 to $25,000 over a limited time, is not, by any definition, responsible play,” Levant said.

He added that such practices are more likely to foster addiction rather than promote safe gambling, despite DraftKings’ frequent public messaging encouraging customers to “gamble responsibly.”

DraftKings faces a similar lawsuit in New York, the action was submitted in April and it claims that the operator has deceived its newest clients into thinking their first bet would be without risk.

DraftKings’ Recent Financial Performance

The lawsuit comes on the heels of a strong financial performance for DraftKings, which reported $1.1 billion in revenue for Q2 2024, marking a 26% increase year-on-year. However, the earnings period was also marked by controversy over the company’s plan to introduce a gaming tax surcharge in several states, including New York and Pennsylvania. The policy was quickly retracted following negative customer feedback, illustrating the challenges DraftKings faces in balancing profitability with customer satisfaction and regulatory compliance.

Industry Implications

This lawsuit could have broader implications for the sports betting and iGaming industry, particularly regarding how companies design and promote their offers. As the industry continues to grow, regulators and advocacy groups are likely to increase their scrutiny of marketing practices to ensure they align with responsible gambling standards.

As the legal proceedings against DraftKings continue, the case will likely serve as a critical test of the legal boundaries around promotional practices in the gambling industry, potentially setting precedents that could shape future marketing strategies. DraftKings has not yet publicly commented on the court’s decision to reject its motion to dismiss the lawsuit.