Massachusetts gambling regulators last week hit DraftKings with the largest fine imposed on a sports betting company yet, finding that the Boston-based company over the course of nearly a year violated the state law that prohibits the use of credit card funds for wagering.
The $450,000 fine appears to be by far the largest for a sports betting violation since legal betting started in 2023, and also the largest of any fine imposed by the Gaming Commission on any operator with the exception of the fines associated with Wynn Resorts in 2019 ($35 million on the company and $500,000 on its CEO), based on the commission’s database of its enforcement actions.
In Friday’s order imposing the fine and a series of conditions on DraftKings, commissioners said they had been in touch with DraftKings and other operators to confirm compliance with the ban on credit card usage before betting even began. The order notes that the decision to fine the company $450,000 was not unanimous among the commissioners, though all five signed the overall ruling.
“[T]his series of non-compliance incidents was a serious violation of statute and regulations upon which the Commission provided express advance instruction to DraftKings. Further, the series of non-compliance violations took place over nearly an entire year, with repeated representations by DraftKings that fixes they had implemented were later reported to have failed, thus calling into question the reliability of their communications,” the order says. “The Commission is further seriously troubled by the level of internal miscommunication at DraftKings that prevented critical questions posed by the Commission from wide internal distribution to all appropriate stakeholders.”
When the Legislature and Gov. Charlie Baker made sports betting legal here in 2022, the law specifically prohibited the use of credit cards for betting. That was a priority for the Senate, which included a rigid ban whereas the House version of the bill would have allowed some credit card usage. The Gaming Commission called the prohibition “a fundamental tenet of the passage of the sports wagering law in the Commonwealth.”
On May 31, 2023, a bit more than two months after it went live offering mobile betting here, DraftKings “reported that from its launch on March 10, 2023 it had allowed the use of credit card funds on wagers in Massachusetts.” The company said the problem was taken care of, but then alerted regulators in July 2023 that the May fix had not actually worked.
At that point, DraftKings President and CEO Paul Liberman “submitted a certification signed under the pains and penalties of perjury ... stating that DraftKings 'is prohibiting any use of credit cards to place Sports Wagers on its sports wagering platform in Massachusetts, including without limitation funds deposited into a player wallet using a credit card while located outside of Massachusetts,' the Gaming Commission’s ruling says.
It was not until February 2024, the day before a scheduled adjudicatory hearing, that the company let the commission know that July’s fix had also been ineffective.
In total, the commission said DraftKings’ failure to prohibit the use of credit cards ”resulted in 1,160 impermissible wagers, funded by 242 credit card deposits, placed by 218 customers, with a total handle of $83,667.92.“
Asked for a response to the commission’s findings and fine, a DraftKings spokesperson issued a statement that said the company is ”dedicated to upholding the regulatory standards set by each state and jurisdiction in which we operate, and we value the productive and collaborative relationships we’ve built with regulators.“
In addition to the fine, the Gaming Commission also ordered DraftKings to provide proof that it returned every cent of the credit card funds to all 218 customers, develop corrective action plans for both the use of credit card funds and the internal communication problems commissioners highlighted, and hire a third-party audit firm with commission approval to ”verify that no additional credit card funds were deposited and/or wagered with Massachusetts accounts between February 23, 2023 (the date DraftKings acquired its temporary license) through the date that DraftKings went live on March 10, 2023.“
The commission’s ruling, which details findings based on multiple adjudicatory hearings with witness testimony and dozens of exhibits of evidence, shows that regulators were on alert for issues with credit card usage soon after mobile betting went live in March 2023.
The topic of ”indirect funding and the ability of sports wagering platforms to block a credit card from funding a deposit with a Massachusetts operator“ came up at an April 2023 commission meeting, and commissioners instructed the Sports Wagering Division to draft universal language for sports betting companies to include in their house rules.
That language, sent to operators on May 1, 2023, was to read: ”In no event may a Massachusetts account be funded through a form of credit,“ the commission said. But when DraftKings submitted its updated house rules the next day, they read: ”In no event will you fund your account via a form of credit while physically located in Massachusetts,“ the commission said.
On May 30, the commission’s executive director and deputy general counsel explained during a public meeting that ”the out-of-state scenario had come to their attention“ and that they wanted to ”raise the flag“ with sports betting operators, the order says. The executive director mentioned an email she had sent DraftKings and others in January 2023 confirming compliance with the credit card ban, and the company’s apparent confirmation.
A private call between commission staffers and DraftKings officials immediately followed, the order says, and the company said it would update its house rules to reflect precisely the language the commission had provided. The next day, DraftKings alerted the commission that it had not been blocking the use of credit cards.
The Gaming Commission on Friday also granted DraftKings a full five-year sports betting license, which the company spokesman focused on in the company’s response to the commission’s regulatory punishment. Sports betting companies started operating on temporary licenses while the Gaming Commission conducted more thorough licensing investigations.
”DraftKings extends its sincere thanks to the Massachusetts Gaming Commission for granting us a permanent license to operate in the Commonwealth,“ the statement said.
