DraftKings Facing Massachusetts Regulators Questions over Credit Card Deposits

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DraftKings is currently under scrutiny from the Massachusetts Gaming Commission (MGC) for what appears to be a significant lapse in adhering to state-specific gambling regulations.

On Thursday, the Massachusetts sports betting regulator voted to approve an adjudicatory hearing for the Boston-based DraftKings after it admitted some customers had been allowed to illegally use credit cards to fund their accounts.

While a few states have banned credit card gambling, none other than Massachusetts have extended that to apply to funds added from credit cards while in other states.

DraftKings previously self-reported that it had erroneously accepted 242 bets from 218 users who had funded their accounts from credit cards while in other states.

Egregious Moves

Commissioner Eileen O’Brien of the MGC expressed significant concern over this issue, speaking at the Commission meeting.

“For me, this is egregious. This needs to be an adjudicatory hearing,” she said, referring to a legal process that would involve all parties, including the MGC.

Commissioner John Maynard also pointed out the legal ramifications of DraftKings’ admissions.

“I just would add that this is a violation of the the statute. Not just the regs — the statute.”

I was May 31, 2023, when DraftKings first notified the MGC that it had accidentally taken credit card-funded wagers in the state.

Despite an initial fix implemented on June 21, which they believed had resolved the issue, it was later discovered that this update was ineffective.

It wasn’t until July 13 that a second update successfully blocked the use of out-of-state credit card funds. DraftKings reported that during this period, 218 customers placed 243 bets totaling $83,663 using the improperly accessed funds.

To prevent future occurrences, DraftKings has updated its in-house checklists and committed to more rigorous end-to-end testing following software updates.

Zachary Mercer, an attorney for the MGC’s Investigations Bureau also spoke to at the meeting. He told Commissioners DraftKings had cooperated with his team on identifying the cause of the problem.

“They identified the root cause of the failed update as a lack of complete functionality testing,” Mercer said.

“DraftKings explained that the failed update required a change to three internal functions — the financial platform, the account platform, and the sportsbook product.”

However, an “internal miscommunication” at the operator led to only one of those functions actually changing, Mercer said.

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Broader Industry Implications and Future Directions

This incident reflects the complexities of managing the fragmented gambling laws between states in the current U.S. market.  

A full adjudicatory hearing on the matter is scheduled for early 2024. DraftKings, one of the market leading U.S online gambling operators, could face significant punishment if it was found to have broken state laws as well as regulatory rules.

The MGC has not been afraid of utilizing its power to hand out hefty fines. In 2019 it fined Wynn Resorts $35.5 million for not disclosing information pertaining to allegations of sexual misconduct against its founder, Steve Wynn, when applying for a license to join the list of Massachusetts casinos.

DraftKings is also dealing with another issue in the state this week. A new class action lawsuit in Massachusetts accuses the operator of offering an unfair and deceptive sign-up bonus offer to state sports bettors.

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