By Christopher R. Deubert, Senior Writer
When sports betting was legalized in Massachusetts in August 2022, Boston-based DraftKings made the Commonwealth the target of aggressive advertising. As sports fans have become all too aware in recent years, such advertising is ubiquitous as the major sports betting operators fight for market share. In December 2023, two DraftKings customers, represented by a public health advocacy group, initiated a putative class action lawsuit alleging that certain of DraftKings’ promotional practices violated Massachusetts consumer protection and false advertising laws. The Superior Court of Massachusetts just denied DraftKings’ motion to dismiss the case, subjecting its practices to further interrogation and the possibility of substantial financial liability.
Massachusetts’ Sports Betting Law
On August 10, 2022, Massachusetts became the 36th state to legalize some form of sports betting. With a large and passionate sports fan base, and extensive preexisting culture of illegal sports betting, it was a big win for the legal sports betting operators. The text of the law – and that it took so long to pass – is also reflective of particularized concerns in Massachusetts.
Contemporaneous with the law’s passage, there was considerable discussion around problem gambling, a term that includes gambling addiction and other harmful, repetitive gambling behaviors. However, as the Boston Globe reported at the time, the Commonwealth did not know how many problem gamblers there were. The most recent study, published in 2015, found that about 2% of Massachusetts adults had a gambling problem, about the same as most other states. There were and are concerns that, in fact, Massachusetts has a particularly large gambling problem.
For this reason, the Massachusetts law contains extraordinary consumer protections. The law includes voluntary exclusion lists and other common regulations but also: (1) requires operators to submit a problem gambling plan annually, in consultation with the department of public health; (2) prohibits lines of credit; (3) prohibits the use of credit cards; (4) creates a Sports Wagering Fund to distribute sports wagering revenues to a variety of youth programs; and, (5) requires the Massachusetts Gaming Commission to research “the social and economic effects of sports wagering in the commonwealth and to obtain scientific information relative to the neuroscience, psychology, sociology, epidemiology and etiology of sports wagering” and to “make scientifically-based recommendations” on an annual basis.
The Law In Practice
As anticipated, there was a large market for legal sports betting in the waiting. According to data from the Gaming Commission, between August 2023 and July 2024, an average of $556,068,998 was wagered every month. On average, $280,525,282 (50.5%) of that was wagered with DraftKings, by far the market leader in the state. The Commonwealth has collected average monthly taxes of $10,130,016 on those wagers.
Nevertheless, handles of those amounts do not come without some concerns. Although sports betting did not begin in Massachusetts until March 2023, a recent report from the Gaming Commission concerning gambling activity in 2022 identified that 31% of gamblers “could be classified as problem gamblers.”
The Consumer Lawsuit
On December 8, 2023, two DraftKings accountholders sued the sports betting operator alleging that one of its promotional offerings violates Massachusetts consumer protection and false advertising laws. Specifically, the plaintiffs take issue with a promotional offer through which DraftKings offered new customers a “$1,000 Deposit Bonus” for opening a new account. According to the plaintiffs, it looked like a new account of any value would automatically receive an additional $1,000 for wagering.
In fact, the plaintiffs allege, the $1,000 bonus was a ruse only discoverable through the “unreadable” fine print. In order to obtain the bonus, a customer would have to meet three criteria: (1) deposit at least $5,000 initially; (2) make at least $25,000 in wagers within 90 days; and (3) the $25,000 in wagers would have to be bets with odds of “-300 or longer” (bet $300 to win $100).
According to the plaintiffs, these requirements would leave customers “chasing the money” and “statistically likely to lose money.” To this point, plaintiffs allege that “they would have had to wager an average of more than $276 gambling on sports every day for three months” to meet the bonus requirements. Because the bonus was directed to new sports bettors, plaintiffs alleged that the promotion was intentionally deceptive and predatory.
The plaintiffs seek to represent a class of Massachusetts citizens who opened a DraftKings account in response to the bonus offer. They are represented by the Public Health Advocacy Institute, a Boston-based non-profit that pursues litigation and legislative changes to protect and promote consumer health. The organization has its roots in the anti-smoking movement. Mark Gottlieb, one of the Institute’s attorneys, said at the time that the lawsuit was filed that the “market for sports gambling is simply out of control” and hoped this action would be “the first of many” challenging the industry.
DraftKings sought to have the case dismissed, principally arguing that its website adequately identified the terms and conditions of the offer about which the plaintiffs complain. Moreover, it argued that no reasonable customer could have been misled by the terms and conditions.
Justice Debra A. Squires-Lee of the Superior Court of Massachusetts disagreed. On a motion to dismiss, where the court is required to take everything the plaintiff alleges as true, the court stated “while, based on my review of the small print provided with the Complaint, the terms and conditions disclosed to Plaintiffs accurately describe the very conditions about which Plaintiffs now complain, the overall deceptiveness of the mobile app and website, sign up process, and terms and conditions cannot be resolved without additional information.”
The case will now proceed to discovery where the plaintiffs will have the opportunity to obtain that additional information – specifically, documents and emails concerning DraftKings’ advertising practices. They will also be able to question DraftKings’ employees under oath about the same. Massachusetts regulators may be interested in what is uncovered. Moreover, the Justice’s comments suggest that she believes a jury will ultimately have to decide whether DraftKings’ advertising was misleading. Lastly, the consumer protection law under which the consumers sued provides for potential double or triple damages.
For all of those reasons, DraftKings is likely evaluating a potential settlement of the matter. If the number of Massachusetts residents who signed up for the offer at issue is manageable, providing them some kind of reimbursement could save them further legal and financial headaches.
Deubert is Senior Counsel at Constangy, Brooks, Smith & Prophete LLP
