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DraftKings has received a $450,000 fine from the Massachusetts Gaming Commission (MGC) for breaching regulations that prohibit credit cards from being used for online sports betting.
The investigation from the regulator revealed that the violations occurred between March 10, 2023, and February 13, 2024, with the company allowing Massachusetts players to place 1,160 illegal bets totaling more than $83,000 using credit card funds.
The MGC’s final decision highlighted that DraftKings directly violated several statutes, specifically General Law c. 23N § 13(d) and regulations 205 CMR 247.07(7) and 248.10(3), all of which strictly ban credit cards in sports wagering transactions.
It also noted that this was not a one-time error and identified three separate periods of noncompliance. These lapses occurred between March and May 2023, from May to July 2023, and during select dates from August 2023 to January 2024.
DraftKings Self-Reported Violations, But Failed to Apply Necessary Restrictions
Despite self-reporting the violations, DraftKings struggled to implement the necessary restrictions on credit card use for betting. A total of 218 customers made 242 deposits funded by credit cards, leading to wagers totaling $83,667.92.
The Massachusetts Gaming Commission (MGC) pointed out that internal miscommunications and a lack of proper regulatory interpretation significantly worsened the situation.
Even after receiving a clear warning from MGC executive director Karen Wells in an email dated January 26, 2023, before the launch of its Massachusetts sportsbook, DraftKings failed to effectively communicate this guidance within its organization. As a result, the compliance and product teams did not enforce the required credit card restrictions.
While the Commission recognized that DraftKings self-reported the violations and cooperated with the investigation, it stressed that this cooperation does not excuse the ongoing noncompliance.
Flawed Organizational Structure in DraftKings
According to MGC’s report, a major issue stemmed from how DraftKings handled regulatory communications. Instructions meant for the compliance team were misdirected through licensing and product channels, which lacked the expertise to understand the regulations fully.
This led to misunderstandings, including one instance where a product manager mistakenly viewed an MGC inquiry as a technical capability check rather than a strict regulatory requirement.
DraftKings even assured the Commission in May 2023 that they had addressed the issue, only to find out in July that the fix had not worked. Another software update was attempted on July 13, but similar problems arose in the following months, resulting in the final incident related to DraftKings’ Pools product, which the Commission was informed about on February 13, 2024.
DraftKings Must Return Funds to Players
In addition to the $450,000 fine, the Commission’s ruling includes three key corrective actions that DraftKings must take. The company is first required to return $83,667.92 that was unlawfully wagered to the 218 customers affected by this issue.
Next, DraftKings must create and submit a comprehensive corrective action plan. This plan should outline how the company intends to effectively communicate and enforce regulatory directives internally, ensuring that such violations do not happen again.
Finally, an independent third-party audit will be necessary. This audit must be approved by the Commission and will assess whether any additional violations occurred between the time DraftKings received its temporary license on February 23, 2023, and the launch of its sportsbook on March 10, 2023.
The latest announcement by the MGC comes amid an ongoing trend of legal and regulatory troubles for DraftKings. Earlier this month, it reached an agreement with the Connecticut Department of Consumer Protection (DCP) to pay back $3 million to over 7,000 players for promoting misleading bonus offers. It was also hit with a federal lawsuit in May this year for micro betting patents.
Source: Next.io
