The City of Baltimore surprised plenty in the gaming industry when it announced it was suing DraftKings and FanDuel over consumer protection concerns.
Much of the activity listed in the complaint is standard customer acquisition practices for the sports betting and online casino businesses and is overseen by the state’s gaming regulator. The key to much of Baltimore’s claims will likely be determined during the discovery process, wherein the city will look for documentation regarding DraftKings’ and FanDuel’s customer acquisition and retention process to prove that the operators’ actions are predatory in nature.
DraftKings and FanDuel will hope to avoid getting to such point, either by getting the action dismissed in its infancy as a matter of law or entering a settlement on certain terms that will allow them to continue operating in the state.
In such case, Baltimore’s lawsuit might not result in the city obtaining its requested relief, but would enable the parties to engage in a larger discussion regarding marketing efforts and advertising materials relating to promoting gambling within the state.
FanDuel does not comment on litigation but said it is “confident” the company is in compliance with the Maryland Lottery and Gaming Control Commission. Neither DraftKings nor MLGCC responded to requests for comment.
Press release details issues
The law firm handling the case for Baltimore, DiCello Levitt, issued a press release to explain what it sees as “deceptive and unfair practices.”
The lawsuit alleges that DraftKings and FanDuel use a two-pronged scheme to harm Baltimoreans. First, they use misleading promotions such as so-called “bonus bets” and other tricks to attract new users, designing those promotions to encourage compulsive gambling behavior.
Second, they leverage the vast array of data they have about their users, along with sophisticated analytics and personalized inducements, to identify those who suffer from a gambling disorder, and then extract what they can from them.
Far from being responsible companies, the lawsuit details how DraftKings and FanDuel routinely identify those who exhibit disordered gambling and work their hardest to keep the users who are suffering in the game.
Key allegations concerning DraftKings, FanDuel
Some key allegations in the complaint include:
- DraftKings and FanDuel’s business approach consists of “aggressively” promoting their respective platforms with promotional offers to acquire as many customers as possible, only to monetize them by inducing customers (specifically, those with gambling problems) to make “bad bets.”
- DraftKings and FanDuel’s promotional offers are designed to encourage bettors to gamble daily by requiring “bonus bets” to be made: (i) in small increments (i.e. wagers made up of $150 worth of bonus bets can only be made in amounts “up to $25”); and (ii) within a specific timeframe (i.e. within seven days of receipt).
- Promotional offers are governed by “complex terms and conditions” and “individual bonus rules” not easily understood or readily accessible by customers.
Issues fall under city’s protection ordinance
Specifically, Baltimore claims the following business practices are “deceptive and unfair” in violation of the city’s consumer protection ordinance (modeled after the Maryland Consumer Protection Act):
- The use of algorithms and data analytics to target and direct promotional offers and/or offer VIP programs to vulnerable Baltimore users
- The misleading use of “bonus bets” or “no-sweat bets” to induce Baltimore users to bet on their platforms
- The failure to adequately disclose material terms and conditions regarding use of “bonus bets” or “no-sweat bets”
- The delivery of urgent messaging via push notifications, emails, and in-app messages to vulnerable Baltimore users “to create false time pressure and exploit gamblers’ fear of missing out”
- The failure to implement effective responsible gambling measures to identify Baltimore users who should not be targeted for promotions
Baltimore is seeking monetary damages in addition to injunctive relief that would require both companies to: (i) cease targeting Baltimore’s problem gamblers, and (ii) reform their platforms’ “exploitative” design features.
What does state law say?
Code of Maryland Regulations (COMAR) Title 36, Subtitle 10 provides the state’s legislative framework governing sports betting. These provisions suggest the issues alleged by Baltimore are closely watched and regulated:
- 36.10.10.01 (Enforcement of Voluntary Exclusion Program) – This section states the commission shall notify sports wagering licensees of individuals placed on the voluntary exclusion list, and that sportsbooks shall not: (1) allow anyone on the list to participate in sports wagering, or (2) knowingly fail to exclude from participation anyone on the list.
- 36.10.10.02 (Responsible Gaming Plan) – This section requires sports wagering licensees to establish and submit a responsible gaming plan for addressing problem gambling to the commission on an annual basis.
- 36.10.10.03 (Requirements) – This section establishes advertising requirements and states that a sports wagering licensee must include gambling assistance messaging on all materials and ensure advertisements do not engage in “predatory marketing practices.”
- 36.10.01.02B (57) defines “predatory marketing practices” as advertisements or promotions that are: (i) false or deceptive, (ii) illegal, (iii) directed to minors, (iv) prohibited by law, regulation, or court order, (v) fails to include material conditions or limiting factors associated with the promotion, or (vi) fails to include or obscures gambling assistance messaging.
- 36.10.13.39 (Promotional Play) – This section allows sports wagering licensees to issue promotional plays not exceeding $5,000 per wagering day without prior approval.
- 36.10.13.41 (Consumer Protection) – This section discusses the process that must be followed regarding promotional offers, including submitting the terms of the promotion to the commission at least two days prior to commencement and providing that sports wagering licensees are responsible for each of the following: (i) ensuring that the terms and conditions of all promotions are communicated to users by a link posted on the licensee’s home website, (ii) stating the terms and conditions in plain and clear language, and (iii) displaying them conspicuously so that they are readily accessible and available to users for the duration of the promotion.
This section further provides that sports wagering licensees may not (i) conduct promotions in violation of federal, state, or local law or regulation, (ii) include in an advertisement language that suggests the outcome is guaranteed or without risk, or (iii) advertise, promote, or conduct sports wagering in a manner that may adversely impact the public or the integrity of sports wagering.
Attempt to remove online sports betting this year
Much of Baltimore’s complaint focuses on reports and/or various studies discussing the negative impacts of problem gambling on Baltimore residents. Baltimore’s lawsuit follows Sen. Joanne Benson’s introduction of a bill to repeal online sports betting in the state (retail sportsbooks not affected).
The vast majority of Maryland sports wagering activity is conducted online, and Baltimore is the most populous city in the state. Should the city obtain its requested relief, it could potentially impact DraftKings’ and/or FanDuel’s ability to conduct business in the state (assuming each company operates its respective platform in the state identically to how it conducts business in other states where each holds a sports wagering license).
The companies will be sure to argue they comply with the letter of the law provided by the regulations in that their promotions have been reviewed and approved by the commission, and all terms, conditions, and other necessary disclosures are provided in close conjunction to users.
However, the regulations do contain certain “catch-all” language—such as the provision provided in 36.10.13.41 that licensees may not conduct business “in a manner that may adversely impact the public or the integrity of sports wagering”—that the operators will hope to avoid.
