DraftKings integrated Predictions into its main app last month, and the company is already facing a lawsuit alleging its new “super” app is offering illegal gambling. The lawsuit, filed in Massachusetts on behalf of a California resident, claims that its sports prediction markets “are sports bets masquerading as event contracts.”
“By branding the product as ‘trading’ rather than betting, DraftKings misleads consumers into
believing the activity is lawful and safe. It is neither,” states the lawsuit.
“Indeed, DraftKings’ Chief Executive Officer, Jason Robins, recognizes that ‘customers don’t really even understand the difference’ between betting on sports in Sportsbook versus Predictions.”
DraftKings Bullish About Prediction Markets
Robins has been outspoken about the opportunity prediction markets present for DraftKings to expand its user base.
“This is the most bullish I have ever felt about the future of DraftKings,” Robins said last year. “We will pursue this opportunity, we will compete, and we will win,” he added.
A DraftKings spokesperson told CasinoBeats via email, “DraftKings’ prediction markets offering operates in accordance with applicable law and the federal regulatory framework established under the Commodity Exchange Act. We remain confident in our legal position.”
Like other prediction markets, such as Kalshi and Polymarket, DraftKings Predictions is licensed by the CFTC.
California Resident Behind Lawsuit
The lawsuit was filed on behalf of Michael Chan, a California resident. Chan says he signed up for the DraftKings Predictions app without knowing it was “an unlicensed sportsbook.”
Robins has made no secret of his view that sports prediction markets are the company’s entry point into states like California, where DraftKings has spent millions lobbying for legal sports betting.
The lawsuit focuses on his admissions that the company sees prediction markets as a way to acquire users in these states.
“Some of the biggest states in the country, like California, Texas, Florida, we were not present in with [online sports betting], and we have Predictions there now,” Robins said in one quoted example. “So there are opportunities for us. It was about half the country, population-wise, that we were able to launch Predictions in. And so that’s something really exciting.”
California voters shot down attempts to legalize sports betting in 2022, although residents have shown some openness to legalization since. Any legal framework would go through the state’s powerful tribes, cutting into revenue for commercial operators such as DraftKings.
Sports Prediction Markets Are Sports Betting, Says Lawsuit
DraftKings is adding a wide range of micromarkets to its prediction markets platform, which mimics its sportsbook offerings.
The lawsuit argues it is creating an identical product, which should be regulated by state gambling laws and made illegal in states such as California.
Again, it cites numerous instances in which Robins has admitted that the company wants to offer users the same experience as its sportsbook product.
“We are confident in Predictions because we increasingly view the capabilities we have built in Sportsbook as a key advantage; they serve the same customers in the same live moments and leverage shared underlying infrastructure,” the lawsuit quotes Robins.
State judges have also increasingly declared that sports prediction markets are indistinct from sports betting. Nevada and Michigan are the only states to successfully block Kalshi, with Washington likely to follow.
Prediction Markets: A New Class Action Target
DraftKings has frequently been targeted by class action lawsuits over allegations that its sportsbook and casino products are inherently designed to make users addicted.
The latest lawsuit instead argues that its prediction market product falls foul of state gambling laws. Kalshi has faced similar class actions, but as yet, no complaints have made any progress.
“The objective reality is that plaintiffs’ counsel here, as in other litigation waves, seek to monetize the gap between public sympathy and existing legal doctrine,” Markus Funk and Michael Andolina, partners at legal firm White & Case, said of the rise in class actions targeting gambling companies.
“There is therefore undoubtedly a commercial incentive for plaintiffs’ firms to pursue these cases at scale, and the mass tort model is designed to generate volume.”
The lawsuit does not mention the Commodity Exchange Act (CEA), which DraftKings will likely cite as the framework governing its prediction market product.
“Regulatory compliance is the strongest defense,” said Funk and Andolina.
Until courts definitively rule that sports prediction markets are not allowed under the CEA, these actions look unlikely to succeed.
The post DraftKings Predictions Sued By California Resident for Evading State Gambling Laws appeared first on CasinoBeats.
DraftKings integrated Predictions into its main app last month, and the company is already facing a lawsuit alleging its new “super” app is offering illegal gambling. The lawsuit, filed in Massachusetts on behalf of a California resident, claims that its sports prediction markets “are sports bets masquerading as event contracts.” “By branding the product as
The post DraftKings Predictions Sued By California Resident for Evading State Gambling Laws appeared first on CasinoBeats.