Last week, DraftKings was sued in Massachusetts Superior Court for allegedly using misleading gambling advertising to acquire new customers. In Scanlon et al. v. DraftKings, the Plaintiffs claim that operators of the popular sports betting app "knew, or should have known," that its $1,000 sign-up bonus promotion would deceive prospective customers.

As our readers are aware, gambling advertising companies must manage compliance with numerous and differing regulations across state lines. State gaming commissions continue to doll out heavy fines to ensure compliance with their respective gambling advertising regulations. Scanlon is notable because the action was spearheaded not by a state authority, but by Professor Richard Daynard, the same law professor that secured a $206 billion settlement from Big Tobacco in 2000.

The Subject Sports Betting Advertisement

DraftKings ran the gambling advertising campaign at issue in Scanlon on social media, television, and radio, offering a bonus of up to $1,000 to new customers. In fine print, DraftKings made clear that to obtain the $1,000 bonus, new customers would have to:

  • Make an initial deposit of $5,000;
  • Risk a total of $25,000 within 90 days; and
  • Ensure that their bets qualified by only placing bets with odds of "-300 or longer."

Although DraftKings did not materially represent that new customers would receive $1,000 just for signing up, the ads referenced in the Complaint certainly do not indicate that an immediate $5,000 deposit is required. The putative Class Complaint alleges that DraftKings designed the subject promotion to maximize customer acquisition without regard for whether or not the advertising was misleading. For this alleged misconduct, Plaintiffs, on behalf of all class members, ask that the Court award the $1,000 promised bonuses in actual damages, along with attorneys' fees and costs.

The Proliferation of Online Sports Betting

The legalization of sports betting continues to spread across the country. Currently, six states have sanctioned online casino gaming within their borders (with Rhode Island set to join in early 2024). Twenty-six states and the District of Columbia have legalized online sports betting. Residents of Massachusetts, where DraftKings is headquartered, took only seven months following legalization for their total accrued wager amounts to exceed $3 billion dollars. Of course, massive legal sports gambling income translates into massive state tax revenue (roughly $24mm per month over the past year in New Jersey alone). Accordingly, we expect that more states will continue to legalize online gambling.

Why is Scanlon Relevant to your Business?

With the proliferation of online sports betting across the United States, it can be quite lucrative for companies to advertise for casino and sports gambling operators and licensees. Before initiating gambling advertising operations, however, it is important that marketing companies first understand that they must attain licensure to do so. Interested marketing companies must be very clear about which type of license they are applying for and proceed through the process carefully.

After licensure, marketers must comply with state gaming regulations, by which they will be vigorously scrutinized once they start to operate. These regulations carry heavy fines and vary across state lines. Accordingly, companies interested in conducting gambling advertising should consult with experienced legal counsel.

The attorneys at Klein Moynihan Turco diligently monitor evolving gambling marketing regulations so that clients remain compliant with applicable state and federal laws.

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