DraftKings is facing an adjudicatory hearing in Massachusetts for violating laws relating to how bettors deposit and fund their sports betting accounts.

In late May, DraftKings self-reported to the Massachusetts Gaming Commission (MGC) that it accidentally allowed sportsbook customers to use out-of-state credit cards to make deposits to their accounts. Massachusetts’ sports betting law prohibits sportsbooks from allowing credit cards to be used to place bets. Casinos are also banned from allowing a person to gamble via a credit card.

On May 31, DraftKings told Bruce Band, the MGC director of sports wagering, about its failures to prevent credit cards from being used. The company informed Band that a software resolution had been installed.

It was later determined that the software update didn’t remedy the problem, and credit cards continued to be accepted until a subsequent fix was implemented on the evening of July 13.

Adjudicatory Hearing Motioned

On August 1, DraftKings submitted a report to the MGC’s Investigations and Enforcement Bureau with figures on the scope of the regulatory shortcomings. The sportsbook said the credit card glitch allowed 218 customer accounts to deposit with credit cards. Those customers made 242 bets totaling $83,663.92.

Zachary Mercer, an attorney for the MGC Investigations and Enforcement Bureau, said DraftKings blamed the incident on an “internal miscommunication.” As for the issue not being immediately resolved upon detection, DraftKings reps tried to explain to the state why those internal communication breakdowns persisted.

[DraftKings] identified the root cause of the failed update as a lack of complete functionality testing,” Mercer told the MGC on Thursday. “DraftKings explained that the failed update required a change to three internal functions — the financial platform, the account platform, and the sportsbook product.”

Mercer said DraftKings’ internal tech team only applied the credit card change to the sportsbook. After learning that the issue was ongoing, the team determined the error and updated the software to the financial and account platforms.

For me, this is egregious. This needs to be an adjudicatory hearing,” said MGC Commissioner Eileen O’Brien.

O’Brien’s four fellow commissioners agreed and voted unanimously to move the matter to an adjudicatory hearing.

An adjudicatory hearing involves all parties in the matter, including the MGC, participating in a legal review of the alleged violations. The Massachusetts Expanded Gaming Act of 2011 provides the MGC with “all powers necessary” to carry out and effectuate “adjudicatory proceedings and promulgate regulations.”

DraftKings is also facing a class-action lawsuit in Massachusetts in a case that alleges that the sportsbook deceived customers into signing up through a “$1,000 Bonus” promotion.

Unprecedented Violation

MGC Chair Cathy Judd-Stein agreed with O’Brien regarding the severity of DraftKings’ shortcomings in allowing the use of credit cards. She asked Band if there had been prior instances of a sportsbook or casino licensee violating the credit card mandate, to which he answered, “No.”

I would ask this to be prioritized,” Judd-Stein told her staff in determining a timeline for the adjudicatory hearing.

The MGC functions as a state agency and can hand down financial penalties as it sees fit for regulatory failures and violations of law.

In April 2019, the MGC fined Wynn Resorts a staggering $35.5 million for “numerous violations” relating to the company’s failure to inform the MGC about alleged sexual misconduct allegations levied against its namesake founder, Steve Wynn, when it applied for its casino license. The MGC allowed Wynn Resorts to retain its casino license, which cost $85 million. Wynn opened Encore Boston Harbor, a $2.6 billion casino in Everett, in June of that year.

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