Faced with growing competition from prediction markets, several sportsbook operators have also gotten into the event contracts business over the last few months.
FanDuel debuted a prediction market option in November. Fanatics entered the space in December, and DraftKings launched Predictions the same month.
DraftKings’ expansion has now been met with a lawsuit. A class action in California accuses the company of allowing illegal gambling. The lawsuit seeks injunctive relief and financial damages.
“DraftKings deceives consumers by marketing Predictions as a legitimate ‘prediction market’ rather than a sports betting product, designing the platform to mimic a sportsbook while describing the activity as ‘trading,’ failing to implement responsible gaming safeguards, permitting users as young as [18] to trade, and shifting all legal risk onto consumers through its terms of use, even while acknowledging active litigation and regulatory uncertainty surrounding event contract legality,” the lawsuit said.
Marketing Of Illegal Platform
In the lawsuit, plaintiff Ricardo Andrio and other California residents allege they lost money using the platform. They said they wouldn’t have used the platform had they known it was illegal.
The suit followed extensive marketing by DraftKings in states with large populations but without legal sports betting. That included California, Texas, Georgia, and Florida.
Prediction markets claim that the Commodity Futures Trading Commission, rather than state gaming regulators, regulates them at the federal level. Under that structure, they contend that they are legal trading platforms.
The lawsuit also alleges the company used its name recognition to push Californians into using its prediction market platform.
“After years of refraining from operating in these states, DraftKings has now sought to evade and circumvent state laws that bar its sportsbook operations,” the lawsuit said.
Tribes Oppose Prediction Market Expansion
The legal action is playing out as sports betting remains a hot topic in the Golden State. In 2022, California voters rejected two sports betting initiatives. Some tribal gaming groups are now pushing to bring the issue back before voters in 2028.
Tribes hold a substantial amount of power in the state. Most opposed mobile wagering during the 2022 election but supported the proposal to allow in-person wagering at tribal casinos.
A plan in 2024 that tied wagering to the state’s tribal gaming operators failed to gain any traction. Tribes opposed the proposal because planners didn’t include them in planning the initiative.
Tribes are now concerned about prediction markets taking market share from them. Three tribal gaming groups are battling Kalshi and Polymarket in court.
“They’re focused on California, but they won’t have an easy journey here,” California Nations Indian Gaming Association Chairman James Siva said in April.
“The tribes are massing in number and unified in purpose. They won’t have the access and the ease of this market they think they will.”
