Investigative Report · Gambling · Consumer Fraud · California
DraftKings Ran an Illegal Gambling Operation in California and Lied to Every Single Player
DraftKings told millions of Californians that gambling on its platform was legal, collected hundreds of millions of dollars from them, and that was a lie it kept telling for over a decade while the state of California tried to stop it.
California Said No. DraftKings Kept Cashing Checks Anyway.
California has prohibited commercialized gambling since 1872. The rules are clear: no banking games, no percentage games, no bookmaking, no pool selling, no lotteries, no games of chance. The legislature re-affirmed in 2008 that “no person in this state has a right to operate a gambling enterprise except as may be expressly permitted by the laws of this state.” DraftKings operated one for over a decade anyway.
In November 2022, California voters got two chances to change those rules. Proposition 26 would have legalized in-person sports betting at tribal casinos. Proposition 27, backed primarily by the online sports betting industry, would have legalized online sports wagering. Both failed, and they failed massively. Prop 26 lost with 67% of voters saying no. Prop 27 lost with 82% of voters rejecting it, making it one of the largest margins of defeat in California ballot proposition history.
DraftKings, FanDuel, and BetMGM alone contributed $95 million (enough to fund free school lunches for over 47,000 kids for an entire year) toward supporting Proposition 27. The industry as a whole spent $150 million (enough to pay the annual rent for roughly 4,000 families) on political ads trying to get Californians to say yes. Californians said no. Then DraftKings kept operating as if the vote never happened.
“Despite the resounding defeats at the ballot box, online sports betting operators, like DraftKings, have continued to operate in California.”
In October 2023, State Senator Scott Wilk wrote directly to the California Department of Justice requesting an investigation into daily fantasy sports platforms, noting that “sports wagering in all forms remains illegal in California” and that daily fantasy sports appears to be “a game of chance not otherwise permitted by the laws of California.” As of the filing of this lawsuit on June 1, 2025, the California Attorney General had still not issued a formal opinion on the question. DraftKings kept operating the entire time.
The 2022 California Ballot: Industry Spent $150M. Voters Said No Anyway.
How DraftKings Designed Its Gambling Machine
DraftKings frames its products as “fantasy sports,” invoking the image of friends trading player cards around a kitchen table. The reality the lawsuit documents is a commercial gambling operation where DraftKings acts as the house. In every Daily Fantasy Sports contest, DraftKings receives all entry fees, pools them together, books the bets, sets the prize payouts, takes its cut, and distributes the remainder to winners. Players have zero control over the final outcome, which depends entirely on how real athletes perform in real games.
The lawsuit identifies at least nine distinct ways DraftKings’ Daily Fantasy Sports differ from the kind of friendly fantasy leagues that are actually legal in California. The contests involve hundreds of thousands of strangers. The bet sizes, prize pools, and the portion DraftKings keeps for itself are all set unilaterally by DraftKings. DraftKings runs its own betting book, tracking every wager and using those records to calculate payouts. The contests are specifically designed to be short, often lasting just a single day, to maximize the number of rounds players bet per week.
The Rake Behind the Curtain
The lawsuit documents three specific Daily Fantasy Sports contests DraftKings offered on a single NBA game in May 2025, each revealing a different rake percentage DraftKings charged without disclosing it prominently. One smaller contest with 229 slots at $5 each generated a pool of $1,145 (enough to cover two months of a minimum wage worker’s commute costs), but only $1,000 was available in prizes, with DraftKings pocketing $145, a 12.7% cut. A mid-size contest at $100 per slot generated a pool of $33,400, with DraftKings keeping $3,300 (roughly two months of rent for many Californians), a 10% rake. The largest contest, a $20-per-entry contest with 29,411 slots, generated $588,220 in player bets, with DraftKings keeping $88,220 (enough to cover a year of groceries for approximately 44 California families), a 15% cut.
Pick6 is even worse. The lawsuit details how DraftKings designs Pick6 to bury the most important information. The platform defaults users into $10 bets when advertising $1 entries. The actual breakdown of how bets are distributed across contests requires a user to scroll within a specific section of the screen that has no visible scroll bar, then click “View Contest Breakdown.” When a user does this, they discover their single bet is actually spread across nine separate contests, each with 1,667 participant slots and a $1,000 prize pool. With $1,667 collected per contest and only $1,000 paid out, DraftKings takes a rake of $667 per contest, representing a 40% cut of every dollar wagered. The user has no choice in which pools their money goes into. DraftKings assigns them.
“DraftKings takes a rake on each contest of $667, representing 40% of the total pool of funds collected. The user has no control over which specific pools his bets and wagers were entered into or who he is playing against. DraftKings selects both for him.”
The “Legal in California” Lie, Built Into the Interface
DraftKings did not passively allow Californians to gamble. DraftKings actively recruited them with an explicit, prominent assurance that what they were doing was legal. On the main DraftKings website, one of the featured “above the fold” menu options is a “Where is DFS legal” button. Following that link takes users to a page that lists California as a “legal” jurisdiction. DraftKings also states on that page that it “carefully monitors state and federal law and regulations to ensure that its practices are in compliance with applicable law.” The same false assurances appear on the mobile app. On Pick6, a dedicated “Where is Pick6 Available” page lists California as an “available” jurisdiction.
The lawsuit is direct: DraftKings made these representations because it knew players would stop gambling if they understood the contests violated California criminal law. Knowing the activity was illegal and hiding that fact to keep the money flowing is the definition of fraud.
DraftKings’ Take Per Contest: How Much the House Kept (May 2025 Data)
The Non-Financial Ledger: What This Cost Real People
Three Californians put their names on this lawsuit. Plaintiff Brandon Moore is a San Francisco resident who created a DraftKings account around 2012 after seeing online ads. He trusted DraftKings when it told him the platform was legal. He played Daily Fantasy Sports and Pick6. Since May 2023 alone, he lost over $3,000 (enough to cover three months of food bills for a family of four) to DraftKings while in California. He used the Gambling Websites as recently as May 17, 2025, placing a $20 bet on a Daily Fantasy Sports contest, the very contest with the $588,220 pool from which DraftKings took $88,220. He did not know the entire operation was illegal. DraftKings made sure of that.
Plaintiff ZhiCheng Zhen is an Oakland resident who created his DraftKings account around 2024 after seeing ads while watching NBA games on television. He lost approximately $1,000 (roughly two months of a California renter’s utility bills) to DraftKings while in California. His most recent documented loss was around February 12, 2025, when he played NBA Pick6 and lost approximately $400 (a week’s grocery budget for many families). Zhen explicitly relied on DraftKings’ representations that the platform was legal. He had no reason not to. DraftKings said so, clearly, on the website and in the app.
Plaintiff Jonathan Smith is a Napa County resident who created his DraftKings account around 2019 after watching NBA games on television. Since May 2019, he lost a total of approximately $1,700 (enough to cover more than three months of a California household’s electricity bills) to DraftKings while in California. Smith played Daily Fantasy Sports. Like Moore and Zhen, he signed up specifically because DraftKings told him it was legal to do so. He did not review DraftKings’ terms of service at account creation and was not aware he was purportedly agreeing to them, meaning that any contract DraftKings claims to have with these users was formed under false pretenses, for the purpose of an illegal enterprise.
The lawsuit makes a critical legal point about these three men that applies to every California user: the contracts DraftKings claims to have with its users are void. California Civil Code Section 1667 makes contracts invalid when they are contrary to an express provision of law. The sole purpose of every DraftKings account created by a California resident was to access gambling services that violated California criminal law. The so-called contract was illegal from the moment it was formed. Every dollar DraftKings collected under it was collected fraudulently. The three plaintiffs represent what the lawsuit estimates to be hundreds of thousands, potentially millions, of California residents in the same position. California accounts for an estimated 10% of all DFS contest entries nationwide, with DFS platforms collecting approximately $200 million (enough to provide four years of college tuition for over 6,600 California students) in entry fees annually from California residents alone.
“DraftKings knew (or should have known) that its gambling operations in California were illegal, but despite that induced Plaintiffs and the Class to gamble and lose money through its Gambling Websites while in California.”
Legal Receipts: What the Documents Actually Say
“For years, Defendant DraftKings, Inc., has been operating mobile gambling applications and websites within California, representing to customers and the public that its ‘Daily Fantasy Sports’ contests and ‘Pick6’ contests are legal forms of gambling in California. They are not.”
Class Action Complaint, Paragraph 1 — June 1, 2025
“Well aware that customers would otherwise refuse to play its Daily Fantasy Sports contests if they knew and understood those contests violated California criminal law, on its Daily Fantasy Sports website, DraftKings repeatedly assures prospective customers that Daily Fantasy Sports are legal in California.”
Class Action Complaint, Paragraph 62 — June 1, 2025
“DraftKings acted with malice, because, among other reasons… DraftKings’ conduct was despicable and was done with a willful and knowing disregard of the rights of the public, Plaintiffs, and the Class because DraftKings knew (or should have known) that its gambling operations in California were illegal, but despite that induced Plaintiffs and the Class to gamble and lose money through its Gambling Websites while in California.”
Class Action Complaint, Paragraph 144 — June 1, 2025
“DraftKings’ conduct was fraudulent, because… DraftKings intentionally misrepresented and concealed the true nature of its unlawful gambling enterprise from Plaintiffs and the Class by affirmatively representing that the Gambling Websites and associated contests were legal in California when DraftKings knew (or should have known) that such contests were not.”
Class Action Complaint, Paragraph 146 — June 1, 2025
“DraftKings and others in the online gambling industry have inundated the internet and other publicly available resources (e.g., news articles and legal blogs) with claims that daily fantasy sports betting contests and other betting contests, like Pick6, are legal in California.”
Class Action Complaint, Paragraph 141 — June 1, 2025
“[I]n reality, his wager will be entered as a series of $1 bets, across multiple contests… DraftKings would take a rake on each contest of $667, representing 40% of the total pool of funds collected. The user has no control over which specific pools his bets and wagers were entered into or who he is playing against. DraftKings selects both for him.”
Class Action Complaint, Paragraph 83 — June 1, 2025
Societal Impact: Who Gets Hurt and How
Public Health: Gambling Addiction by Design
The lawsuit notes that DraftKings faces lawsuits across the country related to the addictive nature of its online betting platforms. California’s own legislature has stated explicitly in law that “gambling can become addictive and is not an activity to be promoted or legitimized as entertainment for children and families.” DraftKings ran its California operation for over a decade in direct contradiction of that legislative finding, deliberately designing its platforms to maximize repeat engagement.
The Daily Fantasy Sports format is specifically engineered to drive compulsive behavior. Unlike traditional season-long fantasy leagues, DFS contests last a single day or a weekend, resetting the gambling cycle dozens of times per season. The lawsuit documents that DraftKings enticed California customers in May 2025 to place bets on fall NFL games months before the season started. The company sends emails, texts, and push notifications specifically targeted at existing customers who slow down their gambling. DraftKings also uses data analytics to personalize marketing based on user behavior, meaning the platform targets the people most likely to keep betting with the offers most likely to pull them back in.
Men make up more than two-thirds of sports bettors in the United States, according to a source cited in the complaint. The lawsuit documents that DraftKings expanded its marketing to include co-branded products that can be purchased and used by minors, including advertisements printed on bags of Ruffles potato chips. A gambling company whose legal status in California is disputed placed its brand on a snack food a 12-year-old can buy at a gas station.
Economic Inequality: Half a Billion in Ads, Millions in Losses for Working Californians
DraftKings spent between $500 million and $600 million (roughly the annual salary of 7,500 California teachers) per year on advertising and marketing, making it one of the highest spends in the industry. Every dollar of that budget existed for one purpose: to recruit more Californians into a gambling operation that was illegal under state law. DraftKings secured official partnerships with the NFL, NHL, PGA Tour, UFC, NASCAR, the NBA, MLB, and the WNBA, specifically to use the legitimacy of those leagues to reassure customers that DraftKings was a trustworthy, law-abiding operation. It was using household brand names to paper over an illegal enterprise.
The economic extraction ran directly from working-class Californians upward. California accounts for approximately 10% of all DFS entries nationwide, generating an estimated $200 million (the equivalent of the entire annual payroll of roughly 2,200 California minimum-wage workers) in entry fees from California residents annually. The class the lawsuit seeks to certify includes potentially millions of people. The lawsuit’s amount in controversy exceeds $5 million based solely on named plaintiff losses, and that figure scales with the class. Every percentage point of rake DraftKings collected on illegal bets was money extracted from California communities, with zero legal authority to take it.
The lawsuit also documents a deliberate design choice in Pick6 that defaults users into higher bets than advertised. DraftKings advertised $1 entries but defaulted the interface to $10 bets, with the $10 bet split across ten $1 entries. The complaint states directly that there was “no reason, other than to induce higher levels of betting, for the DraftKings interface to default to $10 instead of $1.” The people most harmed by this default are those with the least financial cushion: people who came in thinking they were risking $1 and walked away having lost $10.
Scale of DraftKings’ California Operation: Ad Spend vs. Named Plaintiff Losses
The Cost of a Life Metric
What Now: Don’t Let This Disappear Into a Settlement
Who Is Responsible
- DraftKings, Inc. — Delaware Corporation, headquartered in Boston, Massachusetts. The company that designed, operated, and profited from the illegal gambling operation.
- Does 1-20 — Unnamed individuals and entities identified in the lawsuit as facilitating DraftKings’ unlawful practices. Their identities are not yet publicly known.
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