The fine stems from DraftKings’ erroneous reporting of sports wagering data, which led to incorrect tax returns filed by its partner, Resorts Digital. The discrepancies were particularly notable in the handling of parlay bets, which were overstated, while other types of wagers were understated. This resulted in misleading financial data being submitted to the state for December 2023, as well as January and February 2024. These errors forced regulators to reissue corrected financial data for several months, an action that had not been necessary in over a decade.
New Jersey DGE Comes Down on DraftKings
Mary Jo Flaherty, acting director of the DGE, articulated the severity of these errors in a sternly worded letter to DraftKings New Jersey, stating,
“These types of gross errors and failures cannot be tolerated in the New Jersey gaming regulatory system. They evidenced weaknesses in DraftKings’ business abilities and casino experience and unacceptable conduct in dealing with regulations and requisite reporting and financial systems.”
The discovery of these inaccuracies was not confined to New Jersey. Similar issues were identified in Illinois and Oregon, prompting a comprehensive investigation by the DGE’s Office of Financial Investigations. This multi-state pattern of reporting inaccuracies cast a broader shadow on DraftKings’ operational protocols and data management systems.
DraftKings Needs to Move Cautiously
In response to the regulatory scrutiny, DraftKings attributed the errors to a coding issue within a newly implemented database. The company has since rectified the coding error and instituted additional monitoring measures to flag any unusual changes in data reporting.
DraftKings expressed its commitment to regulatory compliance, stating,
“We value our relationship with the DGE and are committed to ensuring compliance with all regulatory guidelines. There was an error in the reporting of our wagering mix breakdown to the state that we have corrected by implementing additional controls.”
However, the DGE was not wholly satisfied with DraftKings’ initial response. The regulator highlighted that even though the errors did not impact taxable revenue directly, the accurate reporting of wagering data is a “critical component of the monthly tax return.” The oversight in promptly addressing and reporting these errors led to the severe penalty, reflecting the DGE’s uncompromising stance on regulatory compliance.
The $100,000 fine is notable not just for its amount but also for its context within the New Jersey sports betting market. Since its launch in 2018, the state has established itself as a leading jurisdiction for regulated sports betting, with stringent oversight to ensure integrity and transparency. DraftKings, a prominent player in the market, has generated significant revenue, second only to FanDuel. Despite this, the operator’s recent reporting failures have drawn sharp criticism and a substantial financial penalty.
DraftKings’ experience serves as a cautionary tale for other operators in the burgeoning sports betting industry. It highlights the paramount importance of accurate data reporting and robust internal controls. As the industry continues to grow, regulatory bodies like the DGE are poised to maintain rigorous standards to safeguard the integrity of the market.
The $100,000 fine imposed on DraftKings by New Jersey regulators underscores the critical need for meticulous data accuracy and detailed compliance measures in the sports betting industry. The incident serves as a stark reminder that regulatory bodies will not hesitate to impose severe penalties to uphold the standards of the market and ensure fair play.
