The Gambling Wire: DraftKings AI Scrutiny Deepens With New Lawsuit

DraftKings faces a fresh legal challenge as scrutiny of its AI practices continues to spread.

DraftKings is facing a proposed class action over its alleged use of artificial intelligence to target bettors, while FanDuel has disclosed new details about personalized VIP marketing. Elsewhere, prediction markets drew fresh legal and tax scrutiny, and a federal judge dealt another setback to Scotts Valley’s Vallejo casino effort.

The Big Story: DraftKings Faces Lawsuit Over Alleged AI Targeting

The scrutiny over DraftKings reportedly using AI to identify customers likely to lose more money from promotions continues to expand. The newest development: a proposed class action lawsuit.

A new proposed class action lawsuit against DraftKings, filed in Massachusetts federal court by West Virginia customer Daniel Vest, alleges he received at least 70 emails, texts, notifications, and other promotional messages in one month.

The lawsuit draws heavily on a September New York Times investigation that reported DraftKings developed a machine-learning model using customer betting records to predict how promotions would affect individual users’ eventual wins and losses.

Vest alleges DraftKings used the model to identify customers most likely to lose money or leave the platform and then targeted those users with additional promotions and incentives.

At the center of the lawsuit is DraftKings’ use of customer information. Its privacy notices state that customer data may be used to assess responsible play and to provide resources when potentially problematic behavior is identified.

Vest argues DraftKings breached that commitment by instead using personal information “for the exact opposite purpose,” – targeting customers considered likely to generate additional losses.

Gaming regulators in Massachusetts and Michigan have already begun reviewing the issues raised by the Times.

The Daily Wire

Kalshi Presses Broad Preemption Argument in Connecticut Appeal

Kalshi has asked the Second Circuit to reverse a Connecticut federal judge’s denial of its request to block state enforcement against its sports event contracts.

The Sept. 30 filing goes beyond arguing that sports contracts qualify as swaps. Kalshi contends that the CFTC’s exclusive jurisdiction extends to all agreements traded on a designated contract market. The company argues that Connecticut cannot avoid preemption simply by arguing that the sports contracts fall outside the CEA’s definition of a swap.

Kalshi separately argues that the CEA field-preempts state regulation of “on-DCM trading.” It says Congress occupied that field and left no room for states to apply their own laws to agreements traded on federally regulated exchanges.

Gaming attorney Daniel Wallach has challenged that framing. He argues that field-preemption analysis should focus on what the state law is actually targeting. In Connecticut’s case, he says the enforcement action targets sports wagering specifically, not event contracts more broadly.

FanDuel Discloses 30 Personalized VIP Videos

FanDuel has told federal lawmakers that it sent approximately 30 personalized videos featuring athletes and entertainers to customers during the past two years.

In a Sept. 24 letter to lawmakers, FanDuel SVP Cory Fox said the videos were generally arranged through public services as “a token of appreciation” for customer loyalty and were not intended to induce continued gambling. The disclosure followed criticism over a Bryce Harper video sent to a customer who later entered treatment for gambling addiction.

Lawmakers have pressed FanDuel over whether VIP managers use personalized relationships and incentives to encourage continued betting.

They also urged MLB and the MLB Players Association to prohibit players from participating in personalized gambling promotions after the Harper episode. FanDuel has rejected the characterization of its VIP program as predatory. The company says its managers are trained to identify signs of problem gambling.

Analysis: Sports Event Contracts Should Be Taxed as Gambling

A new Tax Law Center analysis published in Tax Notes argues that sports event contracts should be treated as wagering under the federal tax code.

The authors say there’s currently no IRS guidance specifically addressing sports event contracts. Their analysis concludes that “the best reading of the code” is that the contracts are wagers subject to the same federal rules as sports gambling. That includes the ordinary income treatment of winnings, gambling-loss deduction limits, and wagering excise taxes.

The analysis also raises a potentially significant industry question: whether the federal wagering excise tax could fall on prediction-market platforms as operators of wagering pools or on market makers and professional participants deemed to be accepting wagers. The authors called for IRS guidance to resolve the uncertainty.

Pennsylvania Self-Exclusion Enrollments Jump 18%

Pennsylvania saw a notable rise in self-exclusion activity during fiscal year 2025-26, according to the Pennsylvania Gaming Control Board’s latest annual report.

There were 9,677 new enrollments during the year, up from 8,197 in 2024-25. That works out to an increase of about 18%. In total, the PGCB handled roughly 14,200 self-exclusion requests,including around 4,500 requests from people asking to come off the lists.

The state has also recorded 50,000 self-exclusion enrollments since the program’s introduction. About 30,000 people have enrolled across Pennsylvania’s casino, VGT, online gaming, and fantasy contest programs.

The increase does not necessarily mean problem gambling rose at the same rate. Higher enrollment can also reflect greater awareness and use of self-exclusion tools.

Federal Judge Rejects Scotts Valley Casino Injunction

A federal judge has denied the Scotts Valley Band of Pomo Indians’ request for a preliminary injunction that would have restored a favorable federal determination allowing gaming on its proposed Vallejo, California, casino site.

The dispute dates back to 2016. Then, Scotts Valley asked the Interior Department to take the Vallejo site into trust and determine its eligibility for gaming under the Indian Gaming Regulatory Act’s restored-lands exception. Interior initially rejected the request, but that decision was later vacated and remanded by a federal court.

In January 2025, the department found the site eligible for gaming, prompting the Tribe to move ahead with development. The Tribe says it committed roughly $10 million to the project and opened a temporary casino in July 2026 with Class II bingo-style gaming devices. However, only days later, Interior again reversed course, concluding the parcel did not qualify as restored lands.

U.S. District Judge Trevor McFadden ruled Sept. 30 that the Tribe failed to satisfy all four factors required for preliminary relief.

Prediction Markets Weekly Roundup

While this week was relatively quiet on the legal front, prediction markets dominated industry conversation at G2E.

Casino executives, regulators, Tribal leaders, and the American Gaming Association criticized sports event contracts over state oversight, taxation, and consumer-protection concerns.

MGM Resorts CEO Bill Hornbuckle said the company had declined to enter the sector. Meanwhile, Caesars CEO Tom Reeg raised concerns about oversight.

There were also several developments in Washington. The CFTC sent two prediction-market rulemakings to White House review, including measures addressing event contracts and the exclusion of casino-style gambling products from the definition of a swap.

The regulator is also reportedly preparing a sweep of prediction-market promotional practices and is investigating former Rep. Adam Kinzinger’s Kalshi trades tied to his eventual presidential pardon.

Separately, the House Oversight Committee expanded its insider-trading investigation to Hyperliquid, Crypto.com, and Aristotle Exchange/PredictIt. Also, the Justice Department argued that Venezuela-related contracts at issue in an insider-trading case can still qualify as swaps despite recent appellate rulings involving sports contracts.

Despite the pressure, the industry continued its commercial expansion.

CME launched NHL team-performance futures, taking a different approach to sports-linked derivatives after stopping new expiries for its sports event contracts. Meanwhile, Kalshi partnered with CBS News, which began using its data for midterm election coverage, and Polymarket added self-exclusion, deposit limits, and other responsible-trading safeguards.

Also, reports emerged of new funding rounds. Kalshi is reportedly discussing a roughly $1 billion raise at a $40 billion valuation, while Novig confirmed it is fundraising in a round that could value the company at up to $2 billion.

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