Exclusive: DraftKings And $3 Million Parlay Bettor Battling Over Frozen Funds

DraftKings' big-time bettor feeling burned after funds frozen

DraftKings Headquarters

A Florida bettor who placed a highly publicized $3 million parlay wager is considering legal action against DraftKings after the company froze the customer’s New Jersey mobile sports betting account late last month, Sports Handle has learned.

The patron dispute carries widespread ramifications for the emerging U.S. sports betting industry, while calling into question how often top sportsbooks engage in selective enforcement regarding the practice of messenger betting. The dispute could also shed light on whether major sportsbooks are operating in a gray area by condoning a practice that may run afoul of numerous federal and state laws. Messenger betting, while difficult to enforce, occurs when an out-of-state bettor transmits information through a proxy, instructing the proxy to place a wager in another jurisdiction, typically one with legalized gambling.

The bettor, who spoke with Sports Handle exclusively on the condition of anonymity, said the company froze his account on Oct. 23, less than three weeks after he placed a $3 million parlay featuring a futures wager on the Green Bay Packers to win the NFC North. On Oct. 6, the bettor made two separate wagers on an identical 3-team parlay – one for $2.93 million and another for $72,490, screenshots obtained by Sports Handle show. The Florida-based bettor placed the wagers on his DraftKings New Jersey mobile account through a proxy located in the Garden State, multiple sources confirmed.

“I’ve been horribly wronged by them,” the bettor told Sports Handle.

Provided to Sports Handle by industry source.

As of Thursday afternoon, it does not appear that the New Jersey Division of Gaming Enforcement (DGE) has concluded a review of the matter. When asked whether the agency has launched an investigation into the matter, representatives from the DGE declined to comment. 

“While this matter is under investigation by the appropriate regulatory authorities, DraftKings has no comment on that investigation,” a DraftKings spokesperson told Sports Handle Wednesday night.

Longstanding relationship

The three-leg parlay placed last month consists of futures bets on the Packers to win the NFC North, Alabama to win the SEC West, and Georgia to win the SEC East. In total, the bettor stands to receive a payout in excess of $8.5 million if the parlay comes through. ESPN reported that it was the “largest parlay bet” that Johnny Avello, DraftKings director of sportsbook operations, had taken in more than three decades as a sportsbook executive.

The bettor says his relationship with Avello dates back several years to when Avello served as executive director of race and sports at Wynn Las Vegas. During the period, the bettor claims to have lost more than a million dollars on sports wagers at the Wynn in Nevada, where certain forms of messenger betting are legal. While there are claims that the bettor received written authorization to place sports wagers at the Wynn through a proxy, Sports Handle was unable to independently confirm the arrangement. Another high net-worth bettor from North Carolina appears to have used an agent bettor to facilitate wagers at the Wynn, a source told Sports Handle.

Shortly after Avello was hired by DraftKings in October 2018, the Florida bettor took his business to DraftKings, the Boston-based DFS-turned-sportsbook company. This time, the bettor claims he received verbal authorization from Avello to continue placing wagers through a proxy.

Regardless, any form of authorization from a sportsbook employee, either verbal or written, does not supersede state or federal regulations on messenger betting, according to Andrew Klebanow, principal of Klebanow Consulting, a Las Vegas-based consulting firm. Klebanow has spent the past two decades as a consultant for the casino industry.

“That would be a clear violation of both state and federal laws and any sportsbook manager who enters in such an agreement jeopardizes the sportsbook’s license,” Klebanow told Sports Handle.

Avello told Sports Handle on Wednesday evening that he did not have any knowledge that the parlay in question may have been placed through a proxy.

Any claims by the customer that he received a verbal agreement from Avello to place out-of-state wagers on his New Jersey mobile account, through a proxy, are patently false, DraftKings told Sports Handle.

Distinction on proxy betting in Nevada

There is a distinction between regulations on messenger betting in Nevada and states such as New Jersey that did not offer legal sports wagering before the repeal of PASPA in May 2018. Nevada gaming regulations allow an out-of-state sports bettor to place a wager through a proxy, as long as the proxy is not being financially compensated for his services, a former Nevada regulator told Sports Handle. Proxy betting is common in two popular Las Vegas NFL pick-em contests — the Westgate Superbook’s SuperContest and the Circa Sports Million Pro Football Contest.

It does not appear that the bettor of the $3 million parlay provided his New Jersey proxy with any financial compensation for placing the wager, according to sources. Attempts to contact the proxy were unsuccessful.

New Jersey is more strict with regulations on messenger betting. The regulations are concise. At a minimum, sportsbooks can employ best practices by having internal controls that deter bettors from using an associate — known as a “beard” in gambling parlance — to place a large wager. The controls should also clearly enumerate that it is a violation for a person to make a bet on behalf of another individual after gaining access to the bettor’s account.

No licensee shall knowingly accept a wager from a person on behalf of any other person. No licensee shall knowingly allow a person to make a wager utilizing the account of another person.

Rule 13:69N-1.10 — New Jersey Division of Gaming Enforcement, Permanent Sports Betting Rules

On the federal level, the transmission of betting information across state lines for purposes of placing a sports wager is widely viewed as a violation of the Wire Act of 1961, according to a prominent sports betting attorney. A violation could be as innocuous as someone placing a call from Manhattan to a friend a few miles away in Fort Lee, N.J., to make a $10 Jets wager.

DraftKings’ house rules

DraftKings appears to have taken the requisite steps to protect itself against messenger betting, at least formally. In many cases, it is not in the best interest of a major sportsbook to accept large bets through a proxy, as Klebanow illustrates. When a large bet is placed by a trusted customer, a book may respond accordingly by adjusting its lines based on the size of the wager and the customer’s betting habits.

You are responsible for maintaining the confidentiality of your login names and passwords and you accept responsibility for all activities, charges, and damages that occur under your Account. It shall be a violation of these Terms of Use to allow any other person to use your Account to participate in any Game. 

DraftKings’ New Jersey Terms of Use, as of February 2019

But with messenger betting a “whale,” or customer known for consistently making large bets, can break up a wager through a technique called “structuring.”  For example, instead of placing a $2 million wager on the Chiefs to win the Super Bowl, a customer or a syndicate can make four separate wagers of $500,000 each, or possibly 10 bets of $200,000 apiece — constructing any type of structured bet that masks the identity of the original customer. A series of smaller wagers usually draws less attention and would likely raise fewer red flags from both sportsbook and regulatory perspectives.

The regulations, as well as robust Know Your Customer (KYC) protocols, can protect the bettor and the operator simultaneously. At one Las Vegas book during the pre-PASPA era, a bettor seeking to place a modest wager at the counter discovered that his proxy had withdrawn several thousand dollars unbeknownst to him, leaving the account with a zero balance, according to a bookmaker.

The narrative changes, though, when allegations surface that sportsbooks are complicit in allowing the activity. The Florida bettor indicated that he underwent surgery in mid-summer before spending the subsequent six weeks recovering at home. During that recovery period, the bettor says, he received frequent phone calls from a VIP host at DraftKings inquiring about any large bets he had in the works.

It does not establish that DraftKings had knowledge of the bettor’s physical location when he made a bevy of headline-grabbing wagers in recent weeks. But since the start of football season, it appears the bettor made several other large wagers:

Despite the dispute, the possibility remains that the presumed account suspension arose from a simple misunderstanding. Many bettors are not vigilant about reading the Terms and Conditions of a preferred sportsbook with a fine-toothed comb. A Florida attorney, described by sources as a decent-sized bettor, had no idea that betting through an out-of-state proxy violated New Jersey regulations. It is unclear if the bettor placed any wagers at DraftKings.  Meanwhile, verbal agreements become cloudy. Written ones can be buried in an inbox, or deleted entirely.

Without a paper trail, verbal agreements by nature are shrouded in ambiguity. In terms of placing sports wagers at DraftKings through a proxy, the Florida bettor says he’s not alone.

“They’re letting it go if you’re not winning money,” he emphasized.

He also appears concerned for other bettors who haven’t studied the regulations closely. Smaller bettors who “don’t have a voice” could be affected, he contends. DraftKings did not address if other New Jersey customers have had their accounts suspended while under investigation for messenger betting activities.

A knowledgeable professional bettor does not have any concrete examples of messenger betting at other New Jersey shops, but he has some suspicions. One New Jersey operator took a $300,000 wager on the Red Sox in Game 1 of the 2018 World Series. Just last Sunday, another operator took a $270,000 bet on the Eagles’ first-quarter moneyline vs. the Cowboys. The customer pulled out a last-second win when receiver Jalen Reagor’s 2-yard touchdown gave the Eagles a 7-3 lead with two seconds left in the quarter.

The Eagles prop has not raised red flags for messenger betting.

“It just doesn’t seem to add up, there are a lot of high net worth individuals in New Jersey,” the betting expert said. “But guys who are willing to toss a million dollars on coin flips? There’s not a whole lot of those guys around.”

As the topic of suspicious proxy betting in New Jersey continued, he added: “Every sharp bettor I know in the entire country has a ‘Jersey Guy’ … but they all set it up within the letter of the regulation.”

Well-funded players can set up a partnership where the proxy receives an equity stake for his services, according to the expert. Technically, through the relationship, the proxy is betting on behalf of the partnership, not messenger betting, he said.

The sports betting expert has come across anecdotal evidence of sportsbooks seizing bettor funds for maintaining multiple accounts in violation of state law, but not for more than $80,000 in a single case. Outside of the Garden State, terms of use conditions at Sportsbook Rhode Island give the operator wide latitude in penalizing users for egregious violations.

 By using the Services and/or by acknowledging that you have read these Agreements when you install and use any of the software relating to the Services you agree to comply with these Agreements, and you acknowledge that your failure to comply with these Agreements may result in disqualification, forfeiture of funds and/or legal action against you, as appropriate and as further specified in these Agreements.

Sportsbook Rhode Island may take any lawful action it deems appropriate in response to an actual or suspected violation of these Terms and Conditions. This includes, but is not limited to: suspending or disabling access to your Sports Betting Account; blocking access to the Sportsbook Rhode Island Website and/or Sportsbook Rhode Island App; withholding your transfer of any funds in your Sports Betting Account pending completion of an investigation; refusing to award a prize or reclaiming a prize that has been awarded; reporting and providing information about your actions to any third party as required, including law enforcement; cooperating in any investigation; and initiating or participating in any civil or criminal action. By violating these Terms and Conditions, you waive and forfeit any claim to a prize or any portion of a prize.

Sportsbook Rhode Island Terms and Conditions

The seizure of less than $100,000 may go unnoticed throughout the industry, but a possible one above $10 million very well could have global reverberations.

It could be up to the DGE to decide if the funds, along with the winnings from any pending wager, can be seized or if the funds are returned to the bettor. Any enforcement action could also be impacted by potential litigation.

Precedence of messenger betting

Messenger betting violations in the past have carried stiff penalties. In 2016, CG Technology LP, formerly Cantor Gaming, entered into a non-prosecution agreement with the U.S. Justice Department. It paid a total of $22.5 million in fines stemming from “egregious and systemic violations of the anti-money laundering provisions of the Bank Secrecy Act,” according to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Under the settlement, the Justice Department determined that CG Technology facilitated violations of state and federal laws, including: (a) knowingly accepting and facilitating “messenger betting,” in its sportsbooks on repeated occasions, and (b) knowingly accepting and facilitating out-of-state betting activity through wire communications.

Still, there are stark differences between the CG case and the current DraftKings dispute, in terms of the severity of the alleged infractions. Among other charges, Cantor Gaming became a place where at least two large-scale illegal bookmakers “could launder their ill-gotten proceeds,” according to the federal indictment.

Conversely, the allegations against DraftKings are limited to purported special treatment for high-end, VIP clients, who may be used in part for publicity and marketing purposes.

Amid the frenzy to attract the largest bettors on the planet, some books may bend the rules to lure the whales. In any event, messenger betting at Las Vegas sportsbooks still occurs, multiple sources indicated. While sportsbook operators possess technologies that help identify suspicious activity (i.e. through geolocation finders), astute bettors also employ techniques to avoid triggering alarms, Klebanow said.

“It remains a cat and mouse game,” he added.

Although DraftKings is not licensed at the moment to accept legal sports wagers in Nevada, the company opened an office in January just off the Las Vegas Strip. Then, last week DraftKings announced a multi-year agreement with the UNLV Center for Gaming Innovation.

Massive fines, while damaging to a major sportsbook, can be toothless in some situations. In one notable case, the threat of a license suspension carried considerably more weight, a source noted. DraftKings closed Wednesday at $39.46 per share with a market capitalization approaching $15 billion.

“The takeaway is that every operator has a responsibility to adhere to the laws and regulations that are on the books to the best of their ability,” another high-level industry source told Sports Handle. “That’s why we have a legal, regulated system, that’s why we have laws and statutes on the books.

“It’s obviously to make a distinction between the legal, regulated market and the illegal one where things like this happen all the time.”

A former sportsbook executive has witnessed that type of activity here in the U.S. and decades ago in the offshore, illegal market. The question remains whether a high-profile case will lead to heightened enforcement on the state and federal levels or generate meaningful policy changes throughout the country.

While DraftKings has not been accused of selective enforcement, the allegations could trigger a debate over whether the company temporarily suspended the Florida bettor’s account because he became a winner. And if so, is a book crossing any ethical boundaries by encouraging a high-net worth individual to bet millions, only to freeze his account when the bettor consistently wins on multi-million dollar wagers?

“It’s the wild, wild west,” the bookmaker said. “It’s happening, again.”

 

Jill Dorson and Brett Smiley contributed to this story