Incident Overview
On April 3, 2025, the City of Baltimore filed a lawsuit against DraftKings and FanDuel, marking the first legal action of its kind in the United States. The complaint alleges that both companies used machine-learning algorithms to identify and target vulnerable gamblers, including individuals exhibiting signs of gambling disorder. The systems in question were designed to maximize user lifetime value by deploying personalized promotions, push notifications, and VIP programs, which allegedly exacerbated financial and public-health harms among Baltimore residents.
The lawsuit draws parallels to a 2023 ruling in the UK, where Sky Bet was found to have used algorithmic targeting to exploit problem gamblers. In this case, the complaint specifically names DraftKings and Flutter Entertainment (FanDuel’s parent company) as having developed and deployed an AI-driven system for predictive targeting. The systems implicated include DraftKings’ and FanDuel’s betting platforms, as well as a sports betting personalization algorithm and a machine-learning predictive targeting system.
The legal action is framed within broader concerns about algorithmic exploitation, particularly in industries where vulnerable populations are at risk of financial and psychological harm. The lawsuit highlights how AI systems, when designed to prioritize profit metrics like user lifetime value, can inadvertently—or intentionally—contribute to harmful outcomes for individuals already predisposed to addiction or financial distress.
The complaint was filed in the Circuit Court for Baltimore City under the case number City of Baltimore v. DraftKings Inc. et al, No. 1:2025cv01487. Legal documents, including the original complaint and subsequent filings, are publicly accessible through sources such as the Dicello Levitt law firm and ClassAction.org. As of the incident’s recording on March 21, 2026, the litigation remains pending, with no resolution yet determined.
The harms outlined in the complaint fall under multiple categories of AI risk, as classified by frameworks like the Domain Taxonomy of AI Risks.
DraftKings and FanDuel have not publicly commented on the specifics of the allegations, though the lawsuit suggests that their AI systems were intentionally structured to identify and engage at-risk gamblers. The complaint emphasizes that these systems were not merely passive tools but actively contributed to the exploitation of vulnerable individuals by creating incentives that encouraged continued gambling behavior.
Similar cases, such as the UK’s Sky Bet ruling, have established legal precedents for holding companies accountable when their algorithms are shown to target or exploit susceptible populations.
Possible Root Cause
The core allegation in Baltimore’s lawsuit centers on the use of machine-learning algorithms to profile and score gamblers based on behavioral data. These systems are accused of identifying individuals exhibiting early signs of gambling disorder, such as increased betting frequency, higher risk-taking, or financial strain, and then targeting them with aggressive promotional strategies.
The complaint specifies that DraftKings and FanDuel’s AI systems were designed to maximize user lifetime value (LTV), a key performance metric in the gambling industry. For example, individuals showing signs of problem gambling may have received bonus offers, extended credit lines, or exclusive betting opportunities designed to keep them engaged and spending.
The predictive modeling underlying these targeting efforts relied on extensive user data, including betting patterns, transaction history, and engagement metrics. By analyzing this data, the AI systems could predict which users were most likely to increase their betting activity—and thus their profitability to the company—even if that activity was harmful to the individual. The complaint suggests that these systems were not equipped with safeguards to prevent exploitation, instead prioritizing revenue generation over user well-being.
The complaint implies that gamblers were not informed about the extent to which their behavior was being monitored or how promotions were being tailored to their specific vulnerabilities.
The lawsuit also highlights the role of Flutter Entertainment, the parent company of FanDuel, in developing the AI systems used by both DraftKings and FanDuel. This suggests a coordinated approach to algorithmic targeting across multiple platforms, further amplifying the potential for harm. The systems in question—including the sports betting personalization algorithm and the machine-learning predictive targeting system—were allegedly deployed without adequate oversight to mitigate risks to vulnerable users.
From a technical standpoint, the root cause may involve flaws in the design and governance of the AI systems. The complaint does not provide specific details about the algorithms’ architecture, but it implies that the systems were optimized for profit rather than safety or regulatory compliance.
In this case, the alleged root cause is not merely the use of AI but its deliberate application to exploit behavioral vulnerabilities for financial gain.
Takeaways
- It follows similar cases in the UK, such as the Sky Bet ruling, and may influence future regulatory actions against algorithmic targeting in gambling and other high-risk sectors.
- The incident underscores the need for greater transparency in AI systems, particularly those that influence user behavior in ways that could lead to harm.
- The case highlights the ethical dilemmas posed by AI-driven personalization when prioritized for profit metrics like user lifetime value. Regulators and industry stakeholders may need to reconsider how such systems are designed, deployed, and governed to ensure they do not inadvertently—or intentionally—exacerbate harm to susceptible users.
- The lawsuit serves as a reminder of the socioeconomic and public-health risks associated with unchecked AI in high-stakes industries. Cities and municipalities may increasingly pursue legal actions to address these risks, particularly as the gambling industry continues to expand and rely on AI for customer acquisition and retention.
- The case may prompt further scrutiny of AI systems in other industries where similar risks exist, such as social media, fintech, or e-commerce. Companies in these sectors may face heightened regulatory or legal exposure if their AI-driven personalization strategies are shown to exploit user weaknesses.
- The incident also raises questions about the role of parent companies, such as Flutter Entertainment, in overseeing the AI systems deployed by their subsidiaries. Consolidation in the gambling industry may amplify the scale of harm if centralized AI strategies are not subject to adequate scrutiny or accountability mechanisms.
- The absence of such measures in the U.S. has allowed companies to operate with limited oversight, despite the clear potential for harm.
Sources
Incident summary from the AI Incident Database, used under CC BY-SA 4.0.