A Sports Betting Plea: Move Slower. And Don’t Break Things
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I’ve been thinking a lot about sports betting this week.
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No, it wasn’t the NBA star claiming that the league’s refs were on the take, nor was it the NBA benchwarmer under investigation for suspicious bets placed on his performance. It wasn’t the gambling scandal involving baseball’s most famous player, or a notable ESPN journalist joking on air that an ESPNBet wager was a “risk-free investment.”
What’s stuck in my head was an interview that tech reporter Kara Swisher did with Bill Maher on the topic of regulation. Speaking about the critical early stages of new technology, in this case AI, Swisher warned about the potential pitfalls of lax regulation. “Tech is the only big industry [in America] that has no guardrails,” she said. “And our government has aggregated its power.”
I’m not comparing AI to sports betting—one has the potential to save or ruin the world, and the other is sports betting—but I do think Swisher’s comments apply. The U.S. sports betting industry launched with relatively few guardrails, and state laws have aggregated its power. That only works if the market is eventually reined in. And now is the time.
First, some background. Legal U.S. sports betting spread rapidly and relatively unimpeded through dozens of statehouses following a hallmark 2018 Supreme Court ruling. It all unfolded in a very American way, with deep-pocketed corporate interests and politicians who either misunderstood or ignored realistic estimates about tax revenue when crafting legislation.
Once the basic legal framework was set, the major U.S. leagues, which fought legal betting for decades, made sure to get their cut. As did the big data companies, who leaned into a world of exclusive agreements that don't really exist in Europe. The operators settled into a three-pronged approach of advertising relentlessly, limiting anyone who might have an edge, and iterating new product—like same-game parlays—designed to make it easier for you to lose money faster.
In an interview this week, U.K. gaming consultant Paul Leyland described the whiplash of the U.S. market going from almost entirely closed to very wide open.
“All of a sudden, dollar signs appeared and people said, ‘There’s nothing to worry about, what you need to do is legislate extremely quickly, with a very low tax, very light regulation, and off we go. What could possibly go wrong?” said Leyland, a partner at Regulus Partners in London. “That flip from one to the other—both extremes are absurd.”
None of this, to be clear, is inherently a failure. The U.K. originally took a civil law approach, Leyland said, choosing to heavily regulate every conceivable possibility so that once the market opens, there’s a safe and constricted space for operations. The U.S. by contrast took the common law approach, he said, launching with limited guardrails in the hopes of letting the law eventually catch up via court decisions or new regulations.
The U.K.’s approach “makes things slow, inhibits innovation, encourages black markets, and very often you find out the rules aren’t stymying the bad guys, they’re just restricting the good guys,” Leyland said. “Within reason, you’re better off with exuberance that you need to tidy up than with a bunch of laws that are extremely constraining.”
That’s only true, of course, if appropriate changes eventually happen. Which brings us to this week. I won't get into the nuance of each ongoing betting scandal—Shohei Ohtani's says a lot less about legal U.S. betting concerns than Rece Davis's on-air faux pas, in my opinion—but they've combined to stir public frustration that I hope can be harnessed into good. I agree with longtime gaming journalist Dustin Gouker, who posted the following on Twitter:
“Usually the bad news in sports betting gets a lot of hand wringing in an echo chamber. But I think it’s clear the problems have reached a critical velocity and escaped the echo chamber. The larger consciousness in America is aware. What does that mean? Guess we’ll find out.”
Here’s what I hope it means: More states reopen their sports betting laws and regulations to, as Leyland said, “tidy up” some current issues. I’d like to see more funding and staffing for responsible gaming initiatives, and tighter know-your-customer rules, particularly regarding age limits and how accounts are funded. More states should also probably increase their tax structure, something we’ve already seen in some jurisdictions.
I’d also like to see more constraints around advertising, both in volume and in rhetoric. Davis was panned for what he said on ESPN, but sportsbooks often tout promotions as “can’t lose” or “no-risk” when they are actually nothing of the sort. That shouldn't fly either.
Chris Grove, co-founding partner of Acies Investments, said in an interview that most early U.S. sports betting laws were crafted utilizing experience from Las Vegas, non-sports gaming in New Jersey, and from Europe. He added that the benefit of a few years of actual nationwide data could prompt some revisions to the original laws.
“I think that’s a totally healthy exercise, and doesn’t indicate failure in any way,” said Grove, who is also a partner emeritus of gaming research firm Eilers & Krejcik. “If that as an exercise indicates failure, you’re setting a pretty high bar for legislative success.”
The equity markets have already reacted. DraftKings stock fell about 8% on Wednesday; FanDuel parent Flutter fell about 5%. Grove called those moves “the crystallization of latent risk.” Investors have known about the possibility of legislative changes, but the drumbeat of negative news increases the risk of a more radical reaction.
“This is the closest we’ve been to that tipping point,” Grove said. “I don’t know how close we are, I just know it’s the closest we’ve been.”
I don’t know either, but I’m hoping for some change. In the meantime, please use promo code “Sportico” at your local sportsbook for a $25 free bet. Creighton +2.5 is my blood-bank guarantee.
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