Sports Betting Apps Are Even More Toxic Than You Imagined

Among the main challenges for a pro bettor is finding places that will take your money. If you show signs of being good, or even just highly methodical, most sportsbooks will drastically limit how much you can wager. But there are ways around this. Sharps, as pros are known, often employ surrogates to place bets on their behalf in exchange for a share of the winnings. Or they “prime” their accounts by making wagers that a casual bettor, or square, typically would.

“If I open an account in New York, maybe for a few weeks I just bet the Yankees right before the game begins,” says Rufus Peabody, a pro bettor and co-host of the Bet the Process podcast. If this trick works, the book sees these normie, hometown bets as a sign that it’s safe to raise his limits. That gives Peabody a bigger purse to work with when he switches to making bets he thinks will pay out—and that the book will likely recognize as coming from a skilled player. The idea is to win as much as you can before the house catches on.

Pro bettors have recently added a wrinkle to their priming routines: They’re acting like gambling addicts. Isaac Rose-Berman recently described the practice in his How Gambling Works newsletter:

“One pro bettor I know set up a bot which logs in to his accounts every day between 2 and 4 a.m., to make it seem like he can’t get through the night without checking his bets. Another withdraws money and then reverses those withdrawals so it looks like he can’t resist gambling.”

Simulating addictive behavior, says Peabody, is an effective way to get online sportsbooks to send you bonus money and keep your accounts open. This isn’t necessarily because operators are targeting problem bettors, he says; they’re simply looking to identify and encourage customers who are likely to spend—and lose—the most. This just happens to be a good way to find and enable addicts, too.

Betting companies all publicly espouse their commitment to responsible gaming. They help fund programs to combat addiction and give customers the option to exclude themselves from betting or enroll in “cool-off” periods that keep them from logging in for a day or two. But when pretending you can’t help yourself becomes a strategy for getting more leeway, that seems like a sign that these measures aren’t enough. Here’s another sign they aren’t working: A pair of studies published earlier this year suggest online sports betting—and its highly seductive sibling, online casino gaming—are driving an increase in rates of irresponsible gambling and doing significant damage to the financial health of many Americans.

For the past six years, the US has essentially been running a large-scale field study on what happens when you put instant access to legal betting markets in people’s pockets. Since the US Supreme Court struck down federal restrictions on sports betting in 2018, the market has grown rapidly, with 30 states and the District of Columbia now allowing online betting. Americans have legally wagered almost $400 billion over that span, most of it online.

Early indications are that, for a small portion of bettors, the results are calamitous. In a study released in June, researchers from Southern Methodist University, the University of Maryland and the University of California San Diego used anonymous bank records from hundreds of thousands of bettors across the US to track their gambling spend and monthly income from 2019 to 2023. In states with access to online sports betting, they found, rates of people spending at least 10% of their income on gambling rose slightly, with the greatest increases among low-income bettors. Previous research in Canada shows that spending even 1% of income on gambling correlates with negative physical, mental and financial health outcomes.

“If you’re spending more than 10% of your income on gambling, that’s almost certainly going to cause problems in other aspects of your life,” says Wayne Taylor, an assistant professor of marketing at SMU’s Cox School of Business and a co-author of the study.

In a study published a month later, researchers at the UCLA Anderson School of Management and the University of Southern California looked at consumer credit data to gauge the financial consequences of legalized sports betting. In states that allow online betting, they found, the average credit score drops by almost 1% after about four years, while the likelihood of bankruptcy increases by 28%, and the amount of debt sent to collection agencies increases by 8%.

That these effects are showing up as averages across entire state populations, not just bettors, suggests that the harms are severe for those who suffer them. “It implies that the people who are worse off are very much worse off, because they’re presumably a small proportion of the people in the state,” says Brett Hollenbeck, an associate professor of marketing at Anderson and a co-author of the study.

Much to the surprise of Hollenbeck and his collaborators, falling credit scores and increasing bankruptcy filings weren’t accompanied by an uptick in credit card debt and delinquencies. Financial institutions, it appears, are sheltering themselves from the fallout of online sports betting by lowering credit limits and otherwise restricting access to credit in states where it’s legal. If credit card companies can see the danger, so can regulators.

The good news is that online sports betting appears to be relatively harmless for most customers. The median gambler in the SMU study deposited $136 over five years. These are the bettors that sportsbooks like to talk about, the people paying a few bucks for extra thrills while they watch sports. “A lot of people are getting entertained for very little cost,” says Taylor.

The real action happens at the ends of the curve. Of the more than 700,000 people in the SMU panel, fewer than 5% withdrew more from their betting apps than they deposited. These few players—whose wagers apparently won—collectively earned more than $100 million. The next 80% of bettors made up for those operators’ losses. And the 3% of bettors who lost the most accounted for almost half of net revenue. In a market shaped like this, it’s no wonder betting companies want to limit sharps and encourage whales, as free-spending, unskilled bettors are known.

After pouring billions of dollars into advertising to acquire customers and win market share, sportsbooks have begun to curtail their marketing spending. Two operators—FanDuel and DraftKings Inc.—now control almost 75% of the market, according to data from Eilers & Krejcik Gaming, and they’re increasingly focused on profit over growth. (DraftKings reported its first profitable quarter as a publicly traded company in August.)

Given the incentives, gambling companies aren’t about to stop exploiting vulnerable bettors unless regulators intervene. In the UK, which is more than a decade ahead of the US in its rollout of online betting, regulators have already started to ramp up efforts to restrain sportsbooks. In August, the Gambling Commission began a program requiring operators to run background checks on the wherewithal of bettors who lose £500 ($670) or more in a month.

In the US, Representative Paul Tonko of New York and Senator Richard Blumenthal of Connecticut, both Democrats, recently introduced legislation that would bring sports betting under federal control and require states to follow strict guidelines, including “affordability checks” on customers looking to place large wagers. Such a drastic overhaul seems unlikely to pass Congress.

But there are things state regulators can do to curtail the damage for problem bettors without spoiling the fun for everybody else. For starters, leave casino games to brick-and-mortar casinos. Sportsbooks are working to expand the number of states that permit online games such as blackjack and slots. Seven currently allow them. Just as daily fantasy sports served as a wedge to open the way to online sports betting—letting operators build a customer base and lobbying arms—sports betting has become a gateway for casino games.

Operators like so-called iGaming, because the returns are reliable. They don’t have to worry about getting burned by underdog winners or savvy bettors. And the gameplay is virtually limitless. Customers are always just a touch away from the next hand or spin. This also makes it highly addictive. In the SMU study, states with online casino gaming showed the biggest jumps in irresponsible gambling and calls to help lines. Earlier this year, the Wall Street Journal chronicled the downward spiral of a psychiatrist in Pennsylvania who lost more than $400,000 in a year playing online games. A modest bump in tax revenue isn’t worth this kind of wreckage.

That psychiatrist had plenty of encouragement as she gambled away her life savings. DraftKings and other apps assigned “VIP hosts” to her accounts who sent her bonus money to keep her going. “I’m hurting this week—would you please be able to do one more bonus so I can try to turn my luck around tomorrow?” she wrote to her DraftKings host at one point. He credited her account with $500 and appended a cheery note: “Hoping this will get you on the right track!” It didn’t. (DraftKings told the WSJ that it is “committed to the highest standards of consumer protections.”)

Gambling companies have long assigned VIP hosts to their most valuable players. In the casino setting, these hosts traditionally arrange for free rooms, dining and other perks to keep big spenders happy, comfortable and betting. As the role has migrated online, it’s become more programmatic and more sinister, with hosts able to track every tap and sportsbooks hiring data analysts to figure out the optimal strategies for doling out bonus deposits.

A ban on such practices would go a long way to stem the worst outcomes. Online betting is tempting enough as it is. Customers don’t need a devil on their shoulder urging them on. While hosts are generally required to intervene if they see signs of problem betting, they’re also often paid according to how much their customers gamble, giving them incentive to look the other way.

Before he became an academic, Taylor oversaw VIP hosts at a large casino in Las Vegas. “At least there you have people walking around, and if it looks like someone’s going down a dark path, just like at a bar, you cut them off or try to help them out,” he says. “But if people are at their houses, there’s no one to stop them.”