The dark side of the US sports-betting boom

This is an audio transcript of the Money Clinic podcast episode: ‘The dark side of the US sports-betting boom’

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Brooke Masters
If you’ve watched a US sporting event on TV recently, you may have seen a star-studded ad like this:

Kevin Hart, in a DraftKings ad
Hey, I’m watching you like a . . .

Tony Hawk, in a DraftKings ad
Hawk? Tony Hawk, like the bird? (Imitating bird sounds)

DraftKings ad voiceover
All customers, head to the DraftKings Sportsbook app to claim your free bet now. 

Brooke Masters
Or this: 

Charles Barkley, in a FanDuel ad
With same game parlays on FanDuel, you can bet on how your favourite players would do. 

Brooke Masters
Betting on sports in the US is legal now. It’s easy to access from your phone or computer, and it’s growing like crazy. Even Disney recently announced that its sports television network, ESPN, has struck a deal to get into gambling, but that growth has some people worried about social costs. 

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Welcome to Money Clinic, the weekly podcast about personal finance and investing From the Financial Times. I’m Brooke Masters, the FT’s US financial editor, standing in for Claer Barrett while she’s away. 

Coming up, will the growth of the online gambling industry in the US lead to a surge in gambling addiction? And how will regulators respond? Oliver Barnes is the FT’s leisure industries correspondent. Oliver is based out of the UK, where legal online gambling has existed for years, and he recently worked on a deep dive into sports betting in the US. He’s joining me on Money Clinic to talk about what he learned. What made you want to work on this piece? 

Oliver Barnes
Well, I watch a lot of American sports, and one thing I’ve kind of noticed over the past few years is quite the intensity, particularly watching NBA basketball, the intensity of gambling ads. You’re just peppered with them when you’re watching a standard basketball game. So I kind of noted that and just was thinking a whole load about the effects that it would have on potential gamblers and American consumers. 

Brooke Masters
For people who are not regular followers of American sports or of gambling, let’s step back a bit. For decades, sports gambling was illegal in the US, but that has changed recently. Tell us what happened. 

Oliver Barnes
In the 2010s, Chris Christie, who is the governor of New Jersey, pushed for a case that ended up going through to Supreme Court to basically enable a legalised, regulated sports betting industry in New Jersey. And the consequence of that Supreme Court decision in 2018 was that the decision about whether or not to greenlight sports betting was basically handed from the federal government to the states. And then what we’ve seen consequently over the past few years is, one by one, different states across the US have switched on the sports betting industry and effectively taken at customers that some of whom probably existed before in the black market and moved them into a big regulated industry. And of course, there’s tens of millions of potential customers there. And these businesses have grown at quite astonishing pace. 

Brooke Masters
Tell us a little bit about these big companies that have stepped in to take advantage of this 2018 law change. 

Oliver Barnes
The two biggest players in the industry that basically dominate around 75 per cent of the sports betting, online sports betting market between them are FanDuel and DraftKings. When the decision was handed down by the Supreme Court and this industry opened up overnight, to the extent that there’s now 34 states plus Washington D.C. with some form of legalised sports betting whether it’s online or online and retail, these two operators who’d had this fantasy sports operation, FanDuel and DraftKings, seized market share quite quickly. Then you’ve got some of the old-school casino operators who’ve managed to establish themselves in the online betting industry, and there’s an obvious synergy there, right. 

Brooke Masters
And other major companies like Disney are getting involved too. How much money do Americans bet on sports? 

Oliver Barnes
So the amounts actually bet were astonishing. Since 2018, when the Supreme Court decision was handed down, Americans have legally wagered $245bn worth on sports. And notably, there’s also a number of states, very big states, which haven’t even signed off on or online retail sports betting yet. So there’s still loads of growth to be had in this industry and that’s why there’s so much kind of interest in it. 

Brooke Masters
Let’s talk about that. That’s a lot of money changing hands, and it’s also a potential for people who are betting to get themselves into trouble. Many of our listeners have probably heard of gambling problems. The UK has been talking about gambling addiction quite openly for years now. Tell us a bit about what you found when you started looking into these problems. 

Oliver Barnes
I think it’s a pernicious type of addiction, having spoken to quite a lot of people who faced it themselves, attend Gamblers Anonymous, have struggled with it, consider themselves in recovery even years after having placed their last bet. Gambling addiction can unfold completely in silence and with a complete lack of awareness of your loved ones. And you can be kind of behind closed doors gambling away your, you know, life’s worth, stealing money from your relatives. Basically, in a nutshell, it’s a behaviour addiction, right? Your kind of brain gets locked in a cycle where it’s rewarding you for gambling on stuff.

I think the element that’s unique of it, though, and can be quite destructive is that a lot of gamblers relay stories of feeling like they can escape the ill effects of their addiction through more gambling because you can win your way out of it. You know, they’ll be tens of thousands of dollars deep in losses and they’ll still think there’s a route out of it. I think the thing that always is difficult to explain to people are just about behavioural addiction versus substance-based addiction. And this is part of why it’s so troubling, in a way, is that you just don’t see like a physical side effect of it. Someone can just seem completely normal, completely fine. Yet, you know, they’re spending a portion of their life gambling in a destructive fashion that’s damaging their mental health, damaging their financial stability, and in the worst, most extreme cases can sometimes lead to them even taking their own lives. 

Brooke Masters
How bad is it in terms of a societal problem? I mean, how many, what kinds of numbers are we looking at in terms of people and money lost? 

Oliver Barnes
Well, that’s kind of the issue in the US, right, which is that it’s such a nascent industry that there’s not really the studies and research yet where we can clearly go, you know, this industry opened up on this date and this is the number of problem gamblers who’ve developed an addiction as a consequence of that.

Most research suggests that the problem gambling rate sits typically at around 1 to 2 per cent of gamblers. The thing I suppose that’s concerning people in the US — the lobbyists who are looking at this, the researchers who are looking at this — is that if you change the actual denominator, you could be unleashing a much bigger issue, which is that historically, yes, there probably have been tens of millions of Americans gambling in the black market, but with a huge push for customer acquisitions from these new online betting companies, there’s probably gonna be a larger number of people gambling. And 1 per cent of a larger number is inevitably a larger number, right?

The national hotline set up by the National Council on Problem Gambling, which receives calls now from most US states, has seen a kind of upsurge in calls. But I think a lot of people want to see big, in-depth longitudinal studies which actually get to grips with the extent to which, you know, this is affecting problem gambling and gambling-related harms in the US, which effectively is kind of anyone’s guess at the moment. I think the thing that worries people is the pervasiveness of it. And, for instance, there was one gentleman I spoke to, David, right, who started gambling in the ‘80s and would take trips to Atlantic City and would drive several hundred miles to gamble. And then in 2018, he gets the legal offering in the state that he lives in. He lives in New Jersey. And what he described to me was how it became just more legitimate. It legitimised his gambling habit and in some ways too it kind of deepened his addiction. And I suppose the thing that’s most dangerous about it simply is just the accessibility, right? It’s much easier to be surreptitiously behind closed doors, indulging in a problem gambling habit on your phone than it is if you have to track to a casino, you know, hundreds of miles away. 

Brooke Masters
What does the industry say? They obviously have a stake in minimising the problem and also, I suppose to a certain extent preventing it from getting to be big enough to threaten their revenue. 

Oliver Barnes
The industry says they’re going over and above what regulation dictates and there’s a fair amount of proof to that. Betting apps like FanDuel and like DraftKings, if you contact them and suggest that you’re engaging in problem gambling and are concerned about your gambling habit, they will immediately exclude you from the app. In most states that’s mandated, so they have to do that. On top of that, though, they’re also deploying an AI to monitor for problematic play habits amongst their customer base. And then they’re saying, not just if you contact them, they’re going over and above and proactively kind of asking customers to take a break, asking gamblers, even excluding gamblers. So the industry basically says, look, regulations said this level, but actually we’re doing X, Y, Z, ahead of regulation and consequently we don’t need any more regulation.

The areas, though, where if you make a comparison to the UK, where there’s been a kind of reckoning with some of the ills of the gambling industry, the areas where exposes that maybe that industry argument in the US falls short, there are a few of them. You know, for instance, in 20 of the 25 jurisdictions across the US where you can legally gamble online on sports, you can do so on a credit card. And that is something that has been outlawed for several years now in the UK. And if you think about the financially destructive element to a gambling addiction, it’s pretty obvious why you wouldn’t want to enable someone to have a situation where they can borrow money to then potentially lose it.

And when I was speaking to the CEO of BetMGM, Adam Greenblatt, he suggested that they might even act alone and do something about the credit card issue. It’s stuff like that, which I think will test the industry’s argument that it doesn’t need the oversight of regulators because if they decided at some point to ban deposits from a credit card, that is going to be a hit on their revenues. And in a situation where there’s a huge deal of investor excitement about this, most of these companies are at an inflection point at the moment where they’re basically just about to turn a profit or have just turned a profit, it can sometimes be difficult to then turn off those investors and say, actually, we’re slicing off X per cent of the revenues that we could make. And that’s where there’s this question of will regulators at some point have to intervene? 

Brooke Masters
What are the kinds of things that operators are looking for as potential signs of problem gambling where they do send these reminders like, are you sure, shouldn’t you take a break? Is it . . . is it lots and lots of bets? I’m thinking, if you’re an outside person observing a loved one, what are the kinds of betting that you should keep an eye out for? 

Oliver Barnes
Effectively, they’re looking at the frequency of bets that you place, the time of day that you place bets, and often the types of sporting events you’re likely betting on. I mean, there was some statistics that came out of Colorado late last year which showed that, I think ping pong was the seventh most popular sport for betting in Colorado. And that was kind of widely interpreted by people in the industry somewhat of a worrying sign, because generally people aren’t betting on ping pong because of a kind of enjoyment of table tennis. It’s because they’re looking for kind of betting markets to pursue. And yes, so they’re effectively monitoring for kind of the frequency of bets, the amount you’re betting and the times of day at which you’re betting, and making a picture from that.

The problem that exists, though, is that they say, look, we’ve paused accounts, we’ve even banned people that we’ve proactively found to have a problem gambling habit. But then they don’t actually say how many, which obviously means that we’re placing a great deal of trust in them, that they are actually doing this proactively. Where the industry argue again and again, though, that they’re getting ahead of this is that they want a sustainable model to get ahead of regulation like in the UK, because they see that the worst thing that can happen is a kind of not just a move by regulators to beef up the regulation they face, but a kind of shift in sentiment against the industry. At the moment, people are comfortable with it, I think, in the US as a kind of consumer good that they can access. That sentiment could very, very quickly shift. 

Brooke Masters
Let’s talk a bit about the UK experience because as you said, in the UK there is more regulation. What happened there and which kinds of regulations came in and which ones are seen as most effective, but also which ones have done the most damage to the industry? 

Oliver Barnes
In the UK there was a raft of betting legislation in the mid 2000s to liberalise the gambling industry. That came before the arrival of the iPhone in 2007. And effectively it meant when betting apps came into existence after the iPhone’s arrival and the boom in smartphones that there were very few laws dictating how these companies had to protect consumers. There were very few consumer guardrails, and the industry grew at a very rapid pace. Then in the mid-2010s, there was a kind of backlash against the industry as more stories came out about people gambling in a problematic fashion or in extreme cases, young men taking their own lives because of gambling-related suicide. And then in 2014, the UK government moved to strengthen the powers of the regulator, the UK Gambling Commission. And then further down the line, earlier this year, they announced a whole raft of new measures to regulate the online betting industry, particularly online casino games. And those measures haven’t come in yet, but they’re being consulted on at the moment and in all likelihood will kind of trim up to 14 per cent of the online revenues of these apps. And I think if there’s some lesson to be extracted from the UK, it’s that the industry didn’t have many regulatory guardrails in place and consequently it led itself down a path and to a position where the kind of popular opinion shifted quite dramatically. 

Brooke Masters
Is there any sign in the US that public health officials or politicians are starting to want to take action? I noticed from your reporting that congressman Paul Tonko seems to be anxious about this, but I don’t know if he’s a lone voice or whether there is a growing consensus. 

Oliver Barnes
The most notable people in a way who are taking action are some of the state regulators. There are kind of three or four state regulators who’ve been quite aggressive in the way they’ve approached the industry. Probably New Jersey is one of them, just because it’s got such an experience of regulating gambling with Atlantic City. Then this year, Ohio and Massachusetts both greenlit the industry for the first time, and both the regulators there have made big statements about advertising or about the degree of public health funding or about the obligations of the betting companies. So in many ways there are a few state regulators, even though there’s no national regulation. There are a few state regulators who are trying to kind of make the weather on this. And it’s possible that the things that they implement will gradually kind of filter down and partly across other states as they make amendments to their legislation or sign off on betting for the first time.

I think Paul Tonko is perhaps a little bit of an outlier at the moment. He wants to take a fairly dramatic measure. He wants effectively to ban online advertisements about sports betting apps, which, you know, he’s put forward in the form of this bill. I think the likelihood of that bill finding its way through Congress anytime soon is very, very low. But the fact that someone’s sitting in DC thinking about this is a sign that things might be changing. And then on top of that, there’s something unique, I suppose, about the US system, which is litigation. And there’s a professor at Northeastern University, Dick Daynard, who made his name in the ‘80s and ‘90s in the lawsuits against Big Tobacco, which didn’t just lead to a $200bn plus payout from the tobacco industry for suppressing cigarettes’ links to cancer, but it led to a huge shift in consumer sentiment towards tobacco and cigarettes. And he’s now looking at potentially bringing litigation against a major betting operator in the US. So perhaps that’s a whole different avenue. 

Brooke Masters
Before it was legalised, sports gambling was seen as shady and problematic and associated with people with baseball bats who came and beat you up if you didn’t make good on your bets. Has making these kind of bets legal and having these companies oversee the market made things any safer? 

Oliver Barnes
That is kind of the argument in a way that the industry uses to rebuff all of this criticism, which is that there was gambling before on sports in the black market. And they argue that they have taken all those tens of billions of dollars spent and moved them into a regulated market that, I mean, clearly has higher consumer guardrails than a market that’s completely non-regulated, but at the same time has inevitably increased both the number of people who are exposed to these things and just the profile. And there’s been a kind of a slow uptick, I would say, in coverage of gambling-related harms in the US. But it’s a very, very long way from what’s happened in the UK. And I think part of that is just a lot of the people who may develop gambling addictions because of these new apps maybe haven’t actually done so yet or haven’t even saw any care for it. So we just don’t know about them. And also, there’s just not really a developed infrastructure for monitoring at all. I mean, for instance, here in the UK, we monitor the number of suicides on a national level that mention gambling addiction and gambling-related harms on the death certificate. That is just not a statistic that is monitored at all in the US. When those things start to fall on to people’s radar, you could quite easily imagine just the sentiment of the average American drifting quite quickly. 

Brooke Masters
One thing we didn’t talk about: for people who do end up struggling with problem gambling, what does recovery look like and how long does it take? 

Oliver Barnes
When you speak to people who are in recovery from problem gambling or gambling addiction, some of them, 20 years would have elapsed since they were gambling in casinos and they’ll still be saying, you know, fundamentally they’re in recovery. It’s a kind of daily, weekly process of avoiding going back to these things. I think the problem in the US sometimes is that there’s not a huge number of avenues to seek help. There’s Gamblers Anonymous meetings, but the provision for gambling-related harms treatment, you know, the public health provision for it is very limited. Nationwide, it’s not much more than 30 cents per citizen. So the avenues to actually get help are tricky, but often the help comes from talking to other people who’ve had problem gambling issues in the past, seeking help from therapists, addiction specialists. It’s a really long grind and it’s not helped by the prevalence of this thing at the moment that if you’re a sports fan, which most of these people are, you’re gonna see lots of betting ads. And that’s not an easy place to be in when you’re in recovery from this thing. And the vast majority of people with problem gambling habits never seek any help. So a lot of this will be unfolding fundamentally in silence. 

Brooke Masters
Oliver Barnes is the FT’s leisure industries correspondent. 

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That’s it for Money Clinic this week. Claer Barrett will be back from her vacation next week. This episode of Money Clinic was produced by Jake Harper. Our executive producer is Manuela Saragosa. Our sound engineer is Breen Turner. And the original music is by Metaphor Music. I’m Brooke Masters. Thanks for listening. 

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