Sports gambling is spiraling out of control, sort of like, well, an addict spiraling towards rock bottom.
In just the last few weeks alone, there have been scandals about a NBA player sabotaging his performance to win bets, a finance employee for the Jacksonville Jaguars stealing tens of millions from the team in order to fund his betting habit, and, of course, Shohei Ohtani’s translator stealing more than $10M from him to cover gambling losses.
These are people with a lot to lose professionally who couldn’t resist the thrill of a little action on the game. And for every one that makes the news, there are surely hundreds more digging their own holes in private.
There was a recent article about how the betting apps make it very difficult to stop. This isn’t Robinhood throwing confetti on your screen after you trade. That’s for amateurs.
No, the sportsbooks will see you’ve lost a lot and decided to cut back your play, so they give you “free bets” to lure you back. If that fails, they’ll put money in your account to tempt you to use it.
Inevitably, people take the bait and start chasing their losses again. This is a big part of what happened in the Ohtani case.
Legalization without Regulation
Before going too much further, let me say, I am not anti-gambling. I’ve given suggestions in these columns about potential sports bets.
I have no issue with legalization of vice…but only if done thoughtfully. What we have now is not just unregulated legalization, it’s outright encouragement for people to commit self harm.
That makes no sense. We have teams encouraging fans to bet. The announcers now promote gambling. The commercials are beyond over the top.
The current environment is like if your doctor told you to smoke because Phillip Morris was paying for ads to promote the hospital.
We regulate cigarettes and alcohol to encourage people to use them wisely as well as to ensure sellers are acting honestly. We do none of this for sports gambling.
The biggest oversight in the argument for legalization was that it’s better to have people gamble in the open than behind closed doors.
The though was this would eliminate the local bookie, who may not operate honestly, and replace him with corporate interests who would operate by the book and be more diligent in reporting suspicious bets.
While this is true, it ignored the side effect. When gambling was illegal, fewer people would do it.
When it became legal, many more people became willing to try which greatly increased the societal harm from problem gamblers.
Sin Taxes
Legalization without regulation may not be tyranny, but, well, it kinda is.
After all, why is there so little regulation? Because the government wants you to gamble!
That’s right, they make big tax revenue by taxing sports gambling. New York alone receives nearly $1B/yr in sports gambling taxes!
They have a major conflict of interest in promoting responsible gambling or restricting advertising reach.
You can think of DraftKings and friends as purchasing the modern day equivalent of indulgences to allow them to sin without fear of punishment.
So is encouraging the public to bet on tonight’s college volleyball contest all that different from King George taxing tea? Maybe not so much.
How To Gamble Safely
OK, before I tell you what changes I would make, I probably need to spell out what I envision as an enviable end state.
First, people should gamble within their means. Think of social drinking vs. binge drinking. Having a couple drinks with friends is acceptable. Drinking until you pass out is not.
Too many sports gamblers are betting compulsively. This needs to be addressed.
Second, people need to have some concept of risk management. Insurance, investing, and gambling are all about assessing risk.
The difference is insurers seek to minimize risk. Investors seek to maximize return relative to risk. On the other hand, gamblers often seek out risk.
Imagine if an insurance company decided to puts all of its capital in Florida cat bonds. That would be gambling.
Yet, this is what many bettors do. Instead of seeking bets with the highest expected value, they seek ones with the biggest payoffs…even if the expected value is highly negative.
This is why you see so many commercials touting parlays and prop bets. They’re for suckers.
People need to better understand the risk/reward of the types of bets they make.
Third, gamblers need what investors call drawdown limits. When an investor goes on a cold streak, they reduce their position sizes to limit their worst case. As they start to show more success, then they grow their portfolios again.
Conversely, gamblers often respond to losses by doubling down trying to make it all back in one swoop. This is how they dig giant holes that lead them, in some cases, to stealing from their employers out of desperation.
The Remedies
So what steps would I take to save sports gambling from itself?
#1: Restrict Advertising
We don’t let Joe Camel market cigarettes anymore. Why do we let gambling companies make over the top commercials promising riches with all kinds of high stimulus hooks and offers of free money?
Ads should be targeting adults, not kids, and should be competing on offering the best takes (meaning how much the house takes for itself out of your bet), not the most free money to open an account.
#2: Ban Signup Offers
You shouldn’t get hundreds of $ of free bets for opening an account. That encourages high risk activity.
#3: Age Limit Enforcements
The age limit needs to be at least 21 and verifiable through a driver’s license or social security #.
I hear way too many stories of high school kids betting (and during school, in class). College is even worse.
Additionally, those under 25 should have maximum limits on their daily activity. I’ll suggest $100/day and $500/week. That is more than enough to get yourself in trouble.
#4: Overall Limits
Even those over 25 should have some limits on their activity. Just like the bar will refuse to serve you if they think you’re impaired and might drive, sports books needs to help people know when to say when.
Instead of using their analytics to decide when to target people with bonus offers to bet more, they should be required to use the analytics to tell people when they’ve had enough.
This goes back to the drawdown limits concept from above. If you lose five bets in a row, your maximum bet amount is cut in half for a period of time. If you lose ten in a row, your account is locked down for two weeks.
There would obviously need to be data sharing across sports books to make sure people don’t hop from one platform to another when they start losing and get restricted.
#5: Limit Props, Live Bets, & Parlays
I’m not going to suggest banning all high risk bets, but there should certainly be less encouragement of them. Maybe they need to come with a warning message letting people know how bad the odds are?
Parlays should have a $10 or $20 max bet. They are throwing money away. And if you lose ten in a row, you can’t do any more for a month.
Live bets are at a structural disadvantage due to the latency in TV feeds (the sports book is seeing the result ten seconds before you, so you can be betting on stale info). They should only be available after stoppages in play like timeouts.
And obviously props need to be materially curtailed. They are the most subject to players fixing an outcome. How many touchdowns will a player score? Fine. How many catches will a player have? Not fine.
#6: Eliminate Free Bets
This goes back to proper risk management. Nearly every story I have read about a problem gambler has a place in the story where the gambler tried to quit but was lured back by free bets or cash placed in their account enticing them to bet.
This is literally like going to an addict in withdrawal and sticking a needle in their arm to keep them hooked! It’s unconscionable.
If there is any place for free bets (and I’m not sure there is), it should be to reward active gamblers who don’t create giant losses. Use it to reward gamblers who have proven they can act responsibly.
#7: Ban Teams From Profiting
Sports teams should not profit from gambling activity. That means no hosting sports books in the stadium, no advertising signage in the stadium, no promoting of prop bets on local TV or radio broadcasts.
It creates a giant conflict of interest that eventually leads to players throwing games.
#8: Expertise Levels
Gamblers need to be tiered by ability. One problem we have seen in equity markets is retail investors overtrading options.
Most of them have no idea what they are doing and shouldn’t be allowed to use them, as they engage in the risk seeking behavior I described above.
Institutional investors, of course, have the expertise to use options (somewhat) effectively and also have risk departments keeping them from making crazy bets.
Similarly, there are different levels of gamblers. So-called “sharps” are the professional gamblers who do lots of research and can spot when Vegas sets a bad line and will take advantage of it. Even that is a risky business that requires a lot of skill to succeed at.
Sharps should have to register as “experts” and, thus, be able to unlock extra privileges not available to you and me. This would include bigger bet sizes, more access to riskier bets, different drawdown limits, etc. in return for more supervision of their activity.
The rest of us would be novices. Novices would be subject to many of the restrictions I suggest above to keep us from getting in over our heads.
If you demonstrate responsible behavior as a novice, you can apply to move up to an amateur. This would allow you to avoid some of the restrictions in return for extra monitoring of your risk management.
Call Your Congressperson
I could add more thoughts, but this is probably a good start. You are welcome to send this to your congressperson to propose legislation on my behalf.
As a society, we have an obligation to not encourage people to do things to hurt themselves. A little bit of gambling is OK. Out of control gambling is a societal problem and the blame lies just as much with the enabler as the addict.