In 1961, President John F. Kennedy signed the Federal Wire Act, and thereby prohibited the use of wire communications for interstate sports betting. Over six decades later the law remains in effect. It is why a Californian cannot place an online bet through a sportsbook regulated in Nevada, even though they can walk across the state line to the nearest land-based establishment and wager on any league they please.
Regulators may think that in an age of digital transformation, that the red tape left by Kennedy would prevent the untethered growth of online sports betting and problem gambling concerns with it. The feds have even made a few high profile busts over the years, most notably the 2012 indictment of Bodog. Bodog offered online sports betting to U.S. residents. The organization was also indicted for moving funds from overseas to pay winnings to gamblers in the United States. This event is akin to whenever the DEA puts guns and drugs on the table for a press release. Sure, it’s a win against the bad guys, but it creates nothing more than a ripple in the sea of dealers and gun runners. In fact, it can easily be argued that the temporary (a whole other story) demise of BoDog opened the gateway for a number of unregulated operators to enter the mix. The feds got their win, and turned their attention to terrorism and other criminal flavors of the week. Meanwhile, the rest of the unregulated market enjoyed a heyday between 2012 and 2018, and many still do. Last year, nearly half of U.S. sports bettors used an unregulated sportsbook to make a wager. When you consider that an estimated 65 million American currently bet on sports, it can be deduced that around 32.5 million residents have gambled beyond the constraints (and protections) of the law.
“Last year, nearly half of U.S. sports bettors (over 32 million) used an unregulated sportsbook to make a wager”
Unregulated sports betting operators with “offshore” paperwork and/or PO Boxes in tribal lands in Canada are skirting the rules to offer U.S. residents in ANY state the opportunity to bet on sports. Apparently (given the above-mentioned data) gamblers don’t have an issue with this, and many may assume that the call to cull them is more about protecting “lost” tax revenue that could have went into the pockets of governing bodies. However, we implore to all who will listen that these operators are contributing to the problem gambling crisis in the United States in more ways than most may imagine.
Below is a breakdown of why these operators are more dangerous than one may think, complete with a call to action for how to tackle the issue head-on.
How Unregulated Online Sportsbooks Are Growing the Problem Gambling Crisis in the USA (and what the most realistic defense is against them)
Tax Revenue Not Going to Problem Gambling Support
Let’s first address the elephant in the room – political distrust. Yes, states lose out on millions of dollars in tax revenue that could have gone to them if only sports bettors had wagered with a regulated sportsbooks. Boo hoo for them, right? Not quite. You see, a portion of gambling tax revenue is distributed to support important initiatives. For example, in Colorado, the state’s Limited Gaming Fund apportions a percentage of sports betting revenue to help address the impacts of gambling. If it weren’t for tax revenue from regulated sports betting operators, these models or problem gambling support services could not exist.
Data has shown that Americans will find a way to gamble no matter what, and so even the most staunch critics of legalized sports betting must comes to terms with regulation being a “necessary evil”.
Illegal Operators Don’t Care if You Claim Your Winnings
This expands upon tax considerations even further. Americans are expected to claim their winnings with the IRS, and when using a legal sportsbook they are more likely to do so knowing that the IRS has a record of each player.
Illegal operators on the other hand, simply state in their Terms & Conditions that the onus falls upon the player. This onus feels a lot lighter when deposits and winnings can be made and withdrawn through Bitcoin and other forms of cryptocurrency which are essentially untraceable. Consequently, winnings often go unreported. This attracts a significant number of sports bettors in America who don’t want to give up a portion of their winnings to fix potholes in their jurisdiction.
This perceived benefit of the unregulated market is highly problematic for compulsive gamblers. They create an expansive digital trail as eventually crypto-transactions must ebb and flow from bank accounts. Eventually this activity may get noticed by the IRS and audits may ensue.
While problem gamblers may be willing to take this risk for the sake of a windfall, they are not seeing another threat to come from this perceived freedom. Players who use unregulated sportsbooks have zero recourse should their winnings be delayed or outright unpaid. There are innumerable accounts of unregulated players with unsettled accounts. You can verify this by searching online reviews and Reddit forums regarding unregulated sportsbooks and bad payouts. Financial loss and correlated criminal activity to recoup losses is already a danger of sports betting in the legal market. Can you imagine the consequences in the unregulated market when winners don’t get their money out too?
Illegal Operators May Not Verify Age and Identity
Unregulated sports betting sites are not beholden to the same checks and balances as regulated ones. This increases their pool of prospective players, which includes vulnerable individuals who have opted in for self-exclusion from regulated operators and are on the verge of problem gambling relapse. Even more concerning, is that they may offer a gateway for underage bettors:
“The NCAA’s findings further demonstrate the continued pervasiveness of illegal sports betting, and the problems associated with it […] Offshore sportsbooks, faux fantasy/sweepstakes companies and corner bookies continue to prey on vulnerable populations, offering ways to gamble on sports to those who shouldn’t. Illegal operators do not care about age or identity verification”
CBS Report: NCAA Survey Suggests Widespread Teen Sports-Gambling Problem
America already has a teenage gambling problem. With unregulated operators providing a place for them to bet on sports this vulnerable population will have already formed a habit by the time they are allowed to play in regulated markets. Read ahead for more, but if you or a loved one is already struggling with problem gambling contact a Kindbridge care coordinator right away (click the banner below).
Illegal Operators Don’t Play by Marketing Rules
Again, unregulated sites are not beholden to the same checks and balances as regulated ones, which includes rules about how sign-up offers and bonuses are communicated. Legal sports betting advertising regulation is already weak as it is. While an operator can’t state “No Risk Bet” they can dance around with semantics with words such as “No Sweat First Bet”. Unregulated operators on the other hand do and say as they please without having to finesse the words for watchdogs. Their marketing campaigns outright state that sign-up offers come with FREE money, zero risk, and the like. These are highly effective forms of messaging that lure in players from the regulated market.
Pop Culture Props Attract a Wider Audience
Unregulated sports betting sites have a “trick” they use to catch the attention of both the media and vulnerable Americans who may not be interested in traditional casino gaming and sports betting. These are called entertainment props, which are actionable odds on pop-culture events occurring around the country. They provide Americans the opportunity to use a sportsbook to bet on political elections, celebrity breakups, and crass occurrences such as whether or not a famous rapper will beat the rap on a double murder trial. Once they have their hooks in someone who signed up to wager on one of these “fun” props, they launch a series of email campaigns. These campaigns encourage new members (who didn’t come for sports) to try their hand at betting on popular events such as March Madness or the NFL Super Bowl. This is the proverbial first hit of the crack pipe.
What Needs to be Done
Everything above infers that the nation must call for increased state and federal effort to sanction unregulated sports betting sites. Good luck with that. Recall the Bodog story above? At press, the spin-off of the original Bodog brand known as Bovada.lv continues to accept US players, while Bodog is alive and well in Canada and Europe. They are one among many unregulated online sportsbooks that America is using right at this very moment.
Instead of dedicating financial resources to a no-win battle against an unregulated market that leverages offshore licensing and tribal partnerships, governing bodies must shift funding to provide the nation with greater access of problem gambling support. A model of this is occurring in Colorado right now. through the combined efforts of the state, Kindbridge Behavioral Health, and the Kindbridge Research Institute. The work we’re doing in Colorado presents an ideal working model for how legalized gambling and behavioral health support may coexist, while also being there for problem gamblers caught in the grip of illegal operators. We wholeheartedly hope that it will inspire governing bodies in other regulated U.S. states to better support their at-risk populations.
Contact Kindbridge today to learn more about how to bring these programs to your communities. Click the banner below to discuss opportunities.
