The legalized sports betting industry in the U.S. has not been without its missteps since the repeal of the Professional and Amateur Sports Protection Act (PASPA). Incidents of athletes betting on sports dotted the landscape in 2023.
But an even larger incident may be just around the corner.
“It is inevitable that there will be a major sports betting scandal,” Howard Glaser, global head of government affairs and counsel for Light and Wonder said at Thursday’s National Council of Legislators from Gaming States winter meeting in Florida.
The declaration came during a committee discussion on responsible gaming and the problems that market manipulation and insider trading may pose on the sports betting industry.
“There is an enormous amount of money at stake — mind-boggling, eye-popping amount of money at stake — and there are really no rules. There are guidelines, there are suggestions, but there’s really not a lot or rules,” Glaser said.
State legislators and regulators are still trying to get a grasp on the sports betting industry and its many challenges, including now, influencers sharing information — and sometimes bets — on television and online to an audience of millions.
The committee referenced the 2023 NBA Draft, when Shams Charania, an NBA insider for The Athletic, tweeted that draft prospect Scoot Henderson was “gaining serious momentum” to be selected second overall by the Charlotte Hornets.
Sources: Scoot Henderson is gaining serious momentum at No. 2 with the Charlotte Hornets in tonight’s NBA draft. Hornets have been torn over the last week between Henderson and Brandon Miller. Team has final meetings today to settle on decision.
— Shams Charania (@ShamsCharania) June 22, 2023
Prior to that tweet, the draft odds had Victor Wembanyama of France going first overall at -3000, and Alabama’s Brandon Miller had -650 odds to be the second pick.
Twenty minutes after Charania’s tweet, Henderson was -380 to go second, according to Ben Strauss of the Washington Post.
Charania also notes on his Twitter bio that he’s a FanDuel partner and co-host on a show on the gambling operator’s TV network.
So when Henderson did not go second overall and was instead taken third by the Portland Trail Blazers, it raised eyebrows and suspicions.
“He was wrong. That’s why a lot of these stories are starting to hit the news cycle because the public is saying, ‘Wait a second, when you’re reporting news independently, that is for the public good. But when you’re an employee incentivized by a sportsbook, which (employer) do you serve of the two,’” said Chris Adams, CEO of SharpRank, an independent evaluator in the sports betting industry.
FanDuel told Strauss the company is “not privy to any news Shams breaks on his platforms.”
Still, Adams compared the situation to the financial market and how easy it is to lose consumer confidence.
A cautionary tale
Prior to the early 2000s, financial institutions could have trading floors — where stocks are bought and sold — under the same roof as their research analysts who shared reports on which stocks to buy and sell.
“That ended really badly,” said Adams. “(It led to) a deterioration of investor confidence that was quantifiably material to the market.”
Adams sees an identical infrastructure in sports betting. Sportsbooks are co-mingling with content, and lines are being blurred.
“The words ‘consumer confidence’ are critically important to this industry from an engagement standpoint, from a consumer-based standpoint,” said Adams. “If the consumer feels, rightly or wrongly, that this is a rigged system, they will stop showing up and they will stop showing up permanently. We’ve already watched it play out in investment banking, we’ve watched it play out in crypto.”
Also of note is ESPN getting into the sports betting space with ESPN Bet. However, ESPN banned its insiders from betting on the sports they cover and disclosing “non-public information” for “any betting-related” purpose. The company hopes its set of guidelines will help ease the minds of the betting public.
Checks and balances
Internal policies should only be the first step, according to Adams.
“Just being able to cite those is great. Being able to cite those with a third party, it is the reason people trust financial statements, it’s because an independent auditor checks those internal controls,” Adams told Covers.
He referred to Fanatics, who uses an auditor to audit their box breaks with trading cards.
“That has been hugely important for them because they’re able to go, ‘Hey, don’t take our word for it.’ … Some ongoing monitoring would be really helpful so that you can just point and say, ‘Look, don’t just trust me. It’s not just our word.’”
If and when a major scandal hits the U.S. sports betting industry, there will be pressure on regulators and legislators to take action. Currently, they’re being encouraged to lay the groundwork for uniform standards across the country.
“If a state comes down with a mandate … the ability for it to spread across states should be easier,” Adams said. “And that’s really one of my big points. Setting uniform standards here is going to be so important."
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