DraftKings says it has identified less than $300,000 in client funds that have been affected and intends to return clients whole. But it is the tip of an iceberg of potentially dire unintended consequences that the post-pandemic betting boom will bring to society, including the risks of addiction, corruption and money laundering, as governments and cash-strapped sports leagues are pushing to liberalize previously illegal or frowned upon. on companies to increase their bottom line.
There are global forces at work here: technology has increased the appeal and accessibility of sports streaming via the smartphone in our pocket – and has also unleashed the ability of gambling companies to attract bettors 24/7. Covid-19 has accelerated legalization efforts from the United States to Brazil to Thailand as governments seek new tax revenues and industry spends money on new growth engines post-lockdown.
Thus, DraftKings described the World Cup as “the big one”: the confluence of a major sporting event and a newly legalized US market, which UBS predicts could be worth $19 billion by 2025. Americans aren’t crazy about football; Brian Egger of Bloomberg Intelligence estimates US bets on the World Cup at $1.7 billion, a fraction of those on the Super Bowl. But it’s a test for a marketing blitz that saw DraftKings alone spend nearly $1 billion last year to attract new customers.
Advocates of the betting boom argue that it is a virtuous model of dubious offshore business driven onshore. Yet we don’t know whether the bombardment of celebrity-filled gambling ads will create its own problem gambling crisis – with helplines already inundated with calls – or corruption in the sport as match-fixing suspected skyrocket. Or whether regulators are up to the task of tracking the movement of digital dollars and the hacking, data breaches and criminal activity it may entail.
Worryingly, policymakers seem more focused on the money they hope to collect from an industry whose margins have historically been high, like other “vice” companies as old as time. New York State expects to generate $615 million in tax revenue from online sports betting next year. “All New York gets is gravy, because we’ve never had it before,” said one state senator.
It’s a dangerous game to play, and it’s almost assuming that what’s good for the game is good for the state, creating conflicts of interest. Reports from The New York Times suggest that current regulations are haphazard and lax, with some gambling companies flouting state-specific restrictions against credit card use. The UK experience shows that the social costs of gambling amount to around £1.3 billion ($1.5 billion) per year. The failures of cannabis legalization, which neither eradicated the black market nor delivered on all its promises of tax revenue, could be repeated.
Countries with more experience with gambling addiction are trying to put parts of the proverbial genius back in the bottle, and the UK – for all its past mistakes – deserves credit for cracking down on promotion and sponsorships that attract young people early, even though social media is a whole other swamp that needs to be drained. Amazon.com Inc. streaming platform Twitch recently banned unlicensed gambling live streams, with a streamer claiming to have been paid $360 million by the Stake casino, which sponsors the American football team. Everton.
Ironically, DraftKings’ stock price slump provides a small-scale silver lining here. Capital market rebuke of the company’s aggressive spending campaigns and apparent compromised accounts receivable will likely force more marketing restraint.
But the post-Covid world has yet to fully understand or respond to the risks accumulated by gambling and “gamblification”. This World Cup is already a symbol of corruption in sport, with ongoing investigations into how Qatar won the tournament. The mind-boggling hypocrisy of a beerless stadium covered in signs promoting cryptocurrency trading is one of many warning signs that the sports industry is heading down a very difficult path. Without more regulation and enforcement, and less promotion and normalization of the game, more personal goals will come.
More from Bloomberg Opinion:
• The gold rush of sports gambling is absolutely extraordinary: Timothy L. O’Brien
• World Cup in Qatar will be great football but a lousy game: Martin Ivens
• The Far West of crypto has a new victim: Lionel Laurent
–With help from Elaine He and Samuel Dodge.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.
More stories like this are available at bloomberg.com/opinion