The Cost of Free Bets: Regulating Inducements in the U.S. Sports Gambling Industry

Abstract

In 2018 sports gambling was legalized in the United States, ushering in a new era of sports viewership. Legislators and constituents alike were hopeful of the entertainment value and tax revenue that would accompany the introduction of the new industry. Unfortunately, these expectations diverged significantly from reality. Instead, consumers are now at a heightened risk of gambling dependencies, while many states have only experienced a miniscule increase in tax revenue. The driving factor leading to this bleak reality is the popularized offering of inducements or promotional bets. Since legalization, Americans have been inundated with constant gambling inducements offering them free wagers, boosted odds, and deposit matches. These seemingly harmless offers have proven to be the most dangerous aspect of the new sports betting landscape. Inducements have been linked to an increase in gambling intensity, gambling frequency, and at-risk gambling behaviors. With minimal regulation in place, sports book operators have capitalized on the situation by offering personally tailored promotional bets. The inducements are created using the personally identifiable data of individual gamblers including income, gambling history, and gaming frequency. The practice has had detrimental impacts to the lives of individual gamblers and has been a contributing factor in growing public health crises in the UK and Australia. To add to the issue, inducements are currently being incentivized and subsidized by the state through promotional tax deductions. There are currently at least 18 states that offer either partial or full deductions for inducements which, along with playing a pivotal role in the proliferation of inducements, has diminished state tax revenue. In this thesis I intend to analyze the negative impact inducements have on both public health and tax revenue, before proposing legislative reform that would simultaneously protect constituents, increase gambling tax revenue, and support a healthy gambling market. In the first section of the thesis, I will use leading theories in consumer data protection, along with the analysis of current consumer data regulation to inform my proposal on the optimal way to regulate personalized inducements. Ultimately, I recommend that states adopt legislation similar to the Massachusetts Sports Gambling Data regulation which outlaws the use of personally identifiable data and artificial intelligence in the creation of promotional offers. In the second section, through the analysis of state tax records, I will use two natural experiments to display the detrimental impact that tax deductions have on state tax revenue, while disproving the claim that deductions will increase participation rates. Finally, using examples from Virginia and Colorado, I will provide several viable options for states to successfully transition away from unlimited promotional tax deductions.