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Sportsbooks Gambled on “Risk-Free” First Bets. Now They are Paying Out on Their Winnings.

Published onMar 21, 2024
Sportsbooks Gambled on “Risk-Free” First Bets. Now They are Paying Out on Their Winnings.

When the Supreme Court overturned the Professional and Amateur Sports Protection Act in 2018, an avalanche of advertisements ensued. Within three years of the ruling, all four major sports leagues had marketing agreements with sports-gambling providers. Their media campaigns feature major celebrity personalities, including Jamie Foxx, Halle Berry, Rob Gronkowski, and Kevin Hart. Celebrity sponsorships and marketing deals are typical advertising strategies, but sports betting’s biggest and most innovative promotion is the “risk free” first bet. It may also be completely fraudulent advertising.

            Las Vegas-based sportsbooks are racing to court the millions of people recently able to bet from the comfort of their homes. Today, 35 states allow sports betting, and the biggest lure sportsbooks use to entice new bettors are “risk-free” and tax-free first bets. This marketing strategy purports that a sportsbook will cover a bettor’s first wager up to $1,000 in the result of a loss. If the bettor wins, the sportsbook pays out the winnings. But if the bettor loses, sportsbooks will not directly reimburse the lost wager to the bettor. Instead, they provide losing bettors with time-sensitive site credits equivalent to the original wager amount, and will only payout the winnings, not the credit amount, from the second bet. The strategy compels unfamiliar, first-time bettors to 1) bet while in a deficit, and 2) choose low-success bets to recover their initial wager. While bettors face no risk if their first wager wins, losing the first bet is anything but risk-free.

            First-time bettors who failed to receive their money back, and contacted the sportsbook agency, have been offered large settlement amounts in lieu of legal action, but too many remain unsatisfied. In a matter of 10 days, two claims were filed over the fraudulent advertisements of risk-free bets against two of the largest sportsbooks, BetMGM and Caesar’s, in the United States. Both raise claims of negligent and intentional misrepresentation as well as fraudulent inducement against the sportsbook companies. The complaints are clear that each respective Plaintiff was unaware of “the true nature” of the risk-free bet, and that the sportsbook failed to notify the bettor of the potential and resulting harm.

            While the class action suits may have a good case for a false advertising claim under Section 43(a) of the Lanham Act, neither of them will have their day in court. Both BetMGM and Caesar’s successfully motioned to compel arbitration, citing the arbitration clauses in the terms and conditions agreed to by bettors to use the sportsbooks’ sites.

            Moving lawsuits to arbitration steals the opportunity for a court to rule on whether promoting risk-free bets is misrepresentative, which it likely is. Entire websites are devoted to tracking the best “free bets” available at popular sportsbooks. FanDuel, having over 40% of the sportsbook market share, continues to advertise risk-free and “no sweat” first bets. BetMGM has pivoted from risk-free bets advertisements to promoting “first bet offers” up to $1,500 and “bonus bets,” both of which still advertise the first bet as a type of gambling insurance. In essence, the message changed but the trick remains. Sportsbooks will likely continue to rework or blatantly refuse to change the risk-free promotion strategy so long as the arbitration clauses remain enforceable.

            Those arbitration clauses may become unenforceable sooner than later. Arbitration clauses are unenforceable when they involve an illegal transaction, and at least two state legislatures, Minnesota and New York, have proposed sports betting regulations which ban the use of “risk-free” bet language in advertising. The legislative history of the proposed statute in New York mirrors the arguments made by the class action cases, suggesting that public policy favors those who lost money from risk-free wagers. New York has only allowed sports betting for two years but is already a major revenue source for sportsbooks. As more regulations follow, the breadth and ability for sportsbooks to profit from first time bettors under the risk-free scheme will likely diminish unless more care is given to promotions.

            In 2022, sports betting generated over $7.5 billion in revenue and held over $90 billion in handle. The floodgates have opened, and the number of regular bettors will likely only increase. But as sports betting increases in size and accessibility, sportsbooks must now adjust to the first round of pushbacks to their advertising strategy.

Richard Hall is a second-year law student at Wake Forest University. He graduated from Brigham Young University with a B.A. in English and is published in the Madison Journal of Literary Criticism. He is a Rosewood Leadership and Character Scholar and intends to practice in civil litigation or bankruptcy after law school.

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Email: [email protected]


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