Sports Gambling Fraud Risks Will Require Creativity to Combat



Mason Wilder, CFE
Research Specialist

Following a Supreme Court decision on May 14 that will allow states to determine the legality of sports gambling within their jurisdictions, more questions than answers emerged about the ruling’s implications across the country. As individual states determine whether or how they will accommodate sports gambling, fraud risks related to the industry should be at or near the top of the list of considerations for all involved.

The decision itself, stemming from a battle that began with a vote to amend New Jersey’s state constitution to allow sports betting in 2011, overturns a federal law from 1992 that outlawed sports gambling everywhere in the U.S. except Nevada. In declaring the 1992 law unconstitutional, the Supreme Court effectively gave the green light to numerous states that already had efforts in motion to authorize sports betting. According to the New York Times, five states other than New Jersey already passed similar sports betting laws, and another dozen have introduced legislation to accomplish the same.

As states rush to establish rules and regulations that will govern fledgling sports gambling industries, the associated fraud risks must be effectively addressed for sports betting to establish itself as an industry with a more positive than negative impact. Although each state’s unique set of circumstances will influence the policy set forth, certain standards set by national organizations could help pave the way to addressing major fraud-related concerns, of which there is no shortage.

As with the larger gaming industry in general, there will be fraud risks such as money laundering, embezzlement and other asset misappropriation or larceny due to the amount of cash bet in-person on sporting events through casinos or racetracks. In addition, there will be corruption risks such as bribery and illegal gratuities, as the legislative and regulatory processes play out in states that intend to authorize sports betting. These risks are not unique to gambling and can potentially be addressed or combatted with standard fraud prevention controls and procedures such as cash wagering limits, surveillance and monitoring, lobbying restrictions and more.

However, there will also be risks unique to the implementation of sports gambling that will require creativity to combat. For example, conflicts of interest could potentially be created if team owners are allowed to invest in gambling businesses or allow live betting kiosks at stadiums where events take place. One would think that specific controls will have to be put into place to prevent players, referees, coaches or other participants from betting on games. As states allowing sports betting are expected to allow bets to be placed online, a number of customer verification and screening requirements will likely need to be mandated from service providers. And of course, any number of new scams related to the sports gambling industry will have to be dealt with.

These challenges will not be insurmountable; there are precedents for legalized sports gambling domestically (Las Vegas) and abroad (Australia, most of the European Union) from which lessons can be learned and policies copied. Ultimately, the legalization of gambling on sports could be a great source of revenue for private and public entities without compromising the integrity of the sports themselves, as long as the risks are given proper respect and addressed proactively by the states willing to try their luck with sports betting.