There’s No Such Thing as a Free Bet: How to Stop Misleading the Public in Gambling Advertisements

Benjy Apelbaum February, 2024

Benjy Apelbaum*

*J.D., May 2024, University of Michigan Law School. Thank you to my Notes Editor, Resilda Karafili, and the JLR comments and online team for their feedback and guidance throughout the writing process. Thank you to my parents and grandparents for their support and encouragement throughout my education.

Introduction

For many years, gambling was limited to lottery tickets and casinos in select states and Nevada was the only state where sports gambling was legal.¹ In 2018, the Supreme Court ushered in a new era of gambling when it struck down the federal Professional and Amateur Sports Protection Act (PASPA) in Murphy v. National Collegiate Athletic Ass’n.² States are now free to regulate sports gambling, including mobile gambling on cell phones. Thirty-six states have legalized sports gambling, and twenty-nine of those states allow for mobile betting.³ Online casino games such as slots and blackjack have been legalized in six states.⁴

If you have watched a sporting event on TV in the time since the Murphy decision, there is a good chance you have seen an ad for sports gambling as numerous companies work to grab market share in the new industry.⁵ These ads promote the possibility of big wins⁶ and offer attractive sign-up inducements such as “risk-free” and “no-sweat” bets.⁷ Some online promotions even tout the opportunity to win “guaranteed” money.⁸ These ads mislead individuals on their likelihood of winning by playing on cognitive biases. Research shows that people are overly confident in predicting events, which can cause them to misunderstand the risks of gambling.⁹ It is estimated that less than 5% of gamblers win money in the long-term.¹⁰ For the rare person that does make money in the long term, many gambling websites will restrict winning users’ ability to bet.¹¹ Unsurprisingly, the increased prevalence of gambling has led to increases in addiction that comes with financial and social costs.¹² Some states have begun to prohibit misleading promotions for “risk-free” and “free bets” to protect the public, but the volume of ads continues.¹³

In Part I, this article will describe the current state of gambling advertisements and the negative effects of legalized mobile gambling on the public. Part II will examine and propose reforms to the regulation of online gambling, drawing lessons from solutions developed in response to the public health crisis created by the tobacco industry. This article proposes closer regulation of misleading advertisements and requirements that gambling companies inform consumers of the risk of addiction and the likelihood of loss, rather than falsely glamorizing their product.

Part I

Studies demonstrate there is a direct correlation between exposure to gambling advertisements and problem gambling.¹⁴ Problem gambling is commonly defined as a loss of control over one’s gambling despite the negative financial and personal consequences.¹⁵ This loss of control is understandable, given that many gambling advertisements expose individuals to enticing messages while watching their favorite sports, often from celebrities. For example, a PointsBet advertisement features Drew Brees, a popular former NFL quarterback, encouraging would be gamblers to “live your bet life,” a play on their “best” life.¹⁶ Another stars Jamie Foxx, a prominent actor, asking if the audience if they “want to make every game interesting.”¹⁷ Advertisements portray gambling as fun and easy, featuring displays of people celebrating as they inevitably win their bets.¹⁸ One ad says you can “simply pick two or more players and win up to ten times your money” while a customer celebrates.¹⁹ While these ads usually display information for gambling addiction hotlines, they can convince the public gambling is an easy way to make money.

While still in the early stages, evidence is accumulating that this advertising blitz and the increased popularity of gambling is having negative social impacts. The executive director of the National Council on Problem Gambling has said that the gambling industry’s aggressive marketing tactics make it difficult for problem gamblers to escape.²⁰ This is different from the casinos and lotteries of years past because of the easy access cell phones provide to gambling.²¹ A study from the University of Nottingham found that “schedules of reinforcement found in gambling interact with the ways in which people tend to use smartphones” and can lead to problem gambling.²² Unlike gambling in a casino that requires making a concerted effort to travel to, mobile gambling is constantly at one’s fingertips. Constant access to smartphones makes this new generation of gambling more pernicious, as it can become a habit easier than casino gambling.²³

Problem gambling appears to be on the rise in the United States. The National Problem Gambling Helpline Network saw a 45% increase in calls from 2020 to 2021.²⁴ As sports betting becomes increasingly legalized, young men in particular are increasingly suffering from gambling addiction.²⁵ This is because, according to a clinical psychologist, they tend to “have distorted thinking that they are in control and can predict the outcome” of sporting events.²⁶ Many people believe they can make money from sports gambling because they possess a so-called “illusion of control” and believe that their particular knowledge about sports can guarantee them a win.²⁷ Contrary to many gambler’s beliefs, closely following sports does not give people a significant edge in their ability to make money sports gambling.²⁸ In fact, one study found “sports betting, relative to non-sports betting, has been more strongly linked to gambling problems and cognitive distortions related to illusion of control, probability control and interpretive control.²⁹

Gambling addiction is a mental health issue that leads to both financial and physical problems.³⁰ Given the recency of the Murphy decision, there is limited research about the impact of mobile sports betting in the United Sates. However, data from countries where this form of gambling has been legal for years demonstrate the risks it poses.³¹ For example, the UK legalized advertising for online gambling in 2005 and the industry exploded in the years since. 138,000 people in England are classified by regulators as problem gamblers and an estimated 8% of all suicides, around 400 per year, are linked to gambling.³² Data from the UK also shows that gambling losses disproportionately effect the poor, and that poor people place bets with longer odds and lower chances of success.³³

Sign-up promotions from gambling companies are a common way companies attempt to claim market share and get people hooked on gambling. While these promotions can be good deals for the customer initially,³⁴ the advertisements are frequently misleading about their benefits.³⁵ One prominent example of this is the use of the terms “free bets” or “free cash” from DraftKings, one of the leading sportsbooks.³⁶ In one such ad Kevin Hart, a famous comedian, touts a sign-up promotion that allows people to get “$200 instantly.” Later in the ad he gets an alert on his phone and says “there’s my $200.”³⁷ Unless you read the lowercase text on the screen you might not notice that the $200 comes in the form of “free bets,” rather than cash – contrast this with the text in all-caps: “BET,” “GET” and “INSTANTLY”.³⁸ This $200 in free bets, sometimes referred to as bonus bets, is very different in value from having a regular $200 in one’s account.³⁹ When that money is bet, the customer does not receive the original stake, meaning that if the $200 was bet at even odds and the bettor won, they would receive back $200, rather than the $400 they would have if they bet $200 in cash.⁴⁰ This language could easily mislead customers about the value to be gained from signing up for betting.

Perhaps even more egregious are the “risk-free” first bets offered by many sportsbooks for eye-popping amounts in the thousands of dollars.⁴¹ While a gambler might expect “risk-free” to mean that their money would be returned if they lost their first bet, the money from losing bets is actually returned in the form of “free bets,” as discussed above.⁴² If players lose the pick they make with the free bet, they are left with $0 and have clearly taken some risk. One Virginia attorney misinterpreted this language and lost hundreds of dollars on what he thought was a “risk-free” bet offered by BetMGM.⁴³ BetMGM offered him $12,000 before the attorney went public to warn other bettors.⁴⁴ Misleading people on the value of a promotion can introduce people to gambling and get them hooked.

This practice is so obviously misleading that some state regulators have prohibited the use of such language.⁴⁵ The Attorney Generals of Ohio and New York have even sent out a consumer warning regarding the language.⁴⁶ It also sparked a class-action complaint, which, at the time of this writing, is pending in federal district court in Colorado.⁴⁷ Sportsbooks have recently phased out the “risk-free” language, and are now using phrases such as “no sweat” or “second chance” bets.⁴⁸ While not as clearly incorrect as the phrase “risk free” betting, these phrases are still misleading, as most customers would likely be sweating if their $3,000 initial bet had a chance of going to $0. These promotions, while typically a good deal for the customer, serve to increase customer’s willingness to bet beyond their means with their first bets and cause customers to get used to betting large amounts to take advantage of the promotion.⁴⁹

Part II

To constrain the harms of gambling, regulations should require that advertisements contain warnings to the public, so the public is aware that almost all gamblers lose money and that there is a risk of developing a gambling addiction. Regulations should also prevent advertisers from misleading the public by implying that gambling is an easy and exciting way to make money. These warnings should also appear when individuals sign up for accounts, so they are aware of the scope of the potential harm and are not misled into believing that it is easy to profit from gambling. This warning would be similar to warnings currently required to be displayed on cigarette packaging that describes the negative health effects of smoking.⁵⁰

The 2009 Family Smoking Prevention and Tobacco Control Act enabled the FDA to implement these regulations and require graphic warning language on cigarette packaging.⁵¹ However, the First Amendment limits what the government can require public companies to say about their products.⁵² The test for government regulation of commercial speech was established in Central Hudson, which states:

At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.⁵³

A previous Supreme Court case also stated “[warnings] or [disclaimers] might be appropriately required … in order to dissipate the possibility of consumer confusion or deception.”⁵⁴ It is important the regulation be properly tailored to the goal in order to pass the Central Hudson test. For instance, the Supreme Court in Lorillard Tobacco Co. v. Reilly held that prohibitions on advertising within 1,000 feet of playgrounds or schools was too broad, in large part because it would prevent advertising in up to ninety percent of certain cities.⁵⁵

As discussed in the previous section, the government has a substantial interest in ensuring that people do not become addicted to gambling, much like it has an interest in protecting citizens from smoking. Admittedly, the health and social consequences of gambling are not as serious as smoking. However, it can still cause serious harm. For example, gambling is linked to an estimated 400 suicides per year in the United Kingdom, where the social cost of gambling has been more thoroughly researched.⁵⁶ Also, gambling addiction can have significant impact on an individual’s mental health and their ability to financially support themselves.⁵⁷

Smoking regulations have demonstrated that advertising restrictions can advance the governmental interest of improving public health.⁵⁸ Tobacco companies are prohibited from sponsoring sporting events or other cultural events and all packaging must conspicuously display warnings that tobacco can cause cancer and heart disease.⁵⁹ These warning labels lead to greater knowledge about the risks of smoking⁶⁰ and smoking rates have fallen significantly since the introduction of warning labels.⁶¹ Increased consumer knowledge is especially important in the gambling industry because it is a new industry. Many in the public are not yet familiar with how gambling works and the flood of advertisements may be particularly influential in shaping individual’s perceptions of the industry.⁶² This makes it especially important for consumers to be aware that the vast majority of people lose money to prevent uninformed members of the public from believing that sports gambling is a reliable way to make money.

Currently, there is very little information is required to be given to would-be gamblers to counteract the impression that gambling is fun and easy way to win money.⁶³ Most states require that companies include information in their ads about how to seek help for gambling addiction, but these blurted out phone numbers are woefully inadequate to inform consumers.⁶⁴ Other countries have implemented these of public health interventions more in line with the US’s tobacco regime. For example, Australia has passed a law that requires gambling advertisements to include taglines that remind consumers of the risks.⁶⁵ These ads require messages that include statements such as “chances are you’re about to lose” and “What’s gambling really costing you.”⁶⁶ Messages like these may help to ensure consumers are adequately informed that gambling is a losing proposition for most.

Legislation and regulations at both the state and federal level can be utilized to better protect the public. One option on a federal level is to replicate the mechanism of the Tobacco Control Act of 2009 and allow a federal agency, likely the Department of Health and Human Services which is responsible for mental health, to issue regulations requiring companies to better inform the public of the risks of gambling.⁶⁷ Like in smoking regulations, this information should appear both in advertising and the actual websites and apps customers use. These regulations could also be enacted on a state-by-state level, as states have been the primary regulators of gambling thus far.⁶⁸ Regulators will have to ensure that the message is narrowly tailored to advance the government’s interest in protecting its citizens from gambling addiction and its financial and social consequences. It is especially important that would-be gamblers receive more accurate information about the risks of gambling, because while the public is aware of the risks of smoking, misleading advertising has left the public unaware of the true odds of gambling.

Short of requiring warning labels, the FTC and state attorneys general can play a role in ensuring that the flood of advertising individuals see is not misleading.⁶⁹ Promotional terms such as “risk-free” and “no-sweat” are misleading and can be prohibited under existing statutes that prohibit misleading marketing.⁷⁰

Conclusion

Since 2018, little has been done to ensure consumers are protected from a new and harmful industry. Individuals in states where gambling is legal can now use their money to gamble on their phone as they see fit. However, the government should implement changes to ensure individuals are more aware of the realities of gambling and not allow the gambling companies to create their own narrative. Warning labels and a crackdown on misleading advertisements are an appropriate way to strike this balance.