Legalized sports betting is off and running in the US with 33 States and the District of Columbia now offering legalized sports betting. Canada is even further down the track with every province and territory now offering single-game betting to residents, with the country’s northern territories (Northwest Territories, Yukon, Nunavut) limiting their offerings to retail only. Stateside, California, Florida, Maine, and Nebraska are the next states most likely to introduce regulated sports betting. Beyond those four, this leaves Alabama, Alaska, Georgia, Hawaii, Idaho, Minnesota, North Dakota, Texas, and Utah, as those states either late to adopt or unlikely to regulate legalized sports betting in their jurisdictions.
Given how recently sports betting was legalized nationally, 2018 in the US and 2021 in Canada respectively, the race to regulation has proceeded at a brisk pace. As sports betting has progressed rapidly from the introduction of state and provincial offerings to the regulation of third-party online operators, new challenges are also emerging. Given the frequency of these challenges and their parallels with the well-trodden path of mature gaming regulators, state and provincial regulators have identified the following as key concerns going forward as they strive to properly vet and regulate third-party operators to ensure a safe and secure sports betting environment for taxpayers:
The 2007-2008 financial crisis demonstrated to financial regulators worldwide the dangers of highly leveraged markets overexposed via a lack of true diversification. Today’s sportsbook operators present similar challenges given the sheer volumes wagered on single events and the inherent risk potential this presents to operators failing to hold sufficient cash reserves. To avoid unscrupulous operators leaving patrons unpaid, regulatory agencies have identified the following as potential red flags to consider in their evaluation of potential sportsbook licensees:
With sports betting wagering accounts sharing many of the same characteristics as conventional online bank accounts, North American gaming regulators are being asked to vet potential sport betting licensees via a thorough process comparable to the stringent due diligence exercised in the financial sector. Doing so helps to mitigate the risks of fraud, money laundering, and cybertheft typically associated with online commerce, with four potential frauds recognized as current areas of concern:
Given the sheer pervasiveness of gambling advertising since sports betting was legalized on both sides of the border, it’s certainly not difficult to understand why regulatory agencies are struggling to keep pace with the scale of monitoring required to ensure gambling advertisements comply with regulatory restrictions. BIA Advisory Services has forecasted up to $1.8bn was spent to promote gambling products online to US residents in 2022, with ad spending by the four biggest sportsbooks reaching $24M in the first week alone! Compounding the challenge of monitoring the sheer volume of this advertising, there are no advertising rules specific to the sports betting industry at the federal level in the US. This limited oversight has raised alarms for some, including advocates who worry about the potential risks for those too young to bet or with a history of problem gambling (Source).
In April of 2023, the National Football League suspended 5 players for gambling related infractions, including 3 players receiving indefinite suspensions. The news mirrors the concerns of government sports betting regulators who are increasingly focused on identity verification and geolocation measures to prohibit sports league personnel from betting which raises the specter of match manipulation and point shaving. Compliance measures currently being introduced or evaluated include the following:
Given the severity of the punishments levied by sports leagues against players and/or league personnel for provable gambling infractions, professional leagues are increasingly reliant on the cooperation of regulatory agencies able to assist the effectiveness of ongoing league investigations and disciplinary processes. Equipped with the necessary identity verification and compliance tools, government regulators can serve as a key ally to sporting leagues through a policy of proactive deterrence.
These top concerns for sports betting regulators reinforce the reality that legalized sports betting will be a key battleground in the ever-evolving threat landscape for cybersecurity fraud. To stay one step ahead of sophisticated cybercriminals, it is contingent upon government regulatory agencies to license only those sports betting operators that meet the highest standards for operational integrity, fiscal responsibility, and consumer protection. Fortunately for US and Canadian citizens alike, new jurisdictions entering this space are not early pioneers in this endeavor with numerous locales having overseen the licensing, regulation, and compliance of legalized sports betting for decades. From the UK Gambling Commission, to the ‘Nevada’ and ‘Jersey’ models, numerous examples abound of the mature and effective regulation and compliance of legalized wagering—both online and off. These jurisdictions provide a bevy of historic learnings and best practices for regulatory agencies keen to implement a suitably robust regulatory regime. Central in the effectiveness of these regulatory models is the emphasis on KYC (Know Your Customer) and MFC (Multi-Factor-Authentication) tactics.
KYC
KYC processes are used to verify that a customer is who they claim to be. For banks and financial institutions, this helps to prevent fraud, financial crimes, and money laundering. For online gambling operators, KYC is also used during the onboarding process to verify customers’ identities, but it extends beyond simply financial crimes. Identifying customers using Personal Identifiable Information (PII) and official identity documents, KYC helps to stem the flow of illicit funds being ‘laundered’ through online gambling establishments. Moreover, KYC procedures also help to prohibit underage gamblers, bettors attempting to wager with multiple accounts, and gambling addicts who have added themselves to self-exclusion lists. Not only does this protect against being used for criminal purposes, but it also ensures gambling operators aren’t tricked into losing funds by inappropriate users.
MFA
Multi-Factor-Authentication makes it easier for betting operators to ensure that only the primary account holder uses their services and wagering access isn’t being affording to bettors in another state or province. By forcing users to provide at least two verification factors, Multi-Factor-Authentication (MFA) also makes it harder for hackers to get access to online accounts. With MFA, hackers need both the device the one-time code is sent to and the account password. Such measures help to prevent the possibilities for proxy betting, account sharing, identity theft, and account verification discussed earlier.
In 2022, Americans wagered over $85-billion in legal bets across 33 states – 90% of which took place online. In Ontario, Canada’s most populated province and the first to widely embrace the regulation of legalized sports betting via licensed operators, total wagers exceeded $11.5-billion in Q4 of 2022 with the province’s net revenue from internet gaming in the same period totaling $450-million.
While the revenues generated to date are certainly eye opening, sports betting in the US and Canada is still regarded as being in its infancy stage. Industry Analyst, H2 Capital forecasts the US sports betting market to grow by 50% year on year in 2022, and then more than double between 2022 and 2027. This would still equate to only 17% of the global sports betting market in the US, whereas it currently accounts for 50% of the land-based global gaming market gross win and over 30% of the land-based global lottery market gross win. Forecasts are similarly bullish in Canada where the majority of provinces have taken a more cautious approach to implementation while they monitor the revenues and reaction to the Province of Ontario’s strong iGaming rollout.
Given the already impressive revenues reported, those government jurisdictions across North America still on the sports betting sidelines are expected to get in the game sooner rather than later. Most importantly, for all jurisdictions operating in the sector, this emerging, high-growth taxation largesse ensures that all regulatory agencies will be able to reinvest revenues appropriately in robust solutions for gaming regulation and compliance. Prudent investment in modern gaming control systems equips agencies to support the broad range of tools and tactics necessary to ensure strong consumer protections within an agile and responsive regulatory environment. For government regulatory agencies committed to providing a safe and secure betting environment for taxpayers, betting on the right gaming control software is a true win/win scenario for governments and taxpayers alike.
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