The American Prospect - Rollups: The Big Data Machine Driving Online Sports Betting

Reporter Luke Goldstein writes about the rise of a sports betting duopoly and the concern for the integrity of athletic franchises.

Less than a decade ago, NFL commissioner Roger Goodell condemned sports betting as a scourge that threatened the game’s integrity. There’s good reason for that: Gambling has inspired a series of calamitous sports corruption scandals, from the infamous Black Sox scheme during the 1919 World Series to the 1950s point-shaving rackets in college basketball.

But as soon as the Supreme Court cleared the way for state legalization of sports betting in 2018, all the leagues, including the NFL, changed their tune, striking partnership deals with the biggest gambling companies. It’s not hard to see why. Americans wagered away a projected $3 billion just during the March Madness college basketball tournament, which ends tonight. In an otherwise shrinking market, gambling is one of the remaining new revenue streams for the sports business.

Sports media has also cashed in on gambling, netting deals with the major platforms to make up for lost advertising revenues that have devastated journalism over the past decade. The networks and online sports outlets have steered much of their coverage to betting, with designated channels and beats designed to drive foot traffic to the sportsbooks.

“Just like the leagues, sports media has made a 180-degree pivot on betting overnight, it’s been a sea change,” said Michael Mirer, a communications professor at the University of Wisconsin who studies sports journalism and the impact of gambling.

This shift has aided and abetted the rise of a sports betting duopoly, composed of online sites FanDuel and DraftKings. Together, they have rapidly consolidated the young industry, controlling around 60 percent of the market in the U.S., flanked by just two other deep-pocketed players, Caesars and BetMGM. The brief window of opportunity for new companies to stake out turf has dwindled. Over the past two years, the Big Four went on spending sprees to acquire competitors and small startups, with no end in sight. Analysts foresee another wave of mergers and acquisitions, as the barriers to entry become insurmountable.

Illegal gambling was always a closed market, controlled mostly by organized crime. In what was previously the only legalized space, the big casinos in Las Vegas held sway. Today, stripped of any resemblance to old-school bookie operations, betting platforms like DraftKings and FanDuel are now cast in the image of Big Tech, while backed with Wall Street funding and laundered with the stamp of the law. These corporations combine the technology of high-frequency trading, the immersive consumer experience of day-trading apps like Robinhood, and the addiction business model of social media. They represent a true Frankenstein’s monster of the 21st-century economy.

As ever in this industry, a gambling addict is the best kind of customer. In the U.K., where online betting has been legal since the adoption of the 2005 Gambling Act, a House of Lords report showed that 60 percent of the industry’s profits come from just 5 percent of its customers—the ones who are already problem gamblers, or who are susceptible based on crippling habits like alcoholism. It’s not surprising the U.S. has reported rising cases of gambling addiction over the past two years, as the platforms rapidly acquire new users.

One cause is the sheer accessibility of the sportsbook apps on mobile devices, which expanded the reach of gambling similar to what day trading did for retail investing. The apps make it as easy to place a wager or buy stocks as it is to order retail goods on Amazon.

The use of Big Data allows DraftKings and FanDuel to optimize for addiction. Betting companies track users’ activity on the platform, receive other information from third-party data broker exchanges, and assemble detailed files on users. They then identify addictive traits through behavioral profiling, targeting high-risk gamblers with marketing and other promotional schemes to draw them back to the platform. It’s the surveillance model of social media giants, except instead of an attention drain to feed that addiction, this drain is purely financial.

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