The Qatar World Cup got off to an inauspicious start this week: a loss for the host nation, a ban on drinking beer and the threat of a yellow card for players wearing anti-discrimination armbands.
And, for a gambling industry trying to capitalize on the potential $160-billion-plus tentpole football event, the own goal of a share-price slump at sports-bet firm DraftKings Inc. after customers reported their accounts were compromised and cash withdrawn.
DraftKings says it identified less than $300,000 of customers funds that were affected and intends to make customers whole. But it's the tip of an iceberg of potentially grim unintended consequences that the post-pandemic betting boom will bring to society, including addiction, corruption and money-laundering risks, as cash-strapped governments and sports leagues push to liberalize previously illegal or frowned-upon business to boost their bottom line.
There are global forces at work here: Technology has cranked up the appeal and accessibility of sports broadcasting via the smartphone in our pocket — and also unleashed the ability of gambling firms to reel in punters 24/7. Covid-19 has accelerated legalization efforts from the US to Brazil to Thailand as governments search for new tax revenues and the industry splashes cash on new growth drivers after lockdown.
Hence, DraftKings has described the World Cup as "the big one": The confluence of a major sporting event and a newly legalized US market, which UBS reckons could be worth $19 billion by 2025. Americans are hardly soccer-mad; Bloomberg Intelligence's Brian Egger estimates $1.7 billion in US wagers on the World Cup, a fraction of the Super Bowl's. But it's a test case for a marketing blitz that saw DraftKings alone spend nearly $1 billion last year to attract new customers.
The betting boom's defenders argue this is a virtuous pattern of dodgy offshore business being dragged onshore. Yet we don't know whether the bombardment of celebrity-packed gambling ads will create its own crisis of problem gambling — with helplines already flooded with calls — or corruption in sport as suspected match-fixing soars. Or whether regulators are up to the task of keeping up with the churn of digital dollars and the hacking, data breaches and criminal activity it can bring.
What's concerning is that policymakers seem more focused on the money they hope to collect from an industry whose margins have historically been high, in keeping with other "vice" businesses as old as time. The state of New York expects to generate $615 million in tax revenue from online sports betting next year. "Whatever New York gets is gravy, because we've never had it before," one state senator said.
This is a dangerous game to play, and comes close to assuming what's good for gambling is good for the state — creating conflicts of interest. The New York Times' reporting suggests current regulation is haphazard and lax, with some gambling firms flouting state-specific restrictions against using credit cards. The experience of the UK is that the social costs of gambling run to about £1.3 billion ($1.5 billion) annually. The failures of cannabis legalization, which has neither stamped out the black market nor delivered all its tax-revenue promises, might be repeated.
Countries with more experience with gambling addiction are trying to stuff parts of the proverbial genie back into the bottle, and the UK — for all its past errors — deserves credit for cracking down on promotion and sponsorships that get their hooks into youngsters early, even if social media is a whole other swamp that needs draining. Amazon.com Inc. streaming platform Twitch recently slapped a ban on unlicensed gambling livestreams, with one streamer claiming he was paid $360 million by casino Stake, which sponsors soccer team Everton.
Ironically, DraftKings' share-price slump offers a small-scale silver lining here. The capital market's rebuke of the company's aggressive spending campaigns and apparent customer-account compromise will likely force more marketing restraint.
But the post-Covid world has yet to fully understand or respond to the risks stored up by gambling and "gamblification." This World Cup is already a symbol of corruption in sport, with ongoing probes into how Qatar was awarded the tournament. The head-scratching hypocrisy of a beer-free stadium plastered with signs promoting cryptocurrency trading is one of many warning signs that the business of sport is heading down a very fraught path. Without more regulation and enforcement of rules, and less promotion and normalization of gambling, more own goals will come.
Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.