Rollups: The Big Data Machine Driving Online Sports Betting

This story is part of a new prospect series called Rollups, looking at obscure markets that have been rolled up by under-the-radar monopolies. If you know of a rollup like this, contact us at rollups(at)prospect.org.

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 US, 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.

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As ever in this industry, a gambling addict is the best kind of customer. In the UK, 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 US 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.

Anyone who has given online betting a shot has experienced the platforms’ relentless marketing. To understand the adrenaline rush of this vice machine, I created an account on DraftKings, blindly putting a wager down on a recent Denver Nuggets game against the Charlotte Hornets. With the Nuggets winning by four and a plus 4.5 spread, my bet on the Hornets won me $9. Over the next 24 hours, I received three different marketing campaigns to lure me back to the platform, five push notifications offering discounted deals, numerous targeted ads on Facebook, and several promotional emails. And they weren’t all from DraftKings; all of the big platforms had spotted a new sucker.

A recent report by the data firm Cracked Labs explains why. It pulls back the curtain on just how expansive the data sets are that the platforms gather on individuals, and how the industry puts them to use. The investigation focused on Sky Bet, the largest UK platform, which is owned by the same parent company as FanDuel, Flutter Entertainment.

Cracked Labs obtained the individual data profiles held by Sky Bet, which logged upwards of 186 different attributes, including an individual’s propensity to gamble, their full gaming history, and susceptibility to marketing and financial information. The platforms even rank individuals’ inferred financial value to the company based on these data metrics. They then use all this information to target individuals with various marketing ploys to increase engagement.

“The extent of Sky Bet’s profiling far exceeded our expectations and borders on being outright illegal,” said Matt Zarb-Cousin, the director of campaign group Clean Up Gambling, which commissioned the report from Cracked Labs.

In today’s world of online betting, gamblers are surveilled by algorithmic software that constantly feeds their worst compulsions.

The investigation revealed that even limited engagement with betting platforms led to over 2,000 data transmissions to 40 companies. Among those companies acquiring bettors’ personal information were Facebook, Google, and a host of surveillance tech brokers such as Signal and Lovation. As it turns out, knowing a user’s propensity for addiction is incredibly valuable for companies in the digital economy.

“Even if you recover from a gambling disorder, your shadow profile held by data brokers will always have you labeled as an addict and companies will use it against you,” said Ravi Naik, a visiting fellow at Oxford University’s Internet Institute and a lawyer at the British data rights agency AWO.

Last year, Naik documented the effects of Sky Bet’s data-profiling software on one user who was trying to kick a severe gambling disorder. The platform knew his location coordinates, banking records, mortgage details, and all his wager habits. Once he began weaning off the platform, Sky Bet labeled him a customer to win back, inundating him with targeted ads and marketing fine-tuned to the vulnerabilities the software had detected in his patterns of behavior. They even evaluated his exactly worth to the company if he returned to the platform.

In today’s world of online betting, gamblers aren’t stalked by a bookie or a loan shark, threatening to break their kneecaps unless they cough up the debt. Instead, they’re surveilled by algorithmic software that constantly feeds their worst compulsions.

Big Data in betting makes the threat of a duopoly even more dangerous. With higher numbers of users pushed to their platforms, Fanduel and DraftKings will have access to far greater volumes of personal data to refine individual data files and enhance their behavioral-profiling software.

Concentration in betting is also driven by the lucrative exchange of another flow of information. In-game data, the lifeblood of the betting industry, has been monetized by the leagues and sold to the sportsbooks. This data refers to the second-by-second action happening in games. Its standardization has benefited the leagues and protects the big platforms from outside competition.

Sportsbooks today have expanded the range of betting options to include thousands of live in-game opportunities, from the stat sheet of individual players to the outcomes of live plays, such as whether a team is going to score during an offensive possession. It’s the equivalent of high-frequency trading for betting, where information and speed determine success. For that to work, the platforms need instant access to live-game activity so their algorithm can generate odds, spreads, and game lines, which are constantly being updated.

The supply chain for this data is more complicated than it might appear. A broadcast to your home has a few milliseconds’ delay from the actual game. Even that tiny delay is too slow for a platform to offer valuable, adrenaline-driven bets.

In the early days of online betting, before the leagues claimed ownership, there was a free-for-all to capture the minutiae of game activity. It wasn’t uncommon to see “data scouts” in the stands at games with microphones and equipment, logging data and sending it back to HQ. After realizing the financial potential, the leagues fought for intellectual-property rights, which have been upheld in most states. Immediately, sports stadiums’ security began cracking down on suspected “data thieves” whispering into microphones tucked underneath their hoodies.

The betting platforms now need to purchase the game data from a cartel of third-party traders who’ve struck mega-deals with the leagues for the real-time game logs. (And some of these are big players: The key partner with the NFL on in-game data is Amazon Web Services.) The exclusivity of these partnerships with the leagues means a handful of traders can lease out the data to platforms at huge markups. It’s a major outlay that only the big betting platforms can afford, making competition nearly impossible.

“When you have a closed-off market with three providers that are in cahoots with the league, they determine what is the commercially reasonable price for the data,” said John Holden, a professor at Oklahoma State’s Spears School of Business, whose research focuses on the sports betting industry.

Online gambling in the US is still largely unregulated. As with so many other markets, concentration gives a few large companies the ability to wield disproportionate power to undermine political action or write the rules themselves. Further concentration in this market would likely lead to the most predatory practices and expose consumers to the highest risk. Without more scrutiny, online betting won’t be a game for millions of gamblers.

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