Sports Betting Operators Find Opportunities and Challenges in New Artificial Intelligence Tools

By: Jacob Grubman

For bookmakers, who have honed their tools of prediction since the dawn of sports betting, artificial intelligence seems like a natural fit. With a diverse array of AI and AI-adjacent products reaching the market, sports betting operators are primed to exploit these technological developments to offer new and better products to their users. As these two frontier industries meet, regulatory hurdles and obligations are likely to shape both economic trends and the nature of AI integration in sports betting.

Novel legal issues abound in both industries. On the sports betting side, more states continue to permit sports betting (in its many permutations) each year, with Massachusetts introducing in-person betting in January and planning to roll out mobile gaming imminently. Meanwhile, industry players have found themselves navigating administrative rulemaking processes, marketing debates, and consumer protection policies.

And artificial intelligence has garnered substantial attention from regulators at all levels. In 2020, the U.S. Congress established the National Artificial Intelligence Initiative, the goal of which is to coordinate responsible and effective research and development of artificial intelligence systems through American society, and the National Telecommunications and Information Administration recently issued a request for comments on AI accountability. Congress continues to weigh AI-related legislation, and in the fall, the Executive Branch published its “Blueprint for an AI Bill of Rights.” Meanwhile, numerous states have passed bills at least touching on artificial intelligence, and the California legislature is currently debating what could be the nation’s broadest “horizontal” (i.e., cross-sector) regulation of AI.

The sports betting industry has already begun to experiment at the intersection of these two industries. Companies like Stats Perform use AI to analyze athletic contests, and gaming platforms like Yahoo Fantasy Sports (in partnership with Automated Insights’ Wordsmith) use the technology to personalize performance analysis. And anti-money laundering and Know-Your-Customer initiatives have long since begun integrating artificial intelligence, as illustrated by William Hill’s partnership with the screening firm Accuity in July 2020. As sports betting operators integrate artificial intelligence tools, prominent legal issues are likely to include AI vendor licensing obligations, data privacy protections, and matters of responsible gaming.

Sports Betting Licensing and Artificial Intelligence Firms

With 36 states having already legalized sports betting and an estimated one in five Americans  active in sports betting, the industry increasingly demands the attention of potential partners, including artificial intelligence firms. In a February 2023 report, Grand View Research, Inc. estimated that the sports betting market would grow to $182.12 billion by 2030—in part because of the proliferation of sophisticated prediction algorithms allowing oddsmakers to streamline their operations and offer more accurate betting data.

In light of the ballooning value of sports betting in the United States, artificial intelligence firms are likely to explore new roles in the market. While predictive tools offer an obvious entry point for AI developers into the sports betting market, artificial intelligence is also likely to play an important role in marketing and player account management. For example, one sports betting aggregator recently boasted the use of artificial intelligence technology that “continuously produces unique content and specialized data streams via multiple access points.”

As artificial intelligence firms explore the sports betting industry, regulatory requirements could limit the scope of market entrants and also circumscribe the role of AI in customer-facing offerings.

Generally, artificial intelligence developers find themselves ahead of the frontier of governance, acting without “horizontal regulation” applicable to AI technology across industries. Meanwhile, with respect to “vertical,” industry-specific regulations, AI developers are presently free of technology-specific restrictions or registration requirements. (In a recent joint statement, several federal agencies noted that “[e]xisting legal authorities apply to the use of automated systems and innovative new technologies just as they apply to other practices.”)

That freedom of movement is absent from the sports betting market, one of the country’s most heavily regulated industries. Most states extend licensing requirements to all vendors connected with sports betting operations, which would likely extend to any AI firms entering the market. But if AI executives are reticent to engage with the sometimes-burdensome sports betting licensing process, that market’s rapid growth will likely draw more AI market players into the fold.

Regulation of Automated Data Processing

Among the many broadly popular applications of artificial intelligence is in customer service, as automated tools can simplify processes for users and supplement the help provided by live agents. Chatbots can provide online customer service responses, and service representatives can utilize back-end AI tools to quickly process customer information, identify issues, and implement solutions.

Online gaming platforms have also begun to implement AI in detecting cheating, as pattern detection algorithms allow operators to identify suspicious behavior and prevent cheating and fraud. Illustrating the technology’s capabilities, Sportsradar, a Swiss data and sports monitoring service, reported that its AI program helped to identify 438 instances of suspicious matches. The company’s technology “increased the amount of data points processed for every single match the company monitors,” and analyzed “account-level betting data to help confirm otherwise undetectable micro-level suspicious betting activity.”

Notably, though, platforms that implement AI tools with respect to customer data must contend with emerging data management standards, which could require backstops to automated processes. In states like Colorado, Connecticut, and Virginia, consumers have the right to opt out of the processing of personal data for the purposes of “profiling in furtherance of decisions that produce legal or similarly significant effects concerning the consumer.” Generally, those restrictions do not presently extend to eligibility determinations, but the laws suggest the need for human intervention in certain automated data processing mechanisms will continue despite the technological developments.

That issue also ties into the matter of licensing: when AI vendors take on full discretion for eligibility decisions, rather than communicating levels of risk to operators, many states impose greater licensing requirements.

Customization and Responsible Gaming

Industry players across markets have also hailed artificial intelligence as enabling new customization techniques to improve user engagement. Algorithms empower companies to better understand their customers and provide improved experience and better engagement.

Sports betting operators are likely to implement these tools to connect users with the offerings that best match their preferences, whether by sport or gaming style. Notably, though, exploitation of AI to improve player engagement can run contrary to responsible gaming standards, as companies are generally responsible for reducing problem gaming.

In this respect, artificial intelligence also offers tools to mitigate the issue rather than exacerbating it. Feeding machine learning algorithms a set of data including win-loss rates, the timing and amounts of deposits, and the types of games played can aid operators in identifying potential problem bettors and provide resources as needed. The New Jersey Division of Gaming has already started to implement the technology for this purpose, capturing and analyzing player data to uncover potential problem gambling patterns and offer players appropriate resources.

Conclusion

Artificial intelligence seems well-suited for the sports betting industry – providing players with an enhanced betting experience and serving as a tool for sportsbooks to increase profitability, engagement, and security. Given these circumstances, some marriage of sports betting platforms and artificial intelligence seems inevitable in the coming years. Despite the gusto with which AI firms may join the sports betting world, regulatory guardrails may limit the manner and speed with which the technology is incorporated. Firms exploring such integrations will need to be cognizant of licensing demands and restrictions on automation already on the books and those likely to develop as the industries grow.

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