The rise of legalized sports betting highlights the complexities of increasingly sophisticated predictive markets.
The kickoff of Fall signals another proverbial kickoff – the return of America’s favorite pastime, NFL football. Tens of millions of Americans will not just watch, but also “play” by joining a fantasy football league. The American Gaming Association expects bettors will wager a staggering $35 billion through legal sportsbooks this NFL season, up 31% from last year.
It has been only six years since the U.S. Supreme Court struck down a federal statute preventing sports wagering. In that time, sports betting has rapidly grown, driven by both legalization in thirty-eight states and the District of Columbia and technological innovations powering more advanced betting. Fans can bet on more than just the outcome of the game; they can bet on a collection of outcomes across multiple games at the press of a button. As the industry approaches a national scale, questions have been raised about the impact of legalized sports betting and widespread speculative trading, including what exactly, if anything, needs to change to protect fans, players, and the integrity of sports themselves.
Proponents argue that the legalization of a practice that was already taking place illegally has allowed for more responsible oversight of the industry and for states and leagues to financially benefit. In the first five years of legalization, it is estimated that states received $3 billion in incremental tax revenue from sports betting. Leagues, like the NFL, NBA, NHL and MLB, benefitted directly from both the lucrative partnership agreements with sport betting platforms like DraftKings, FanDuel and Caesar’s, and the higher engagement from fans who have a literal stake in the game. The billions received by states, leagues, and betting platforms – who can reinvest the capital into business development – make it unlikely that sports betting will become illegal again, at least in the near term. As a professor in the business of sports at Washington University in St. Louis told the New York Times, “there is no putting the toothpaste back in the tube.”
However, the legalization of sports betting has highlighted the serious risks associated with the creation of a speculative market. The most obvious of these is a higher rate of gambling addiction, especially among young fans. Calls to gambling addiction help centers reportedly doubled in several states following the legalization of sports betting. The gamification of the sports betting “marketplace” is a major driver of this worrying trend.
Thirty states have legalized online sports betting, enabling the rise of mobile betting. On mobile betting apps, platforms have eliminated customer friction, making it seamless and fun for fans to wager. The development of more advanced algorithms and simulations to price risk has empowered platforms to offer more complex wager structures. No longer are fans only betting on the outcome of a single game, they can engage in prop bets – micro bets on specific occurrences in a game, or complex parlays – a series of bets that all must hit for the bettor to win. All have their own risks. Prop bets have made preserving the integrity of games even harder. It provides temptation for players to fix aspects of their performance to hit a certain line, which can be harder to detect than throwing an entire game. Complex parlays tend to have lower odds, but higher payouts – making them particularly attractive from a margin perspective for betting platforms, but riskier from a consumer perspective.
These cross-sell and upsell products have powered the rise of legalized sports betting platforms like DraftKings, FanDuel and Caesar’s. The high cashflow nature of these businesses lets them heavily invest in customer acquisition, from sports betting ads during games and at stadiums to attractive entry offers, like “Bet $5, Get $200 in Bonus Bets” from FanDuel. These promos create powerful flywheel effects for betting platforms, likely at the expense of fans’ long-term wellbeing.
The ability to engage in increasingly complex bets has also heightened the risk of player scandal. Legalized sports betting has created a marketplace, which to be efficient and fair, is dependent on equal access to information. However, with prop bets in particular, the sheer number of potential bets across multiple leagues and hundreds of players has made it easier and more tempting than ever for individuals to trade on asymmetric information, or for players to throw the odds. As a result, there have been a number of major player betting scandals. Each league sets its own rules and regulations for players, in coordination with their player associations – which has led to nuances that players must carefully navigate or face severe penalties.
Unsurprising given its status as the largest sports league in the U.S., the NFL has one of the strictest sets of rules: NFL employees are unable to wager at all, but NFL players can bet on other sports under certain conditions (i.e., not betting on team facilities or on team trips, etc.). For leagues, these scandals risk the very integrity of the sport.
There are also serious concerns about players’ wellbeing. With money on the line, fanfare can descend into fanaticism and aggression. NCAA President Charlie Baker has even called for states to ban college prop bets given the growing number of player scandals and the harassment that these young players face from bettors when money is at stake. For individual sports, the onslaught of outrage from a surprise loss is a particularly heavy burden. Several tennis players have publicized the abuse they received after losing a key match when the odds were stacked in their favor, including threats to their life.
Altogether, leagues and states are grappling with how to protect fans, players, and the integrity of the game – and that requires keeping up with the latest technology. The companies developing sophisticated predictive models that power betting marketplaces also help monitor the market. The NFL has a strategic partnership with Genius Sports, who “powers over 98% of the legalized US sports betting market with official NFL data, driving innovations such as player props, micro-betting, same-game parlays” and who is also charged with monitoring and flagging irregularities. This dynamic has worked so far likely because leagues are highly motivated to ensure games are fair – or risk losing their appeal to fans. However, the proliferation of AI and more advanced predictive algorithms, which price risk across a range of sectors, has opened the door for new markets beyond sports. One example of this, Polymarket, one of the largest prediction market platforms, enables users to bet on nearly any geopolitical event. While it is currently illegal to bet on U.S. politics within the U.S., like sports betting, it is likely to be a topic for regulators to grapple with as demand for these products grows.
The ongoing debate around legalized sports betting potentially foreshadows the key questions and risks we will face with the advance of predictive modeling. As new market opportunities grow, where should we draw the line on what can and cannot be traded? What are the right guardrails to put in place to protect individuals? Will the burden fall on governments to design and enforce regulations, or will we charge the technology companies themselves? With the rapid pace of technological change, we may need to address some of these questions sooner rather than later.
Special thanks to Matthew Young (HBS ’25) and Abby Desai (HBS ’26) for their industry insights.
Meredith Nolan (MBA ’26) is originally from outside of Washington, D.C. She graduated from the University of Virginia with a BS degree in Commerce in 2020. Prior to the HBS MBA, Meredith worked in private equity in San Francisco on TPG’s Consumer team.
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