Rob Gronkowski has come out of retirement and is back in New England.
Not for the Patriots, sadly, but for FanDuel, one of a number of betting apps flooding the zone with ads since online sports gambling became legal in Massachusetts on March 10. FanDuel is putting Gronk everywhere, from billboards to banner ads, touting the app’s promotional “bonus bets.” “Bet $5, Get $200,” they all blare, calling the deal “reGronkulous.”
Perhaps. Here’s how this particular type of bet works. You sign up with the app and deposit a minimum of $5, which you subsequently bet. FanDuel then puts $200 into a bonus account for you. When you gamble and lose with these funds, you lose only the bonus dollars. But when you win, you keep the proceeds, no strings attached.
I did just that last week during the first round of the NCAA basketball tournament. With a mere $5 deposit and a little help from the Kansas State Wildcats (the team beat favored Kentucky on Sunday), I turned my bonus dollars into a little over $230 in real money, which I promptly withdrew. Granted, I got lucky, but clever gamblers have found a foolproof way to guarantee winnings by pitting apps against one another, taking the bonus bets from two different apps and placing them on two sides of the same game. So if I had taken $200 from DraftKings and bet on Kentucky, I would have a guaranteed payout no matter which team won. And as Bloomberg reported last year, others are trying to game the system in even more elaborate ways — often with really big surefire payouts.
Sounds too good to be true, right? For savvy bettors, though, it’s really not: This is free house money, pure and simple. However, we all know that the house never loses. And the people who pay for this “free money” are often the ones who can least afford to do so.
In this way, bonus bets are a little bit like credit card reward points. As Stanford’s Chenzi Xu and Jeffrey Reppucci explained recently, they’re a fantastic deal if you have the means and the aplomb to use them well. But they’re essentially funded by fees levied on poorer borrowers. Or as Xu and Reppucci put it, customers with low credit scores and big balances are funding wealthy cardholders’ trips to Bali.
So who’s paying for my bonus bets? Potentially three groups.
The first and least problematic of these are gamblers who just don’t walk away. Obviously, apps like FanDuel and DraftKings use bonus bets as an incentive to lure new customers. And some substantial percentage of users stay on, ploughing their winnings back into more bets — and more reliable profits for the company. You only get the free money if you withdraw it, and many don’t.
The second group, however, is a more troubling subset of the first: problem bettors and gambling addicts whose easy access to online wagering will likely fuel self-destructive habits that compel them to spend well beyond their means. That Massachusetts will funnel 9 percent of tax revenues secured by sports betting to programs devoted to treating and researching new treatments for problem gambling suggests that the state is aware of the problem. FanDuel, however, is banking on it.
The third group is, at least potentially, taxpayers. The New York Times recently revealed that numerous states that have recently legalized betting have allowed apps to deduct the money they dole out in promotions from their taxable revenues. The question remains unsettled here in the Commonwealth. At the most recent meeting of the Massachusetts Gaming Commission, commissioners decided that they had the authority to decide whether promos would be deductible (by a 3-to-2 margin) but tabled the question until a future meeting.
If they ultimately do decide in the apps’ favor, we’ll all be paying for my bonus bets. And that would be truly reGronkulous.
Joshua Pederson teaches ethics at Boston University. Follow him on Twitter @joshua_pederson.