What can we say about sports betting? It’s the thrill of the game, the rush of placing a wager, and for some shady characters, the chance to cash in on a buffet of fraudulent schemes.

Sports betting in the US has seen a meteoric rise thanks to the Supreme Court’s 2018 decision to strike down PASPA (Professional and Amateur Sports Protection Act). This year revenue in the online sports betting market could reach 17.2 billion US dollars. By 2029, the annual growth is expected to be 8,5%, so at the end of 2029 the revenue might reach 23,8 billion US dollars. The number of bettors is expected to be 54,7 million. And compared to the rest of the world, most revenue will be generated in the US–17,2 million US dollars in 2025. But this is all the light side of sports betting. Wanna see what’s going on in the dark side?

In 2023, millions of dollars that the sports betting market generated were lost due to fraudulent activities. These schemes come in many flavors: insider betting, match-fixing, identity theft, and the ever-elusive bonus abuse.

But hold on to your chips, because in this article you’re going to find out how fraudsters operate, the economic damage they cause, and what’s being done to fight back–including the big, bad world of Anti-Money Laundering (AML).


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Anti-Money Laundering (AML) measures

Fraud and money laundering go together like peanut butter and jelly. Sports betting platforms are usually the prime targets for laundering dirty money, mostly because it’s fast, anonymous, and lucrative. Criminals deposit ill-gotten gains, place a few inconspicuous bets, and withdraw ‘clean’ money, which makes the system a perfect laundromat.

To fight this, sportsbooks are doing all they can with AML efforts. You can think of AML as the financial equivalent of a linebacker ready to tackle bad actors. Through those efforts, and you can see how it looks in this review comparison, many AML softwares are designed to help companies meet regulatory requirements in order to combat financial crime and money laundering. Most AML software checks customers against sanctions, crimelists, PEPs, watchlists, and adverse media screening. They also help with monitoring so they can complement Know Your Business (KYB) and Know Your Customer (KYC) checks.

Some other measures that AML has include verifying the identity of users during account registration, using algorithms to flag suspicious betting patterns or unusually large transactions, and submitting suspicious activity reports (SARs) to financial authorities.

These measures did make life harder for fraudsters, but they’re far from perfect. Many criminals adapt and innovate faster than Bear Grylls can advise to adapt, innovate, overcome. That’s way the battle against fraud requires vigilance and cutting-edge technology.

The many faces of gambling fraud

Let’s unpack the bag of dirty tricks used by fraudsters in sports betting. First up, we have identity theft and account takeover. Criminals just love to steal personal information to create fake betting accounts or get access to existing ones. And once inside, they’ll drain accounts faster than a gambler on a losing streak.

The next gem in the bag is bonus abuse, a fraudster’s version of a buy-one-get-one-free deal. As you know, many sportsbooks offer generous welcome bonuses or risk-free bets to get to the new bettors. Fraudsters can be creative in making multiple fake accounts to milk these promotions, leaving sportsbooks to pick up the tab.

But wait, there’s more! Insider betting and match-fixing have also become hot topics to look after. It might sound incredible, but some fraudsters collaborate with athletes or referees to manipulate game outcomes. That way they can turn what should be a fair contest into a rigged circus.

If that’s not enough to make you angry, think about the rise of synthetic identity fraud. Here criminals mix real and fake information to create entirely new identities.

Image by jcomp on Freepik.

The financial fallout of fraud

Fraud isn’t just a headache for sportsbooks, it’s a migraine for the entire industry. According to recent studies, gambling fraud costs the global betting market quite a lot, just illegal bets adding up to 1,7 trillion dollars each year. The US is one of the hardest-hit regions, which is only natural by now. For sportsbooks operating on thin profit margins, losing even a fraction of revenue to fraud can be devastating.

It’s devastating to lose all that money, but it’s not all about that. Fraud also drives up operational costs. Sportsbooks must invest heavily in sophisticated security measures, so now they have AI-powered fraud detection and multi-factor authentication systems, among other anti-fraud measures.

And let’s not forget the damage that can affect reputation. Would you like to place bets on a platform that can’t protect its users’ funds and data? Nah, nobody would.

The ripple effect on consumers

You think fraud impacts sportsbooks alone? Well, not really. It impacts everyday bettors too. Fraud leads to higher feels and lower odds as sportsbooks try to recoup their losses. What’s more, data britches and taking over people’s accounts erode trust, so users might hesitate to come back and place bets or share personal information.

Imagine logging into your betting account only to find that someone has drained your balance or used your identity to rack up fraudulent bets. Yeah, we know–it’s frustrating and infuriating. That’s why it’s important to educate yourself and be aware. As a bettor, you should know the signs of fraud and take steps to protect yourself, like enabling two-factor authentication and avoiding suspicious betting platforms.

The technology fighting back

Luckily, technology is stepping up in the fight. Machine learning algorithms are now the main fighters against fraud. They’re the best fraud detectors you could have. These systems analyze huge amounts of data to identify unusual behavior, like fast betting on obscure sports or frequent withdrawals from multiple accounts linked to the same IP address. What’s more, some sportsbooks won’t allow more than one account per IP address, just to prevent people linking more accounts and getting bonuses and withdrawals. Nor are bonuses as they used to be–for some of them you really need to work hard.

In the meantime, blockchain technology is gaining a special place as a tool for ensuring transparency and traceability in transactions. Thanks to blockchain technology, you can record every bet on an immutable ledger, so it’s a lot harder for fraudsters to cover their tracks. Some startups are even considering decentralized betting platforms, which could further reduce the risk of fraud by eliminating intermediaries.

The legal landscape

On the legal front, regulators are tightening the screws. The Department of Justice (DOJ) and the Financial Crimes Enforcement Network (FinCEN) are increasingly scrutinizing sports betting operators for compliance with AML laws. States like Nevada and New Jersey now have strict licensing requirements that force sportsbooks to adopt robust anti-fraud measures. If they don’t, they might lose their licenses.

But the regulatory landscape, no matter how strict it looks like, is a puzzle. Each state of the US is a different puzzle piece with its own set of rules and regulations. Literally, what flies in one state might not in another. That only creates loopholes for fraudsters to exploit. A unified federal framework could help close these gaps, but who knows when and if that might be achieved. Getting unanimity of regulations is easier said than done.

Photo from Pixabay.

The future of fraud prevention in sports betting

So, where do we go from here? The fight against gambling fraud is far from over (it seems like it never stops), but the industry is making big steps. It’s helpful that technology is evolving and regulators are catching up, so sportsbooks will become harder targets as the time goes by. Collaboration will also play a key role. For instance, operators can share data and best practices in order to stay one step ahead of fraudsters.

In the meantime, bettors should be careful and play responsibly. Inform yourself if the sportsbook is legal or not (that is the first step everyone should do once they enter the betting world) before you commit to placing wagers there. Read some reviews about that specific platform and stay informed about all the bads that can happen (how else are you going to avoid them if you don’t know how they look alike?).

After all, sports betting should be about the joy of the game, not the stress of dealing with fraud. And for the fraudsters out there, remember: the house always wins in the end.


Author: Petra Rapaić is a B2B SaaS Content Writer. Her work appeared in the likes of Cm-alliance.com, Fundz.net, and Gfxmaker.com. On her free days she likes to write and read fantasy.