Beating the Odds: Resolving Sportsbook Mistakes Fairly

Introduction

Since states began legalizing sports betting in 2018, Americans have wagered US$ tens of billions per year on sports. With such a sharp rise in what is essentially a new regulatory market in most jurisdictions, states and the sportsbooks that operate within them have entered unchartered territory. One novel issue that has arisen to date is the resolution of disputes between bettors and the sportsbooks over payouts. Unlike other types of gambling, sports betting is based on subjective odds that are created by Vegas oddsmakers pertaining not only to the outcomes of games themselves, but situations within the games. Regulating odds on win, lose or draw is a simple task, and one that does not invite much error. With mobile sports betting, however, live game betting and even live player propositional bets have exploded in popularity. Setting live odds for wagers on mobile sports betting apps presents more of a challenge for sportsbooks. The bets available on a sportsbook platform change in real time based on a numerous gameplay factors. This requires sportsbooks to update wagers and accompanying odds as the games themselves play out. Unlike odds published before the start of a game, live odds are set using algorithms that the sportsbooks have created to react to given situations.[1] Those automated procedures are not foolproof, raising some novel questions. What happens when a bettor capitalizes on incorrectly-set odds created by a malfunctioning algorithm? Should sportsbooks be able to cancel the wager, refund the money, and refuse to pay out the winnings? Should the winner be paid out at the incorrectly high odds because, after all, it was the sportsbook’s fault for not setting correct odds?

In an era where public trust is still being established, these questions matter. Aware that errors can be costly, some of the country’s largest sportsbooks are already taking precautionary measures, while acknowledging that they are at the mercy of the state regulators that oversee them. Caesars Sportsbook’s House Rules includes the provision: “We reserve the right, pending regulatory approval, to correct any obvious error made on a wager placed in one of our betting Live markets and settle at the correct odds or terms, which were available with Caesars Sportsbook (absent the obvious error) at the time the wager was struck.” [2]

Background and some big payouts to date

Since the abolition of PASPA in 2018, U.S. states have rapidly legalized sports betting. Today, 37 states and the District of Columbia allow sports betting, and of those, 27 states and D.C. have legalized mobile sports betting, which allows for remote wagering from a smart phone or other device.[3]

The regulatory regimes that oversee sports betting vary by state, with some states having a gaming commission whilst others rely on their state lottery boards. This alters the way that disputes are handled. For example, Mississippi and Louisiana, which had established gambling regulatory bodies in the early 1990s when they legalized riverboat gambling, gave those bodies additional oversight of sports betting.[4] Meanwhile, in Tennessee, which had no pre-existing commercial or casino gaming prior to 2019, sports betting is overseen by the newly- created Tennessee Sports Wagering Advisory Council.[5] Despite the relative youth of the sports betting market in most states, there have already been a number of high-profile disputes between bettors and sportsbooks.

2023 DraftKings Incident

On NBA Opening Night on October 24, DraftKings’ single-game parlay vendor, Sportcast, sent what were supposed to be first-quarter wagers to DraftKings to be published on the online sportsbook.[6] Due to a miscommunication, the wagers were made available as full-game over/under totals.[7] Bettors capitalized on slam-dunk bets, such as Lebron James to score over 8.5 points, get over 2.5 rebounds, and have over 6.5 assists for the whole contest. The incorrect totals were available in multiple states where DraftKings is a licensed sportsbook operator and in the 13 minutes before DraftKings noticed the error, 137 bettors in Massachusetts placed 178 bets totaling US$4,182. The largest of these was a seven-leg parlay that was set to pay out US$150,000. Because the bets were all successful, DraftKings could suffer a liability of over US$575,000 in that state alone.

New York, Colorado, and Indiana swiftly allowed DraftKings to void bets in those states. Connecticut regulators denied DraftKings’ request to void the winnings there, forcing DraftKings to honor about eighty bets totaling US$151,00. Massachusetts took its time to reveiw the situation and, interestingly, the Massachusetts Gaming Commission ruled in November 2023 that Draftkings could partially void the wagers but must pay three-times the initial wager to the bettors involved.[8]

2023 BetMGM Incident

In the summer of 2023, a Virginia high school teacher and soccer coach, Kris Benton bet a same-game parlay in the 2023 Women’s World Cup. He placed a US$3,250 wager at odds of +6600 on Netherlands to score first and have the most corner kicks in its game against Vietnam despite the Europeans being heavy favorites. His wager should have resulted in a payout of US$214,000, however, BetMGM’s terms and conditions allowed it to revise winnings with obvious errors. Instead of honoring Benton’s win at the correct odds, it simply returned his wager.[9] After the story went viral on social media, and the Virginia Lottery stepped in to review BetMGM’s decision, the sportsbook decided to honor Benton’s victory and paid out the $214,000.

These were just two of several high-profile incidents involving Caesars and FanDuel. In some cases, the sportsbooks judged the losses due to poor publicity to be greater than the cost of paying out; in others they have resisted; and in others the regulator has intervened. Whilst this may be expected in the very different circumstances involved, it would nevertheless be helpful to have some agreed principles of contract law and consumer protection to rely upon.

How to Handle Disputes: Competing Principles of Contract Law and Protecting Consumers

Gambling wagers form an aleatory contract between the bettor and the casino or book.[10] They depend on uncertain events that are outside of the control of the contracting parties.[11] As such, wagers as legal, enforceable contracts are a novelty, although they do have similarities to other forms of contract and, to that end, the principles of contract law apply. Regulators are required to balance competing principles of contract law with the long-term economic interests of those in the gaming industry.

Contra Proferentem

The first significant principle is that of contra proferentem (“against the author”), the doctrine that contractual ambiguities are interpreted against the drafter.[12] The object is to protect the non-drafting party, who is often the would-be beneficiary of the ambiguous provision. This doctrine is typically applied to insurance policies which, similar to wagers offered by casinos and sportsbooks, are adhesion contracts drafted by the underwriting companies.[13] As with insurance policies, wagers are placed without any meaningful negotiation by the parties and are entered into by parties of unequal bargaining power; a casino is a sophisticated entity, but a bettor is not necessarily.

Gaming regulators should liken incorrect odds to shoddily drawn contract provisions. Betting odds are available on sportsbooks, without any opportunity for negotiation by bettors. Instead, consumers rely on sportsbooks to publish odds that are a) commensurate with the thing being bet upon and the wider betting market, b) fair to the consumer, and c) most importantly, correct.

Even with the rise of in-game betting, bettors are still entitled to the reasonable expectation that the odds available on the sportsbook platforms are correct. As the more sophisticated party to the betting contract, the burden of ensuring that published odds are correct should fall with the sportsbook, not the consumer. Relying upon the sportsbook to have done its due diligence, the bettor should not be punished for a mistake over which it has no control. This holds true where consumers wager on their own parlays as the bettor is incorporating bets already offered on the platform, and the odds will derive from those of similar available bets.

Mistake

Mistake is another equally demanding principle of contract law which is pertinent.

“In law, a mistake is a belief that is not in accord with the facts…More than this, a mistake is an unintentional act or omission arising from ignorance, surprise, imposition or misplaced confidence; it exists when a person under some erroneous conviction of law or fact does or omits to do some act which, but for the erroneous conviction, that person would not have done or omitted.”[14]

This doctrine raises important questions. Does mistake in a betting contract make the contract voidable? Do both parties need to have committed a mistake? It stands to reason that a sportsbook would never knowingly publish longer odds as doing so would cost it money. At the very least, then, unilateral mistake always exists when a wager is placed with incorrect odds. So, should that grant sportsbooks the authority to void all such wagers?

In 2021, Ryan Cristman sued DraftKings in Michigan court, alleging the sportsbook was refusing to pay him over US$5,000 stemming from a win on a hockey bet.[15] Cristman bet US$915 on the Boston Bruins at +3 in their Feb. 10, 2021, game against the New York Rangers. The odds on the Bruins to lose by 3 goals or less were available at +510. Importantly in that case, Cristman knew the odds were incorrect when he bet (i.e., formed the contract). In fact, he contacted DraftKings before the game to double-check that the odds were right and called the wager “free money.” DraftKings, not yet realizing that the odds were incorrect, told Cristman that they were right. The Bruins won the game, 3-2, but DraftKings identified Cristman’s wager as a loss, saying that the Bruins were supposed to be listed at -3. DraftKings refunded the bet and offered Cristman US$100 in site credit.[16] Cristman sued, and while the disposition of his case is unknown, the facts present an interesting challenge. It would be a very fact-intensive and difficult process to determine, in every dispute, whether the bettor knew that the odds were wrong and took advantage of the sportsbook, or whether he or she was simply ignorant to the mistake and bet in good faith. Indeed, it would place a heavy burden on sportsbooks and regulators to resolve that fact question in every investigation.

Typically, a contract is not voidable for a unilateral mistake, one made by only one party. To be voidable, the mistake must be mutual, and both parties must be mistaken.[17]

“Moreover, a clear mistake by one party, coupled with ignorance by the other party, is not a mutual mistake and will not be corrected. However, when the mistake of one party, with respect to the meaning of some material provision of the signed contract, is accompanied not only by the other party’s knowledge but, also, by that other party’s silence, this is treated as the equivalent of a mutual mistake and equity will reform that instrument.”[18]

In other words, a contract is voidable for a unilateral mistake if the non-mistaking party is aware of the mistake and withholds its knowledge of the mistake (takes advantage of its knowledge of the mistake).[19] Under general principles of contract law, DraftKings could have attempted to void Cristman’s bet for lack of good faith in taking advantage of his knowledge that the available bet was incorrect. However, Cristman did not withhold his knowledge of the mistake. He contacted DraftKings and only when a DraftKings representative mistakenly assured him that the odds were correct, did he place his bet. Whilst this demonstrates good faith, Cristman’s wager may still be voidable.

It is all about the intent of the bettor. If the sportsbook publishes incorrect odds, this is a “clear mistake” by the sportsbook. If the customer bets not knowing that the odds of the wager were wrong, then that is not a mutual mistake and would not be corrected. Alternatively, if, as in the Cristman case, the bettor knows that he or she is capitalizing on false odds and does so to take advantage of the sportsbook’s mistake, contract law tells us that such a bet will be voidable by the sportsbook as “equivalent of a mutual mistake.”

Clearly making such an individual determination in each case is something sportsbooks and regulators are likely not willing to undertake due to time and investigative costs. Instead, by validating victorious wagers and paying them out at fair market rates, sportsbooks and the regulators that oversee them are promoting consistency and fair dealing, protecting consumers, and preserving the long-term economic interests of sportsbooks.

Lotteries: An Imperfect Guide

The relative youth of sports betting in many markets and the even shorter history of novel remote betting via computers, mean there is limited case law. The only form of legal gambling that has had a longer connection to technology is state lotteries. While these have been the subject of scores of legal actions brought by prospective winners, a very limited number of them have been successful.[20]

That being said, there is no doubt that the purchase of a lottery ticket forms a valid contract,[21] although one must differentiate between lotteries and sportsbooks in light of numerous cases where claims arising from alleged technological malfunctions or other processing errors have been rejected. In some cases where courts rejected lottery plaintiffs’ claims, the malfunction at issue was one involving the printing of lottery tickets done by third-party companies apart from the actual state-sanctioned lottery game.[22] This differs fundamentally from the sportsbook context in two important respects: 1) sportsbooks are private enterprises, unlike states or state-sanctioned lottery corporations (which are quasi-government agencies), and 2) although sportsbooks use third parties to set odds, the operators ratify those odds by publishing them on their platforms.[23]

Because sportsbooks facilitate their own wagers with patrons, they have a duty to honor the wagers placed on their sites and take responsibility for mistakes made through incorrectly set odds. It would be imprudent for sportsbooks to be able to decide unilaterally that a bet was placed with incorrect odds and then to void it.[24] Without regulators exercising their discretion to step in and facilitate payouts (at correct, market rate odds) on bets that were placed at incorrect odds, sportsbooks could cancel large wins on the basis of even slightly-off odds under the guise that the wager was voidable for mistake.

While debate continues as to the degree that sports betting is a game of skill versus chance, it certainly differs from buying a lottery ticket in a fundamental way.[25] Lotteries are purely games of luck. Patrons buy tickets of randomized combinations of numbers, and they may only win if their combination matches the winning combination. A sports bet, on the other hand, has two important components. The first is the bet itself. The bettor utilizes his knowledge of the game, facts about the player or team, history, context, and stats to divine a bet that something will or will not happen during the contest.

A second separate component is the odds at which the bet is placed. Even if the sportsbook allowed the wager to be placed at incorrect odds, the bettor is still owed compensation for being correct about the outcome on which he or she bet[26]. A patron attempting to defraud the state lottery by presenting a falsified winning ticket is very different from a sports bettor winning his bet at incorrect odds where the sportsbook can verify whether or not the bettor correctly predicted an outcome. In the latter case, the bettor deserves his prize even when the sportsbook errs and accepts the wager at mistaken odds.

Conclusion

With the explosion in popularity of sports betting (actively encouraged by the sportsbooks), many bettors are novices. This new generation will not become regular players if interested parties do not take affirmative steps to encourage them to continue playing. Part of this obligation requires that regulators protect individual bettors in disputes with sportsbooks over incorrectly set wagers and odds. It is impossible to determine the intent of every sports bettor and to know whether he or she is sophisticated enough to realize that odds are either too high or too low. Erring on the side of the players will be to the industry’s benefit in the long run.

When disputes arise because bettors gain an advantage because of wrong odds or otherwise tainted bets, state gambling regulators should step in and settle the disputes by facilitating payout at market value odds using either the odds set by other books or by a fair value for that type of bet as determined by the regulatory body. By mandating that bettors will be paid winnings (instead of having their bets voided), but only at fair market values, state gambling regulators can not only protect bettors, but also ensure the health of the sports gambling industry. Having consistent, tight restrictions on sports betting will help ensure that the industry remains a viable gambling option in the United States.

[1] Malcolm Lemmons, 3 Ways Artificial Intelligence is Impacting Sports Betting, BOARDROOM (2023), https://boardroom.tv/artificial-intelligence-sports-betting-ai-technology/ (last visited Nov 16, 2023).

[2] 5 Some House Rules, CAESARS ENTERTAINMENT (undated), https://caesars.com/sportsbook-and-casino/az/support/house-rules/

[3] Interactive U.S. map: Sports betting, AMERICAN GAMING ASSOCIATION (2023), https://www.americangaming.org/research/state-gaming-map/

[4] MISS. CODE ANN. § 75-76-7; Fantasy Contest Act, H.B. 967, Regular Session 2017 (Mississippi 2017);

5] TENN. CODE ANN. § 4-49-105; State of the States 2023, supra note 1.

[6] Bill Speros, Massachusetts Sports Betting: DraftKings seeks to void $575k payout on “error,” BOOKIES.COM (2023), https://bookies.com/news/massachusetts-sports-betting-updates (last visited Nov 28, 2023).

[7] Robert Linnehan, Massachusetts Mulling over DraftKings’ Request to Void 178 Bets Placed on Incorrect Totals, SPORTS BETTING DIME (2023), https://www.sportsbettingdime.com/news/betting/massachusetts (last visited Nov 28, 2023).

[8] https://sportshandle.com/massachusetts-gaming-commission-allows-draftkings-void-wagers/

[9] Jagajeet Chiba, BetMGM: Sorry Our Bad, Won’t Pay $214K in Winning Bets to Teacher, GAMBLING 911 (2023),

https://www.gambling911.com/betmgm-wont-pay-teacher.html

[10] Aleatory Contract Law and Legal Definition, US LEGAL (undated), https://definitions.uslegal.com/a/aleatory-contract

[11] John T. Holden & Ryan M. Rodenberg, Modern Day Bucket Shops? Fantasy Sports and Illegal Exchanges, 6

TEX. A&M L. REV. 619, 623 (2019).

[12] 11 WILLISTON ON CONTRACTS § 32:12 (4th ed. 2023).

[13] Id. “A ‘contract of adhesion’ is a contract wherein a party in superior bargaining position dictates the contract term to the weaker party on a take it or leave it basis without any reasonable opportunity for negotiation.” Lenz v. FSC Securities Corporation, 414 P.3d 1262 (2018).

[14] 27 WILLISTON ON CONTRACTS § 70:1 (4th ed. 2023).

[15] Class Action Compl. & Demand for Jury Trial, Cristman v. DraftKings, Inc., No. 2:21-cv-11092-SDD-DRG (E.D. Mich. May 12, 2021).

[16] Brian Pempus, Gambler Knew Odds Were Too Good To Be True, But Sues Draftkings In Federal Court, MIBETS (2023), https://www.mibets.com/draftkings-michigan-lawsuit/

[17] 27 WILLISTON ON CONTRACTS § 70:9 (4th ed. 2023).

[18] Id. (emphasis added).

[19] See CAL. CIV. CODE § 1578

[20] George L. Blum, Annotation, State Lotteries: Actions by Ticketholders or Other Claimants Against State or Contractor for State, 48 A.L.R. 6th 243 (2009).

[21] See Georgia Lottery Corp. v. Patel, 349 Ga. App. 529, 826 S.E.2d 385, 389 (2019) (exhibiting that purchasing a lottery ticket forms a valid contract).

22] See Moore Business Forms, Inc., 698 So. 2d at 612. But see Leavy v. Games Management Services, 451 N.Y.S.2d 544 (App. Term 1982) (recovery possible if plaintiff could show that its loss was the result of the negligence of a third-party contractor of the state lottery, where a winning lottery entry was allegedly disregarded because contractor did not record the winning numbers on microfilm at the lottery headquarters).

[23] Re: RFP No. 2 — Request For Proposals For Comprehensive Accounting And Auditing Services, MISS. LOTTERY CORP. (2019), https://mslotteryhome.com/wp-content/uploads/2019/09/Answers-to-Questions-regarding-RFP-No.-2.pdf

[24] See generally Ledoux v. Grand Casino-Coushatta, 2006-1500 (La. App. 3 Cir. 4/4/07), 954 So. 2d 902, writ denied, 2007-0954 (La. 6/22/07), 959 So. 2d 507.

[25] Lopez-Gonzalez, H., Griffiths, M.D. & Estévez, A. Why Some Sports Bettors Think Gambling Addiction Prevented Them from Becoming Winners? A Qualitative Approach to Understanding the Role of Knowledge in Sports Betting Products. J. GAMBL. STUD. 36, 903–920, 905 (2020). https://doi.org/10.1007/s10899-020-09944-3 (identifying sports betting as “skill-based gambling”). See also Marc Dib, A Game of Skill Or Chance: Why Texas Should Legalize Daily Fantasy Sports, 51 TEX. TECH L. REV. 361, 378 (2019) (addressing daily fantasy sports (“DFS”) contests as a game of skill or chance)

[26] See, for example, Palmisciano v. Burrillville Racing Ass’n, 603 A.2d 317 (R.I., 1992)