VIP programs offered by online gambling companies are drawing federal scrutiny

Sen. Richard Blumenthal (D., Conn.) sent letters last week to eight online gambling companies, including FanDuel and DraftKings, urging them to stop using player data and other marketing tactics to target customers with gambling problems.

He noted that The Wall Street Journals report last month describing a psychiatrist who tried to quit online gambling but lost more than $400,000 in less than a year, favored by perks and thousands of dollars in credits from ‘bets distributed by VIP hosts.

Gambling addiction is so pernicious because it is so prevalent and so rampantly denied as a problem,” Blumenthal said in an interview.

Meanwhile, Rep. Paul Tonko (D., NY) said he is working on legislation that would impose federal oversight of online sports betting in any state that has legalized the business.

Blumenthal is exploring ways sports betting companies encourage gamblers, including those with problems, to keep playing.

Bonuses and credits, promotions and campaigns, VIP hosts. It has to be looked at as a whole, and there may be aspects that should be banned or restricted much more rigorously,” he said.

Online sports betting and casino gaming have exploded in the United States over the past six years as more states legalized the industry. A total of 38 states and the District of Columbia have legalized sports betting, while six states allow online casino games such as slots or blackjack.

Gambling companies rely heavily on top spenders to generate revenue. Companies deploy so-called VIP hosts who build personal relationships with high spenders, often handing out betting credits to encourage players to deposit more money.

Companies collect customers’ betting habits, including collecting data on how long players spend on the app, how much they bet, what type of bets they make and how much they lose. Psychologists who study gambling addiction say the data could be used to identify customers with a problem.

Blumenthal said companies should use this approach and proactively offer treatment and self-exclusion services, which is an option for players to get banned from apps.

In his letters to the eight gambling companies, Blumenthal asked more than a dozen questions about their operations, including what customer data is collected and how that information is used. Blumenthal also asked if the companies would agree to end the VIP hosting programs and is seeking a response by April 8.

Blumenthal sent letters to FanDuel, DraftKings, BetMGM, Caesars, Fanatics, ESPN Bet, Betfred and Bet365. The companies did not comment on the Journal’s letter on the Blumenthals or refer questions to the American Gaming Association, a gaming industry lobby group that has opposed federal regulatory intervention.

Chris Cylke, the AGA’s senior vice president of government relations, said he is concerned policymakers will assume player data is being used to harm customers because the industry has already been discussing how artificial intelligence can improve ongoing efforts to combat problem gambling.

In January, Blumenthal and Rep. Andrea Salinas, D-Oregon, introduced legislation that would direct half of a federal sports betting excise tax to gambling addiction treatment and research through the Department of US Health and Human Services. The tax was estimated to generate about $250 million by 2023, according to the National Council on Problem Gambling.

In Tonkos’ proposal, the new rules would include a ban on advertising during live sporting events, a ban on credit cards as a form of payment and a ban on companies using artificial intelligence to make a monitoring of the players’ habits.

Gambling is regulated on a state-by-state basis, creating a patchwork of online gambling rules. The Journals’ profile of psychiatrist Kavita Fischer partly prompted a lawmaker in Pennsylvania, where Fischer lives, to ban credit cards for online gambling in that state.

Write to Katherine Sayre at katherine.sayre@wsj.com

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