The AI-Powered Gambling Epidemic#
Online sports betting has exploded since the Supreme Court’s 2018 Murphy v. NCAA decision struck down the federal ban on sports wagering. What followed was not just the legalization of gambling, it was the deployment of sophisticated AI systems designed to maximize engagement, identify vulnerable users, and exploit psychological triggers to drive compulsive betting behavior.
The numbers are staggering: the global sports betting market is projected to reach $221.1 billion by 2029, with AI-powered platforms seeing user engagement increase by 215% since 2020. Problem gambling helpline calls have increased 234% since sports betting legalization. And research shows that 14% of sports bettors have experienced suicidal thoughts linked to AI-driven personalization.
In 2025, a wave of lawsuits, regulatory actions, and legislative proposals is challenging the legal premise that gambling companies bear no responsibility for addiction. The central question: When AI systems are specifically designed to identify and exploit vulnerable users, does the traditional “personal responsibility” defense still apply?
The Litigation Wave#
Landmark Individual Case: Dr. Kavita Fischer v. DraftKings (February 2025)#
Dr. Kavita Fischer, a psychiatrist, filed a groundbreaking lawsuit against DraftKings in the U.S. District Court for the Southern District of New York on February 12, 2025.
The Facts:
Fischer lost more than $190,000 on DraftKings over approximately four months, depositing $208,130.50 between January 1 and April 29, 2023.
The Allegations:
The lawsuit claims DraftKings “intentionally targeted and preyed on Plaintiff with incentives, credits, and gifts to create, nurture, expedite, and/or exacerbate her addiction despite and/or because of their knowledge of her addiction.”
Key Evidence:
- In early January, Fischer emailed her VIP host that she “should probably use (her) rational brain and switch to a table game or quit gambling completely” while asking for “some VIP love based on (her) donations to DK this year”
- DraftKings responded by sending her $500 in casino credits the same day
- On March 21, she asked DraftKings for a loan to pay her mortgage, writing: “Probably means I need to quit gambling soon also”
- Over the following week, Fischer received six emails from DraftKings “containing enticements to continue and raise her deposits and gambling”
The Settlement:
In July 2025, DraftKings reached a confidential settlement with Dr. Fischer, and the case was “voluntarily dismissed with prejudice.” The settlement terms were not disclosed.
City of Baltimore v. DraftKings and FanDuel (April 2025)#
On April 3, 2025, Baltimore became the first major municipality to sue online sportsbooks over gambling addiction.
Core Allegations:
- The companies employ algorithms and aggressive marketing strategies to cultivate gambling addictions
- In January 2025 alone, Marylanders placed more than $457 million in bets on the two platforms
- The companies exploited known risks by creating algorithms that detected addictive habits and offered players incentives to keep betting
- Violation of Baltimore’s consumer protection law through intentionally deceptive and abusive business practices
Procedural Posture:
In May 2025, DraftKings and FanDuel removed the case to federal court (U.S. District Court for the District of Maryland), where it remains pending.
Pennsylvania Class Action: Macek v. DraftKings (July 2025)#
A federal class action filed in the Eastern District of Pennsylvania alleges:
- Misleading “No Sweat/risk-free” promotions that drove compulsive gambling
- Manipulative design features
- Self-exclusion system failures
The Pattern:
The lawsuit claims DraftKings identifies those most vulnerable to misleading promotions, uses user data to create profiles based on betting behavior and demographics, then deploys targeted marketing to maximize deposits, including users on state self-exclusion lists.
Kalshi Class Action (November 2025)#
On the eve of Thanksgiving 2025, plaintiffs from six states filed a federal class action against prediction market platform Kalshi in New York.
Key Allegations:
- Though Kalshi positions itself as a prediction market, it “operates an unlicensed sports gambling platform”
- Kalshi Trading LLC and KalshiEX “operate as highly sophisticated ‘market makers,’ which bet against consumers when their bets stray from Kalshi’s internal projected odds”
- Kalshi partners with hedge funds like Susquehanna International Group to take opposing sides of customers’ bets
- In September 2025, approximately 90% of the site’s total volume, roughly $2 billion, came from sports betting dressed up as “event contracts”
Kalshi’s Response:
Kalshi, which handled more than $1 billion in NFL event contracts in the first month of the 2025 season, called the lawsuit “meritless fiction,” arguing it is a federally regulated derivatives exchange under CFTC oversight.
Parallel State Enforcement:
Massachusetts Attorney General Andrea Campbell filed suit against Kalshi in September 2025, alleging illegal sports betting operations. A December 2025 hearing addressed the state’s preliminary injunction request.
The Arbitration Barrier#
A significant challenge for plaintiffs: DraftKings and FanDuel have been hit with more than 80 class-action lawsuits, but many have been slowed or halted by mandatory arbitration clauses in Terms of Service. Courts have upheld these clauses, forcing users to pursue claims individually rather than collectively.
How AI Exploits Vulnerable Gamblers#
The Dual Mandate Problem#
AI in sports betting serves two purposes, and they conflict. The same systems that could protect vulnerable users are instead optimized to exploit them.
As researchers explain in the Times of Casino analysis: “If left unchecked, algorithms that time bonuses, notifications, and offers to moments of emotional vulnerability, such as chasing losses, late-night sessions, or rapid bet escalation, can nudge at-risk players deeper into harmful patterns.”
Targeting Mechanisms#
Behavioral Profiling:
The lawsuits allege that platforms collect massive amounts of data on users, looking for particular habits such as:
- Checking profiles at all hours
- “Loss chasing” (increasing bets after losses)
- Patterns indicating addiction susceptibility
Exploitation Tactics:
When AI identifies vulnerable users, platforms allegedly:
- Provide bonus bets to encourage continued play
- Invite users to join VIP programs with escalating rewards
- Reduce incentives for users who are winning frequently
- Time promotions to moments of emotional vulnerability
Personalization as Manipulation#
A University of Florida study highlighted how AI personalization exploits cognitive biases:
- Illusion of control: Personalized interfaces make users feel they have special insight
- Near-miss effect: Algorithms can emphasize almost-winning experiences
- Loss tolerance prediction: Retention models may simultaneously expose vulnerable players to harm
Professor Nasim Binesh warned: “The potential for AI to exacerbate gambling harms and exploit vulnerable individuals is a stark reality that demands immediate and informed action.”
Microbetting: The New Frontier#
Traditional sports betting involved placing bets on game outcomes. AI enables “microbetting”, wagering on individual plays, pitches, or moments within a game.
As one industry analysis notes: “DraftKings now owns, internally, the AI technology to make every single moment a betting opportunity. Microbetting has made online sports gambling a fundamentally different, and more dangerous, product than ever could have been imagined.”
Responsible Gambling Tools: Protection or Performance Theater?#
Industry-Developed AI Detection#
Several AI tools are marketed as responsible gambling solutions:
Sportradar’s Bettor Sense:
Launched in July 2025, Bettor Sense promises “early and accurate detection of at-risk customers” using:
- Continuous behavioral monitoring
- Real-time risk scoring
- Profile analysis to identify problem gambling behavior
Underdog became the first U.S. sports betting operator to incorporate Bettor Sense.
PlayScan and BetBuddy:
These systems analyze gambling behaviors and identify risky patterns, with BetBuddy (developed by Playtech) providing personalized risk assessments and early warnings.
The Fundamental Contradiction#
The same behavioral data used for “responsible gambling” tools is available to, and allegedly used by, marketing systems to target vulnerable users.
A Massachusetts Gaming Commission 2024 evaluation found that AI interventions can reduce gambling-related harm by up to 30%. But the question remains: Are platforms actually deploying these tools to limit addiction, or using them to identify which users to target more aggressively?
Self-Exclusion System Failures#
Multiple lawsuits allege platforms continue targeting users who have registered for state self-exclusion lists, directly contradicting their responsible gambling claims.
Regulatory Enforcement (2025)#
Massachusetts Gaming Commission Actions#
DraftKings $450,000 Fine (July 2025):
Massachusetts regulators imposed the largest fine on a sports betting company to date for violating the state law prohibiting credit card funding of wagers.
- 1,160 unauthorized wagers
- 242 credit-card deposits
- 218 affected customers
- $83,667.92 in total handle
- Violations spanned March 2023 through February 2024
Unauthorized Betting Market Violations (September 2025):
The MGC identified 229,301 illegal bets on the Philippine MPBL basketball league taken by Fanatics, FanDuel, DraftKings, and Caesars:
- Total wagered: Over $11.76 million
- DraftKings: 151,500 bets worth $7.5 million
- FanDuel: 63,000 bets worth $3.25 million
Sports Event Contracts Warning (November 2025):
The Massachusetts Gaming Commission formally warned operators that offering sports event contracts in the state may result in license revocation.
State Attorney General Actions#
Massachusetts v. Kalshi:
Attorney General Andrea Campbell sued Kalshi in September 2025, alleging unlicensed sports betting operations.
Multi-State Scrutiny:
Ohio and other states have joined the regulatory pushback against prediction markets operating as de facto sportsbooks.
Legislative Developments#
Federal: The SAFE Bet Act (Reintroduced March 2025)#
Senator Richard Blumenthal and Representative Paul Tonko reintroduced the SAFE Bet Act, proposing federal standards for mobile sports betting.
Key Provisions:
- Advertising Restrictions: Ban on gambling ads during live sporting events
- Affordability Checks: Mandatory checks for high-spending customers
- VIP Program Limits: Restrictions on membership schemes targeting heavy bettors
- AI Marketing Ban: Prohibition on using AI to track users for targeted marketing
- National Self-Exclusion Database: Unified list across all platforms
Senator Blumenthal stated: “We are in the midst of a sports betting boom that is one of the most severe public health problems today. It is the cause of addiction for millions of Americans with severe gambling problems.”
Illinois: SB 2398 and SB 2399 (2025)#
Senator Bill Cunningham introduced legislation targeting AI in sports betting.
SB 2398 - AI Restrictions:
Would prohibit sportsbooks from using AI to:
- Track individual users’ betting activity
- Create offers or promotions targeting specific individuals
- Create gambling products such as microbets
SB 2399 - Consumer Protections:
Would require:
- Mandatory gambling safeguards
- Customer affordability checks
- Deposit limits
Both bills were referred to the State Assignments Committee.
Massachusetts: Bettor Health Act (2025)#
The state legislature is considering legislation that would impose additional rules on sports betting companies, including:
- Mandatory “affordability checks” capping losses for some gamblers
- Model based on UK pilot programs
State Representative Lindsay Sabadosa: “The goal is not to stop gambling entirely. It’s to stop the worst excesses of online sports betting.”
New York: SB S5537 (2025)#
Sponsored by Senator Kristen Gonzalez, this bill would ban push notifications and text messages from sportsbook apps.
Illinois: HB 1565 - Gambling Data Collection Act (2025)#
Would prohibit betting apps from collecting data from users “with the intent to predict how the participant will gamble in a particular gambling or betting scenario.”
The Evolving Legal Framework#
Traditional Approach: No Duty of Care#
Courts have historically held that casinos owe no special duty to problem gamblers. The gambling industry’s liability was limited to standard premises safety, the same duty owed by any business to its customers.
As legal scholars note: “Compulsive gamblers and their family members have had a long, unsuccessful history of lawsuits against the gambling industry in the United States. Although gambling is diagnosed as a legitimate addiction disorder in medicine, the law has been slow and even reluctant to recognize and grant legal protection to addicted gambler plaintiffs.”
The AI Distinction#
Current litigation argues that AI-powered targeting fundamentally changes the analysis:
From Passive to Active Exploitation:
Traditional casinos provided a gambling environment. AI-powered platforms allegedly:
- Actively identify vulnerable users
- Specifically target them with personalized inducements
- Time promotions to moments of emotional vulnerability
- Continue targeting users who have expressed addiction concerns
Knowledge Creates Duty:
When platforms possess sophisticated behavioral analytics specifically designed to identify addiction patterns, plaintiffs argue this creates a legal duty to intervene rather than exploit.
Emerging Legal Theories#
Consumer Protection Violations:
The Baltimore lawsuit focuses on consumer protection law rather than tort duty of care, alleging deceptive and abusive business practices rather than relying on a gambling-specific duty.
Product Liability:
In September 2025, a federal judge ruled that Apple, Google, and Meta must face claims tied to casino-style apps, rejecting Section 230 immunity arguments. This signals broader liability for addictive gambling product design.
Comparison to Tobacco Litigation:
Some legal analysts draw parallels between sports betting lawsuits and decades of tobacco litigation, particularly when internal documents reveal industry knowledge of harm.
The Emerging Standard of Care#
For Sportsbook Operators#
Based on litigation trends, regulatory enforcement, and legislative developments, operators face evolving expectations:
AI System Design:
- Do not use AI to identify and target vulnerable users with enhanced inducements
- Implement AI detection systems to identify problem gambling, and act on those findings
- Do not continue targeting users who have expressed addiction concerns
- Document AI system purposes and outcomes
Self-Exclusion Compliance:
- Honor self-exclusion requests across all marketing channels
- Do not target users on self-exclusion lists
- Maintain systems to prevent excluded users from placing bets
Promotional Practices:
- Avoid misleading “risk-free” or “no-sweat” bet promotions
- Do not time bonus offers to moments of user vulnerability
- Do not increase inducements in response to user expressions of distress
VIP Program Management:
- Document criteria for VIP program inclusion
- Do not use VIP rewards to encourage continued betting by users showing addiction signs
- Train VIP hosts to recognize and respond to addiction indicators
For State Regulators#
Enforcement Priorities:
- Audit AI systems for dual-use (protection vs. exploitation)
- Investigate self-exclusion compliance
- Monitor VIP program targeting practices
- Impose meaningful fines for violations
Regulatory Framework:
- Consider AI-specific restrictions (Illinois model)
- Implement affordability check requirements
- Restrict promotional timing and targeting
- Require transparency about AI system operations
For Plaintiffs’ Attorneys#
Discovery Priorities:
- AI system design documents and training data
- Internal communications about user targeting
- VIP program criteria and host training materials
- Self-exclusion compliance records
- User complaint handling protocols
Legal Strategies:
- Focus on consumer protection claims rather than tort duty of care
- Emphasize the AI distinction from traditional gambling
- Document specific targeting of individual plaintiffs
- Connect platform conduct to documented addiction indicators
For Users and Families#
Protective Measures:
- Utilize self-exclusion programs across all platforms
- Document all communications with platforms, especially VIP hosts
- Preserve evidence of targeting following expressed concerns
- Be aware that “responsible gambling” tools may not prevent targeting
If Harm Occurs:
- Document timeline of platform interactions
- Preserve all promotional communications
- Identify any expressions of concern to the platform
- Consult attorneys experienced in gambling addiction litigation
Looking Forward#
The Tobacco Litigation Parallel#
The gambling industry faces comparisons to Big Tobacco:
- Internal knowledge of addictive properties
- Targeting of vulnerable populations
- Marketing designed to maximize consumption
- Industry-funded “responsible use” programs
If litigation follows the tobacco pattern, early settlements may be followed by broader industry accountability, particularly if internal documents reveal intentional exploitation strategies.
Regulatory Trajectory#
The 2025 legislative wave suggests growing political will to regulate AI in gambling:
- Federal action remains stalled but continues to build support
- State-level AI restrictions may proliferate
- Affordability checks may become standard requirements
- Self-exclusion enforcement may intensify
Industry Response Options#
Platforms face a choice:
Continued Exploitation:
Risk of escalating litigation, regulatory enforcement, and potential industry-wide liability as internal documents emerge through discovery.
Genuine Harm Reduction:
Implement AI detection tools that trigger protective interventions rather than enhanced targeting. Accept reduced engagement from vulnerable users as a cost of sustainable operations.
The outcome will likely depend on whether early litigation produces verdicts or settlements significant enough to change industry behavior, or whether arbitration clauses and legal defenses allow current practices to continue.
Resources#
- Cornell Law: Sports Gambling Problems and Solutions
- AI Legislation Tracker - Gambling Harm
- SAFE Bet Act Announcement
- Massachusetts Gaming Commission
- National Council on Problem Gambling
- Problem Gambling Helpline: 1-800-522-4700
If you or someone you know is struggling with gambling addiction, contact the National Problem Gambling Helpline at 1-800-522-4700 (available 24/7).