Winning by losing: Bookmakers' marketing tactic divides betting industry

Some of the biggest sportsbooks offered refunds on wagers on Jon Rahm after he was forced to withdraw from The Memorial because of a positive COVID-19 test. AP Photo/Darron Cummings

In gambling parlance, it was a bad beat. Jon Rahm, leading the Memorial Tournament by six shots after the third round, was forced to withdraw after testing positive for COVID-19.

He was the betting favorite, paying 12-1, and would've been an odds-on favorite entering the final round. As the news of his withdrawal spread on Twitter, the sports betting community went into an uproar -- but not because of the brutal beat.

One by one, around 8 p.m. on June 5, the biggest sportsbooks in the U.S. began handing out refunds to anyone who bet on Rahm.

Bad beat refunds, as they're commonly called, are a marketing tactic that international sportsbooks have used successfully for decades. They've raised profiles of some bookmakers and helped sportsbooks gain notoriety when launching in new markets.

They work like this: bookmakers, smelling an opportunity for publicity, seize on a controversial outcome and refund losing bets on the event. The refunds are often paid in site credit and not available for immediate withdrawal.

"The PR value is way more than anything they could do," Scott Ferguson, a veteran of the betting industry based in the United Kingdom, said. "It gets to both ends of the paper. It's not for just the pure gamblers who see it. Everyone sees it."

But not everyone likes what they see.

While commonplace in more mature markets, in the U.S., bad beat refunds, somewhat remarkably, irritate bettors, divide old-school bookmakers from the new breed and even prompt responsible gambling concerns and fears of future litigation. All because bookmakers have the nerve to essentially give bettors their money back.

Backlash on refunds

On the surface, it's difficult to understand why any bettor would be upset with a bookmaker refunding a losing wager. Everyone likes money, after all. But when sportsbooks like FanDuel began promoting that they would give back any lost stakes on Rahm in the form of site credit, some bettors lashed out.

Professional bettors have been especially aggravated by the bad beat refunds as they've become more common in the U.S.

"I still think that it really comes down to fairness," professional bettor Rufus Peabody said. "If people believe that someone else is being treated a different way than they are, then they will be upset. And I think that's what operators aren't thinking about, and it can create some negative consequences downstream."

Peabody had money on Rahm to win the Memorial Tournament. None of his bets were placed with sportsbooks that chose to offer refunds, though. Talk about a bad beat.

Peabody, while disappointed, was able to shrug it off, mostly because he knows the sportsbooks he bets with offer higher limits, which is more important to him than a random refund of a losing bet. Still, Peabody acknowledges that watching bookmakers who have either limited him to meaningless amounts or cut him off altogether unleash a marketing blitz around refunds can be tilting.

"People don't like paying taxes," he said, "but if you pay all your taxes, what you really hate is if you see your neighbor not paying his taxes and getting away with it."

There's also a sense from professional bettors that paying out on losing wagers cheapens their trade, makes it feel gimmicky. Multiple serious bettors compared the refunds to "participation trophies."

"There's an American cultural aspect to it, bravado," said Ed Miller, a Las Vegas-based sports bettor whose company Deck Prism offers live odds to sportsbooks. "[Professional bettors] play the game on a more serious level, and they want people to join them in that view. To me, that's where a lot of the backlash comes from."

Controversial, but exposure undeniable

Australian sportsbook PointsBet had been operating in the U.S. for only three days before it agitated its competitors with its first bad beat refund.

On Jan. 20, 2019, after the Los Angeles Rams beat the New Orleans Saints in a controversial NFC Championship Game, PointsBet's "Karma Kommittee" went to work. The Kommittee, an internal group of marketing executives and traders, ruled that Saints bettors had been wronged by a critical missed pass interference call and that money-line bets on New Orleans would be refunded in site credit. If you had $20 on the Saints to win the game, instead of a complete loss, you had $20 worth of free bets in your account.

Soon after the decision, PointsBet CEO Johnny Aitken's phone started to ring. Executives from rival sportsbooks were annoyed and wanted a word with the newcomer.

"They were saying I was mad to do this and that I was setting a new precedent here in the States," Aitken recalled. "They said it was going to come to haunt PointsBet and the industry."

The next day, Aitken saw the PointsBet brand all over mainstream media. USA Today, the Associated Press and the New York Daily News were among the outlets that ran with the story.

"It was really our first thrust into the U.S.," Aitken said. "It certainly had the desired effect for us, and it had the desired effect for our customers."

Two years later, the practice of randomly refunding losing wagers is commonplace, including, Aitken noted, at some of the same sportsbooks that had lectured PointsBet for its initial Saints refund. Not all bookmakers are on board, however.

Las Vegas casino owner Derek Stevens sees both sides of the debate.

In 2012, after the Seattle Seahawks defeated the Green Bay Packers on a controversial last-play touchdown reception on Monday Night Football, Stevens elected to refund any bets on the Packers, saying at the time, "I know exactly how it would feel if I was laying the number and I saw what happened."

A decade later, though, Stevens and his sportsbook Circa Sports chose not to offer refunds on Rahm.

"We thought it was going to take us down a rabbit hole we didn't want to go," Stevens told ESPN in June. "We felt very comfortable saying we know what our business model is.

"For some sportsbooks, this type of scenario offers some opportunity, some ability to provide some good will to customers and then obviously you get a lot of publicity and media value out of it," he added, "and to others, it doesn't make sense."

The largest online sportsbooks in the U.S. believe there is value in the bad beat refunds. FanDuel, DraftKings, BetMGM, Caesars/William Hill and BetRivers each offered some form of refunds or even outright payouts on Rahm.

FanDuel, which by most metrics is the largest sportsbook operator in the U.S., has issued bad beat refunds more than 20 times since launching in 2018. The company says it considers the amount of liability on the market in question and how much publicity the particular event is likely to generate. Mike Raffensperger, FanDuel's chief marketing officer, emphasizes that the biggest criteria, though, is "Did this make the outcome feel less fun? Did it feel like some kind of injustice?"

"We've paid out many, many millions of dollars [on refunds]," Raffensperger said. "We want to be a generous, bettor-friendly sportsbook, and this is one of those mechanisms."

'An invitation to gamble more'

Bettors aren't the only ones who have expressed concern over the bad beat refunds.

Some advocates for responsible gaming took issue with the practice of refunding the bets as site credit rather than cash payments.

"Sportsbooks looking to retain customers are welcome to give away all the free money they want," Steve Ruddock, content director for industry site Bettingusa.com and editor-in-chief for Gaming Law Review, wrote in an article after the Rahm refunds. "But when a 'winning bet' has strings attached, it's not a win. It's merely an invitation to gamble more, whether the person wants to or not."

Other experts in the field of responsible gambling didn't see it that way and pointed out that bettors who suffer a loss due to unusual circumstances may become frustrated and look to chase their losses by betting more than they should. The refunds potentially could lessen the frustration, Brianne Doura-Schawohl said.

"I appreciate that there are people who are thinking about these business decisions in the context of responsible gambling. I'd like to see that more of that," Doura-Schawohl, vice president for U.S. policy and strategic development for Epic Risk Management, said. "But this particular instance of a payout because of a very strange anomaly or occurrence, I don't believe is going to have significant influence as it pertains to gambling addiction."

Jason Ziernicki has been watching the new regulated U.S. sports betting market take shape as head of audience for XLMedia, a global publishing group that has affiliate relationships with sportsbooks. He fears that the inconsistency with when, how and for what reason sportsbooks issue refunds could produce lawsuits.

"I'm not sure as we move on if you're to be able to continue to do that and not avoid what we see in this country a lot -- a potential litigious moment," Ziernicki said. "We've come a long way to get regulated sports betting ... let's not screw it up."

Ever-evolving options

In Europe, bookmakers have used bad beat refunds, commonly known as "justice refunds" abroad, and early payouts successfully for decades. They really took off around the turn of the century after a collapse by Manchester United in the Premier League.

"I think they're used a lot for bookmakers to show that they're on the side of the punter, which obviously, given the structure of the industry, isn't necessarily the case," said, Harry von Behr, who is the managing director of Spotlight Sports Group, a U.K.-based publisher that focuses on betting content.

Von Behr and others in the U.K. betting industry pointed to a collapse by Manchester United in the Premier League around the turn of the century as one of the first early payouts by a bookmaker to attract widespread media attention.

In 1998, Fred Done, an avid Man U fan and owner of U.K. sportsbook Betfred, elected to pay out bets on his favorite club early, when they were atop the table, 12 points clear of Arsenal. Arsenal rallied late in the season to win the EPL title. Betfred paid out on Arsenal on top of what they already forked over to Man U supporters. It reportedly cost Done's book £500,000, but it also garnered global publicity.

Ferguson, the veteran betting consultant in the U.K., said the early payout transformed Done from a bookmaker that no one had ever heard of to one that was suddenly known around the world.

"That was basically the big kickstarter to expand his business," Ferguson said.

Other European sportsbooks followed Done's lead. In 2008, Irish sportsbook Paddy Power paid out early on Tiger Woods to win the PGA Championship after the third round, only for Y.E. Yang to come from behind on Sunday to capture the tournament. In 2016, Paddy Power paid out early on Hillary Clinton to win the U.S. presidential election, which ultimately was won by Donald Trump.

"Everyone loves a story of the bookies getting it wrong," Ferguson said.

Some will be appreciative, others will be dismayed, but for now, bad beat refunds don't appear to be going anywhere, as the legal sports betting market in the U.S. takes shape. They may evolve, however.

PointsBet, the Australian sportsbook that made its first splash by refunding bets on the Saints in the 2019 NFC Championship Game, has experimented with giving customers "good karma tokens" and allowing them to choose when they receive a refund on a losing bet.

"It might be that you got out of bed on the wrong side and backed the New York Knicks," Aitken, the PointsBet CEO, said. "Or an injury to a certain player costs you or a certain celebrity was on the front row and distracted a player for the Lakers and therefore you think that's a bad beat. What I'm saying is that you're really taking the decision away from the business and putting it in the hands of the consumer. We think that's really exciting."

Alun Bowden is a gambling industry analyst in the U.K., where he says new bettors won't remember a time when early payouts and bad beat refunds weren't a part of the game. Bowden doesn't think that's necessarily a bad thing, either, including in the U.S.

"I think this makes a generation of bettors who have grown up in the slightly more macho culture of U.S. betting to feel like people are getting too easy a ride and it all feels a little bit like a 'participation trophy,'" Bowden, a senior consultant for research firm Eilers & Krejcik Gaming, told ESPN. "That said, the outright objection to what is effectively just good customer service is slightly bizarre from this side of the pond. In essence, this is just the bookmakers saying, 'We don't want to take your money that way, have another go.' What, really, is wrong with that?"

It depends who you ask.