The Gaming Boom: Potential Risks and Insurance Implications

You don’t have to look very far to understand that the gaming (gambling) industry in the United States is booming.

What was only available for those who wanted to travel to Las Vegas or Atlantic City is now available on your smartphone. Even before the expansion of betting apps, we watched a rising gambling economy driven by partnerships with indigenous tribes who could capitalize on legal reasons why they could support casinos where other communities could not.

According to the American Gaming Association, total gross gaming revenue in the U.S. topped $11 billion this year through the end of February. That’s up almost 7% over the same period last year and if gaming growth continues at that pace, the gaming industry could push $70 billion in revenue in 2024.

In a recent twist in this story, news outlets have reported that the popular arcade/restaurant chain Dave & Busters announced that they plan to allow patrons to use their app to place bets on the arcade games that they are playing.

Competition in the old skee ball tournament is no longer just for bragging rights. Now, I can challenge you to a game and I may have to put my money where my mouth is.

With any change in the way business is done, as in the case of Dave & Busters’ gaming app, or whenever a business adds a new product, the risk characteristics of that business are modified. As such, it is imperative that the business conduct a thorough risk assessment so they can make themselves aware of the potential risks associated with this new direction and manage those risks accordingly.

What Are the Potential Risks?

At present, the gaming risk to businesses like Dave & Busters seems minimal. They will use the same kinds of disclaimers and notices that other businesses use. You might see placards that indicate that if you have a problem gambling, call this number or scan that QR code and we will get you some help. There may be a disclaimer in the app that requires a tap to indicate that the user has read it and understands it. That seems to be the tactic that most gaming services use.

There could be a risk of change in demographics. This may be a part of their plan, but the introduction of betting could create an atmosphere where parents decide that this is no longer the family-friendly outing that it used to be. Parents could be most concerned about exposing their children to the language of gambling or they might just not like the idea that the kids could be playing a game next to a group of people who are gambling.

There could be a risk of reputational damage. The more active users an app has, the higher the chance that the app gets the attention of hackers looking for personally identifiable information that they can leverage for their gain. The addition of betting could create an atmosphere of extreme competition, where the enjoyment of the game takes second place to winning the game.

Competition is a great thing and can bring out the best in people. It can also bring out the worst in people. The more someone loses at a game, the higher the possibility that they might let their emotions around losing get out of control. Add to this situation the presence of adult beverages and the possibility exists that people could get out of control. Maybe an actual fight breaks out. Maybe it’s just a shouting match, but going back to the change in reputation, this adds to the chance that families might just stop spending their money there and find a new way to have a night out.

What happens if an underage person gains access to the betting side of the app? Maybe you say that underage gambling isn’t an issue, but since the early days of online gambling, it’s been happening. A child could gain access to the app, have their parents’ card linked in the app, and then go crazy making bets, losing money, and having a grand time. That is until the parent finds out.

When that happens, is there a business risk involved? The parents complain and say that D&B allowed their kid to run up charges that they didn’t authorize. D&B says that they should have supervised their kid in the app. The bank says that it’s not exactly fraud because they gave the kid access to the bank account in the first place. Then there’s anger. Then there are lawyers.

Of course, these are just the thoughts of someone who sees risk in every activity. These are not all of the potential risks that could be associated with this activity and they have no statistical data behind them. They are observations only to spur your thinking on the topic.

How Can a Business Mitigate the Risks?

Of course, just by bringing up the idea of these additional risks, it becomes important to look into ways that they can be mitigated, because why dwell on potential problems without offering solutions?

As we first observed, the first line of defense will be to place posters in strategic areas directed at those customers who know or suspect they likely have a gambling problem. Those posters should be creative and relate the signs of a gambling addiction. They should include ways for people with gambling addictions to access help, normally via a toll-free number or QR code.

Additionally, any app should also include disclaimers of liability and the same warnings that gambling can be addictive. Those disclaimers should include links to, or phone numbers for, resources to help those with a gambling addiction.

It might be useful to increase gaming surveillance. There should be cameras placed throughout the gaming space so that potential problems can be identified in advance.

Additionally, they could increase the number of security personnel with a mix of clearly marked security and surreptitious security. These personnel can help to defuse any potential situations before they become situations.

When it comes to abuses in the app, there would likely need to be an age verification system to enter into the gambling area of the app. The app could also implement limits as to the number or value of bets placed in a certain period.

Insurance Implications

As a former underwriter, I look at the addition of access to gambling as a significant change in the risk characteristics of the business and I would want to understand the risk more fully before offering any liability insurance renewals. The addition of gambling could cause the incumbent insurer to thoroughly investigate the risk for a full understanding of the new risks.

This kind of change in risk characteristics is the kind of thing that often creates a significant change in insurance pricing and terms. It also creates the potential of a nonrenewal on the grounds that the risk has become less understandable for the underwriter. In some cases, some underwriters might look at this as such a significant change that they issue a cancellation notice on those grounds.

Future Questions

The future is always cloudy, but with the addition of a layer of possibly addictive gaming, there are some potential policy changes that may develop.

The first could be that CGL policies begin to include a gaming exclusion that excludes any part of the operation where the insured engages in gaming, gambling, or other activity where:

• one party offers money or other compensation in return for the chance of a potentially larger return;
• or one party offers money or other compensation against another party’s money;
• or other compensation where the winner keeps their offering and receives the offering of the other party.

The second is the increase in market share of gambling or gaming specific insurance, similar to liquor liability insurance, where carriers will choose to write this stand-alone policy for entities engaging in gambling or gaming activities.

The third is an increase in litigation which may spur additional regulatory action. The more open and public any kind of business becomes, the more open they are to litigation. For example: A person becomes addicted to gambling and it destroys his family financial situation. This causes him to take his life out of regret, shame and the other emotions that stack up. His wife and family sue the app and any other entity associated with his gambling addiction for his death and the other injuries sustained because of it. This, in turn, impels states to increase regulation of the gaming industry more.

The above might seem like a very pessimistic way to look at a multi-billion-dollar industry, but sometimes when you look at the risks associated with a new business venture, a difficult picture may appear. This isn’t to say that D&B should or should not enter into an app-based gambling business; or that they haven’t analyzed this risk and decided that they are willing to proceed with certain risk management measures in place. This is a just a reminder that every business venture includes risk and those risks shouldn’t be ignored. They should be considered, mitigated, managed and planned for.