The House Always Wins Even When It Loses: Using “Obvious Errors” to Void Winning Bets

By: Nathan Holliman

Since the U.S. Supreme Court’s decision in Murphy v. National Collegiate Athletic Association, 37 states have legalized sports betting. Since this ruling, over $220 billion has been spent on sports bets across the country. Sports betting has become a very lucrative source of tax revenue for many states. For example, Maryland reported  $46 million in tax revenue from betting alone.

States prefer little oversight over betting services and only begin regulating such services after companies are established in the state. Instead of a comprehensive regulatory scheme, states allow the terms and conditions of the betting service application or website to govern. The lack of regulatory oversight allows many sports betting apps to claim “obvious error” to avoid paying out certain bets.

Obvious error or plain error is a legal standard prominently used in reviewing administrative errors. The term is often used to describe a situation when there is an easily demonstrable mistake without the requirement of a close examination. An example is a price in a contract that is so low or high as to be considered unreasonable. It is the industry standard that betting providers do not have to honor bets that take advantage of input screw-ups, such as listing the “over/under” point total of a football game as 500 instead of 50.

However, some betting providers are abusing the obvious error defense and are refusing to pay out larger bets. The Washington Post reported that a man was able to win three consecutive bets at 200-1 odds (a 1% chance to occur) worth over $120,000, but the betting platform refused the payout, claiming that there was an error. After two months, the betting provider decided to honor the bet. This tactic is forcing state regulatory agencies to discuss how they want to regulate these developing markets.

Normally, obvious errors are easy to identify. In most contracts, parties use market rates as a benchmark for a fair price. There is no widely-accepted industry odds for sports betting. Each betting provider calculates their odds using a proprietary algorithm based on their own information and current betting trends. When there is an error with the algorithm or an input error by an employee, obvious errors are created. As a result, there is no market consensus on identifying  obvious errors.

Some betting providers[JN1]  have taken steps to address this issue. Hard Rock Bet, an app run by the Hard Rock Cafe, has defined obvious error in their terms and conditions. According to Hard Rock, an obvious error is “a deviation of more than one hundred percent (100%) in the pay-out compared to the market average or intended odds.”

While providing a statistical measurement of what is considered an obvious error is helpful to users, this provision is still far from a cohesive solution. Hard Rock in their terms and conditions reserves the right to deny payment if the error was “caused by human or system error …[or] significantly differ[JN2] [NH3]  from the general market or are clearly erroneous.” “Clearly erroneous” is immune from the 100% difference for obvious error and can be used for any odds that Hard Rock deems as an error.

Looking to the future, it remains unclear what the solution is to regulate sports betting as many states are still in the process of legalizing sports betting. Without a clear definition for an obvious error provided by a regulatory agency, betting providers will continue to decide the winners and losers on their betting apps and exploit a legal loophole that allows them to deny payment of long-shot odds.