Modern-day Bookies: Dangers of Pay-Per-Head Sportsbooks Betting
Published:
Jul 19, 2024
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12:51 p.m.
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There are now 38 states, along with Washington D.C., with some form of legal sports betting in the country. As sportsbooks continue to become more mainstream and readily available, it is far less often that we hear mention of “bookies.” However, that doesn’t mean they no longer exist.
That term once conjured images of a sketchy figure in a dark alley with a wad of cash. But nowadays, bookies have become much more sophisticated. Rather than needing to take bets over the phone and meet someone face-to-face, wagering can now take place on websites and transactions can be handled remotely with just a few clicks.
This accessibility that “Pay-Per-Head” platforms allow can make these modern-day bookies far riskier, so it’s more important than ever to be aware of the dangers and legality of them.
What are Pay-Per-Head (PPH) sportsbooks and bookies?
So, if bookies aren’t what they used to be, what exactly are they now? Nowadays, many bookies use websites known as “pay-per-head” sportsbooks. The bookies – or “agents” as they’re sometimes called depending on the setup of the operation – pay a fee for access to the website, which can be thought of as a lease. The term “pay-per-head” comes from the idea that the fees many of these websites charge bookies are a factor of how many individual bettors the bookie has using the site. So the price they pay is per head (individual customer). It’s worth nothing though that some of these sites structure fees differently, at times taking a portion of customer losses additionally or instead.
Bettors generally receive login information for an individual account and use that to place their bets on the site. Most sites start off new customers with a certain amount of credit, allowing them to begin betting without depositing money first.
It’s worth noting that there is almost always no money exchanged on the site. Each bettor has an account balance that goes up and down with their winning and losing bets. Some sites don’t even display balances with a dollar-sign ($) next to them, again to potentially distance itself from any indication that it represents real money.
That brings us to a key piece that allows these modern, digital operations to operate efficiently: the exchange of payments. When using these PPH sites, it’s generally all about thresholds. At the start, bookies/agents and bettors will agree on a threshold, over or under a certain amount, for necessitating payment in one direction or the other each week. For example, if a bettor’s threshold is $300 and they are up $425, the bookie will (or should) send them a payment for $425. However, if the customer is only up $200, no money will be exchanged that week. If the bettor is down more than $300, they owe payment of that amount to the bookie that week.
Speaking of payments…
How are payments handled for PPH sportsbooks?
Long gone are the days when bettors and bookies needed to physically meet up to exchange cash. These days, bookies often take advantage of modern technology to facilitate payments. Digital payment services like PayPal, Venmo, CashApp, Zelle or cryptocurrency exchanges are frequently used by bookies and bettors to “settle up” balances every week.
Mobile payment services crackdown by IRS
Most individuals are familiar with those payment methods, but what may have gone unnoticed are the changes that have been forced by the IRS. Users who run services or businesses through those payment platforms have always had to report earnings, but the minimum amount required for reporting to the IRS has changed.
Prior to 2022, individuals were required to submit tax returns if they received more than $20,000 and had more than 200 transactions. That has since been lowered significantly to just $600 earned, and the number of transactions is no longer relevant. This was done to crack down on tax evasion attempts, and the IRS also claims that the lower amount will cause less confusion among those earning.
This change certainly caught the attention of bookies across the country, especially the many who had thousands of dollars in digital transactions every month. Most likely adjusted and found different ways to receive and send payments, but this was certainly a step in the right direction when it comes to crippling this type of illegal sportsbook operation.
Are Pay-Per-Head sportsbooks and bookies legal?
Bookies and pay-per-head sites are unregulated, unlicensed forms of betting. Therefore they are not legal in the United States. Many of them are based outside of the U.S. in countries like Costa Rica, similar to many “offshore” sportsbooks. Although their products are available online to U.S. citizens, they don’t pay taxes or follow the rules that regulated sportsbooks in the United States must adhere to.
Despite being illegal, PPH sportsbooks and the modern-day bookies that use them have been around for over a decade. And despite legal forms of betting becoming available in around three-quarters of states, they are still used by many bettors for a variety of reasons, as we’ll discuss later on. However, it’s first worth calling out the serious risks of using these unregulated sports betting products.
Risks and dangers of new-age PPH sportsbooks and bookies
While breaking down the legality of pay-per-head sportsbooks, we made a reference to offshore sportsbooks, and you can read more about their serious dangers by clicking that link.
With that in mind, pay-per-head sportsbooks and bookies come with similar risks and causes for serious concern:
Betting on Credit: Most pay-per-head sportsbooks allow individuals to bet on credit, meaning they don’t have to deposit their own real money before placing bets. Just like many have experienced with credit card debt, this works in a similar way. It can feel as though you’re wagering with “play money,” and therefore end up risking far more than they can responsibly afford to lose.
No Oversight: Since these PPH sportsbooks and bookies are not licensed or regulated in the U.S., individual users cannot turn to U.S. regulators for help if their winnings are not paid. It is way too common of a tale for a bookie to go cold with communication and “ghost” bettors who are looking to get paid out their winnings. And then, where can the user turn to for help? Authorities to report a crime while admitting that they were betting illegally? In fairness, bettors have also been known to try to “ghost” bookies looking to collect debts, so fair to say it’s an inherent risk in this unregulated betting underworld.
Absence of Player Protections: The lack of “Know Your Customer” (KYC) processes or account restrictions means that there is nothing in place to prevent underage users from betting or to help prevent bettors from developing a gambling problem. Your account and personal information are at times also not protected to the same standards of regulated sportsbooks, which could lead to identity theft or fraud.
Tax Evasion: Although the IRS has taken measures to regulate digital payment services, many bettors and bookies still use digital payments to facilitate transferring funds from their illegal bookmaking operations. If they were found to have illegally earned income without reporting it, they could be charged with tax evasion.
Pay-Per-Head Sportsbooks are illegal: Tax evasion is not the only potential repercussion for individuals using or operating these types of unregulated, unlicensed sportsbooks. They are illegal and could therefore result in serious consequences such as massive fines or jail time.
Why would someone use a bookie or Pay-Per-Head sportsbook?
Location
We opened by sharing how commonplace sports betting has become in the United States, but there are still states in which it is not legal. However, sports betting advertising and content are seen everywhere, making fans in those locations more inclined to find ways to wager on events. But again, this type of betting predated widespread legalization, so location isn’t the only reason for using them…
Tax avoidance
Taxes are a key reason why some individuals choose to use pay-per-head or offshore sportsbooks. When fans place their action with a regulated sportsbook, everything is reported – from the wagered made, amount won and lost and transaction history.
Conversely, pay-per-head sportsbooks do not have those same regulations. Therefore, individuals looking to keep all their winnings without being taxed will take this risk.
Betting on credit
Betting on credit was one of the dangers we listed above, and unfortunately, it is also one of the primary reasons why individuals choose to use pay-per-head sportsbooks. Rather than being required to deposit funds in order to place wagers, they can get started right away by placing bets on credit with the bookie. Once again, this can lead to individuals betting far more than they can afford, creating large debts and dangerous situations.
Gambling Addiction treatment options
While the lack of regulation and oversight of pay-per-head sportsbooks does nothing to combat problem gambling, thankfully there are other resources that do. You may be aware of services such as 1-800-GAMBLER and Gamblers Anonymous, but there are also other top-notch resources like Birches Health available.
Birches Health provides best-in-class treatment that is offered virtually by licensed, specially trained professionals. That allows individuals to schedule treatment when it works best for them, and 90% of Birches patients have reported an improved quality of life following care.
There are multiple options for taking the first step with Birches Health today:
Alternatively, you can simply call 833-483-3838 or email hello@bircheshealth.com to get in touch directly with the Birches team!
Sources:
How New I.R.S. Rules Could Affect Venmo, Etsy and Cash App Users - The New York Times
