Arizona’s Regulatory Gap in Addressing Insider Information in Sports Betting

By Matteo DeVincenzo. 

From February 6th to February 9th, thousands of people flocked to Scottsdale, Arizona, to attend the Waste Management Phoenix Open (the “Waste Management”)—Arizona’s premier PGA Tour golf tournament. Following last year’s chaotic turnout, there was significant scrutiny on TPC Scottsdale, the host venue, and whether it could effectively manage risks and address any issues associated with the event. Many of the risks in 2024 stemmed from intoxicated spectators, muddy weather conditions, and overcrowding. However, one potential risk that may have gone unnoticed is the use of inside information by spectators in the sports betting market.

Following the Supreme Court decision in Murphy v. NCAA, many states are now legalizing sports betting: currently, 38 states have legalized it. As sports betting grows in popularity, the demand for critical—and sometimes exclusive—information increases. As a result, it is likely that integrity-related issues within the betting industry will become more prevalent. Of particular concern is the use of information not available to the general public (i.e., non-public information) to gain a betting advantage.

Insider Trading in Sports Betting

Imagine the hypothetical scenario that, before the final round of the Waste Management, a spectator observed the 3rd round leader (“Golfer X”) on the practice putting green and overheard him tell his caddie, “I woke up with a fever—I feel awful today.” Given golf’s unique spectator experience, where fans can follow players closely, this scenario is entirely plausible. After hearing this information, the spectator logged into a sports betting app and placed a large wager on the golfer in second place (“Golfer Y”) at favorable odds. Golfer Y ultimately went on to win the event. This raises the question: Does Arizona’s sports betting statute contain provisions to prevent the use of such non-public information? 

Many parallels can be drawn between insider trading in the stock market and its potential occurrence in the sports betting market. Fundamentally, both betting and stock trading are transactions based on an individual’s perceived valuation, and possessing information unavailable to other market participants creates a competitive advantage that individuals are likely to exploit. In the stock market, insider trading is federally regulated by the U.S. Securities and Exchange Commission. In contrast, sports betting lacks federal oversight and is instead regulated by state agencies.

Issues of insider trading in sports betting can arise in two main categories: (1) when individuals such as athletes, coaches, or referees use non-public information to place wagers on events they are directly tied to; or (2) when individuals not tied to an event use non-public information—either obtained personally or from someone else—to gain an unfair advantage in betting. Most states have specific laws that explicitly prohibit insider trading by individuals directly tied to the event. However, when it comes to the general public (i.e., individuals not tied to the event), the state provisions are generally less prevalent and consistent. For example, look at Arizona’s sports betting statue.

Arizona Legislation

Arizona’s sports betting statue is the Event’s Wagering Act (the “Act”). In the context of non-public information, the Act states (A.R.S. § 5-1301(16)(c)–(e)):

[A] [sportsbook operator] may not [a]ccept a wager from . . . [a]ny individual who is an athlete, coach, referee, player, trainer or personnel of a sports organization in any sports event or other event overseen by that individual’s sports organization who, based on information that is not publicly available, has the ability to determine or to unlawfully influence the outcome of a wager . . . [or] [a]n individual with access to exclusive information on any sports event or other event overseen by that individual’s sports governing body that is not publicly available information . . .

However, the Act is not the only Arizona statutory provision that mentions insider information in sports betting—Arizona’s Administrative Code (the “Code”) explicitly addresses “insider information.” The Code requires that, “if a sports governing body submits a request . . . requesting access to information related to suspicious wagering activity . . .”  sportsbook operators must report this activity (§ R19-4-115(D). “Suspicious wagering activity” is defined, in part, as the “misuse of insider information.” The Code does not further define “insider information” (§ R19-4-101(A)(28)).

Is there a Regulatory Gap?

In terms of the Act (A.R.S. § 5-1301(16)(c)–(e)), Arizona explicitly prohibits the use of non-public information by individuals directly tied to the event (e.g., athletes, coaches, referees, etc.). However, it is challenging to determine how Arizona’s statutory language applies to the general public of bettors. It may seem that the prohibition on “individual[s] with access to exclusive information on any sports event or other event overseen by that individual’s sports governing body that is not publicly available” may appear to encompass the general public of bettors (A.R.S. § 5-1301(16)(e)). However, this provision is specifically designed to apply to individuals who have access to such information due to their roles within the sports governing body.

In terms of the Code (§ R19-4-101(A)(28)), the provision reads that sportsbooks are only required to report a suspicion of this activity if it is requested. However, a sportsbook’s profit is based on “vigs,” which are percentage fees on the wager amounts of bets. When a sportsbook accepts the same number of money on each side of a bet (i.e., 50% on the underdog and 50% on the favorite), it locks in a profit, and this profit increases based on the size of the bets. Thus, if a large bet is placed using non-public information and the sportsbook can offset it with matching bets on the other side, the sportsbook incentive to report or investigate the use of insider information—absent an external request—diminishes significantly.

Application to the Waste Management

While Arizona appears to have procedural safeguards and prohibitions against the use of non-public information, applying the statutory language to the hypothetical bettor at the Waste Management suggests a regulatory gap. The information the bettor overheard was likely not available to the general public, as it could only be obtained by attending the event. Moreover, the PGA Tour’s injury disclosure policy only requires golfers to disclose injuries (or illnesses) that prevent them from competing. This bettor’s actions likely fall outside the Act’s specific prohibitions, as they are a general spectator and not part of the PGA Tour’s “sports governing body.”

This gap becomes even more evident when compared to the laws of other states. For example, Michigan’s statute on sports betting law (Mich. Comp. § 432.413 (2019)) states that “[a] person shall not . . . place, increase, or decrease an internet sports betting wager . . . after acquiring knowledge, not available to all players, of the outcome of the athletic event or any event that affects the outcome of the athletic event . . .” In the Michigan law, as compared to Arizona’s Act, there is no requirement that the person acquire information based on a relationship tied to the sports governing body. In the Waste Management hypothetical, the bettor’s actions could face significantly greater legal scrutiny under Michigan’s statute, which prohibits general bettors from using nonpublic information that may influence the outcome of a game. The information was both “not available to all players” and influenced the outcome of the athletic event, as Golfer X’s illness impacted his ability to win.

Closing the Regulatory Gap

As sports betting becomes more prevalent across states, regulatory bodies must remain vigilant about the misuse of non-public information by the general public. As currently written, Arizona’s sports betting laws suggest a potential regulatory gap in addressing individuals with no direct affiliation to a sporting event who acquire and exploit non-public information for their advantage.