Online Gamblers Notice Robinhood Complaint Has A Familiar Ring
Another level of resonance to the apparent symbiosis between day trading and sports betting was added after financial regulators in Massachusetts alleged that Robinhood failed to protect novice investors.
The 23-page complaint from the office of Secretary of the Commonwealth William Galvin claimed the popular day-trading app allowed investors to take “unnecessary risks.”
In particular, the complaint makes much of Robinhood’s attempts at ‘gamification,’ encouraging investors to engage more often with the site.
“Treating this like a game and luring young and inexperienced customers to make more and more trades is not only unethical, but also falls far short of the standards we require in Massachusetts,” Galvin said.
BettingUSA previously wrote about how the lack of sport might help explain the dramatic increase in day-traders across some of the leading providers. Robinhood said at the time it had added three million funded accounts since the turn of the year. Of these, half were first-time investors.
Bloomberg quoted Charles Rotblut, vice president of the American Association of Individual Investors, as saying there was “a legitimate concern” about the impact gamification on the financial decisions of inexperienced or novice investors.
“Speculating is not investing and is frequently very dangerous to one’s financial health.”
For those who have watched the changing nature of the debate around online gambling, language about exploiting inexperienced investors will sound familiar.
Warning Signs
Robinhood visibility increased thanks to the antics over the summer of Dave Portnoy, who took to trading on the Barstool site under the name ‘Davey Day Trader.’
Portnoy’s shift into day trading garnered a lot of attention and put Robinhood under the proverbial microscope.
Not coincidently, in the top 100 list of popular stocks updated daily by Robinhood, DraftKings (28th) and Penn National (31st) feature prominently – Portnoy’s company Barstool was purchased by Penn National and features prominently in Penn’s sports betting plans.
However, whether gamification should be painted in such negative terms is a debatable point, suggests Dan Waugh, a partner at the gambling sector consultancy firm Regulus Partners.
“It is certainly an imprecise term – as with ‘normalization’ – and we should therefore be careful when making judgments about it,” he says.
“Games help us learn and provide enjoyment. There is nothing inherently wrong with encouraging playfulness, and it can even support control – it depends upon the game mechanics.”
But on the broader point regarding investor welfare (or in the gambling space, responsible gambling) there are perhaps some lessons to be learned from the official unease over Robinhood’s tactics.
Recent European experience is potentially enlightening:
“There are clearly benefits for US sports-betting operators in examining what has happened in Europe over the past decade,” says Waugh. “Their ‘Old World’ counterparts have much in the way of painfully-earned experience to offer.”
Of course, whether such examples will (or indeed should) be heeded is up for debate.
Context, as Waugh suggests, is “crucial.” “The lessons we learn from our missteps are highly dependent upon perspective and bias, including a tendency to blame others for our misfortune,” he argues.
“There is no guarantee that the insights we extract from past experience will guide us to better decisions in the future.”
Here Waugh cites the record from UK bookmakers who seemed to learn nothing from how the debate over a land-based super-casino in 2005 became a tabloid battle. Or the debacle around the regulation of gaming machines in retail betting outlets.
In both instances, sectors not immediately involved appear to ignore the lessons from the failures.
Specifically, how the spotlight has fallen on the online sector, which appears unprepared for the onslaught, as was the case with the land-based bookies before them.
Transatlantic Travel
Robinhood reached a $65m settlement with the SEC for failing to provide its customers with the best price on trades. It hammers home the point that US attitudes to industry disruption are as nuanced as in other countries.
That is very much the case with the patchy nature of the state-by-state regulation of online sports betting.
“It is probably a mistake to think of the US in a singular fashion, thus attitudes are likely to vary significantly from city to city, county to county and state to state,” Waugh says.
Still, the more robust tradition of entrepreneurship in the USA has a role to play in attitudes towards gambling:
“It may therefore be less likely to bend to ‘safety-ism’ in quite the same way that many countries in Western Europe seem to be doing,” says Waugh.
Scott Longley has been a journalist since the early noughties covering personal finance, sport and the gambling industry. He has worked for a number of publications including Investor’s Week, Bloomberg Money, Football First, EGR and GamblingCompliance.com. He now writes for online and print titles across a wide range of sectors.
