How to Distinguish Sports Tips from Unlicensed Betting: A Payment Compliance Framework

Some 'tips' businesses are just betting in disguise.

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When a merchant approaches you for payment processing claiming to sell "sports picks," "VIP signals," or "premium analysis," the complexity isn't in evaluating their content quality- it's in determining whether they're operating a legitimate information service or facilitating unlicensed gambling. Unlike most merchant categories where you verify business legitimacy and fraud controls, sports tips merchants require you to become a functional analyst, mapping customer journeys and revenue models to identify whether the business crosses the line from content provision to wagering facilitation.

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This guide walks you through the complete assessment framework Ballerine uses to evaluate sports tips merchants and distinguish legitimate content businesses from disguised betting operations.

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Understanding the Sports Tips Landscape

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The Regulatory Challenge

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The sports content industry exists in a gray zone between legitimate media and gambling facilitation. There is no federal "sports tips" regulation in the United States, but these businesses become subject to gambling laws when they cross certain functional thresholds. The challenge for compliance teams is that merchants often deliberately obscure their true business model using content-focused language while operating functionally as betting facilitators.

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Following the 2018 legalization of sports betting via Murphy v. NCAA, the sports tips industry has exploded, with operators using various structures to serve customers:

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• Pure content providers: Subscription-based analysis, research, educational content (legal in all jurisdictions)
• Affiliate marketers: Content providers earning commissions by referring customers to licensed betting operators (legal with proper disclosure, regulated in some states)
• Betting facilitators: "Tips" businesses that integrate with betting platforms, earn revenue from wagering volume, or provide seamless pathways to placing bets (potentially unlicensed gambling under state law)

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Source: UK Gambling Commission - Remote Gambling Standards

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Federal and State Compliance Baseline

Before examining specific merchant characteristics, understand the legal frameworks that apply when sports tips cross into betting facilitation:

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Federal Law:

1. Wire Act (18 U.S.C. § 1084): Prohibits interstate transmission of betting information. If a "tips" service is functionally facilitating wagers (not just providing information), they may violate the Wire Act.
   Source: US Wire Act

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2. Unlawful Internet Gambling Enforcement Act (UIGEA, 31 U.S.C. §§ 5361-5367): Prohibits payment processors from knowingly accepting payments for unlawful internet gambling. If a tips service is facilitating unlicensed betting, processing their payments violates UIGEA.
   Source: US DOJ - Illegal Gambling Business Act

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State Regulations:

Many states with legalized sports betting regulate affiliate marketing and tips services:

• New Jersey: Advertising rules apply to any entity promoting gambling, including tips services with affiliate relationships
  Source: NJ Division of Gaming Enforcement

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• United Kingdom: The Gambling Commission has aggressively investigated "tips" services that function as unlicensed betting operators, resulting in enforcement actions and banking relationship terminations
  Source: UK Gambling Commission - Enforcement Actions

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• Australia: Interactive Gambling Act regulates betting facilitation, including services that provide direct pathways to wagering
  Source: Australian ACMA - Interactive Gambling

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Key takeaway: Even if a merchant claims to be "just content" or "just entertainment," functional analysis determines regulatory classification. Your underwriting must identify facilitation patterns to maintain payment compliance and avoid UIGEA liability.

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The Complete Assessment Framework -

1. Language Cues and Marketing Positioning

Why it matters: Marketing language reveals the merchant's value proposition. Are they selling analytical insights or betting outcomes?

The distinction determines whether they're content providers or gambling facilitators.

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Identifying Red Flag Language

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Profit guarantees and outcome promises:

• "Guaranteed winners"
• "Lock of the week" / "Can't-miss picks"
• "93% win rate" / "We never lose"
• "ROI guaranteed" / "Monthly profit guarantees"
• "Make $5,000/month following our picks"
• "Turn $100 into $1,000"

Why this matters:

Guaranteeing financial outcomes from betting is a hallmark of gambling promotion, not content provision. Legitimate analysts acknowledge uncertainty and focus on methodology, not guaranteed results.

Source: UK ASA - Gambling Advertising Rules

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Wagering-specific terminology:

• "Betting bankroll management"
• "Units to stake" / "Bet sizing"
• "Hedge your bets"
• "Place this bet now"
• "Lock it in before lines move"

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Why this matters:
This language instructs users on how to bet, not how to analyze. It indicates the service's purpose is wagering facilitation, not education.

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Urgency and action-oriented language:

• "Bet now before odds change"
• "Last chance to get in on this play"
• "Limited time - place your bet"
• "Don't miss this lock"

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Why this matters:
Creating urgency around betting activity is a tactic used by bookmakers and betting facilitators, not content publishers.

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Identifying Green Flag Language

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Educational and analytical framing:

• "Statistical analysis and modeling"
• "Team performance insights"
• "Our research methodology"
• "Historical trends indicate"
• "Data-driven predictions"
• "Understanding probability"

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Transparency and honest track records:

• Showing both wins and losses
• Realistic success rates (55-60% is strong for sports betting)
• Focus on process over outcomes
• "No guaranteed results"
• "Past performance doesn't guarantee future results"

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What to Request from Merchant

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1. Marketing materials package:

• Website copy (homepage, landing pages, sales pages)
• Email campaigns (welcome series, promotional emails)
• Social media posts (Instagram, Twitter/X, TikTok)
• Paid advertising (Google Ads, Facebook Ads copy)
• Affiliate marketing materials (if using affiliates)
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2. Terms of Service and disclaimers:

• How prominently are risk disclaimers displayed?
• Do they claim to "guarantee" anything?
• What language describes their service?
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3. Track record presentation:

• How do they present historical performance?
• Do they show losses or only wins?
• Are success rates realistic or inflated?

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Red flag threshold: 3+ profit guarantees or outcome promises = HIGH RISK

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2. Revenue Model and Pricing Structure

Why it matters: How a merchant makes money reveals their true business model.

Do they profit from content subscriptions or from customer betting activity?

This is the most critical distinction between content providers and betting facilitators.

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High-Risk Revenue Models
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Performance-based pricing:

• "Pay us 10% of your winnings"
• "Free until you profit"
• "We only get paid when you win"
• Revenue share from customer betting profits

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Why this is high risk:
This creates a direct financial incentive for customers to bet and win, transforming the business from content provision to gambling partnership.

This structure mirrors bookmaker relationships and suggests unlicensed betting operation.

Source: European Gaming and Betting Association - Standards

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Affiliate commission-dependent models:

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• 50%+ of revenue from betting operator affiliate commissions
• Revenue-share agreements with bookmakers (% of customer losses)
• Cost-per-acquisition (CPA) payments from betting sites
• Lifetime revenue share from referred bettors

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Why this is high risk:
When the majority of revenue comes from betting volume rather than content subscriptions, the business model depends on facilitating wagering, not providing information.

This functional reality overrides any "content provider" labeling.

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Outcome-dependent refunds:

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• "Refund if the pick loses"
• "Guaranteed profit or money back"
• "Free next month if you don't profit"

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Why this is high risk:
Tying refunds to betting outcomes (rather than content quality) demonstrates that the value proposition is wagering success, not analytical insights.

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Acceptable Revenue Models

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Fixed subscription fees:

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• Monthly/annual subscriptions regardless of customer betting outcomes
• One-time purchases for specific research reports or analysis
• Tiered pricing based on content access level (not betting results)
• No refunds based on betting outcomes

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Why this is lower risk:
Revenue is derived from content access, not betting volume or success. The business can operate profitably even if customers never place bets.

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Minimal affiliate revenue:

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• <10% of total revenue from affiliate commissions
• Affiliate relationships fully disclosed
• Affiliate links to licensed, compliant operators only
• No preferential bookmaker relationships

Why this is lower risk:
Some affiliate revenue is acceptable if it's supplementary rather than primary. This indicates the business model is content-first.

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What to Request from Merchant

1. Revenue breakdown (last 12 months):

• Subscription revenue: $_ (%)
• Affiliate commissions: $_ (%)
• Performance-based fees: $_ (%)
• Other: $_ (%)
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2. Affiliate agreements:

• Contracts with betting operators
• Commission structure (CPA, revenue share, flat fee?)
• Which operators? (Licensed in which jurisdictions?)
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3. Pricing documentation:

• All pricing tiers and structures
• Refund policies
• Any outcome-dependent pricing or refunds?
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4. Financial statements:

• P&L showing revenue sources
• Customer lifetime value analysis
• Churn rates

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Red flag threshold:

• ANY performance-based pricing = CRITICAL RISK
• Affiliate revenue >50% = HIGH RISK
• Outcome-dependent refunds = HIGH RISK

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3. Affiliate Linking and Betting Integration

Why it matters:
The technical integration between the tips service and betting platforms determines whether the business facilitates wagering or simply provides information.

Deep integration creates a seamless path from content to bet, indicating facilitation.

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High-Risk Integration Patterns

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Pre-populated bet slips:

• User clicks "Bet Now" and betting site opens with specific wager already entered
• Bet amount, odds, and selection pre-filled
• Single click from content to placed bet

Why this is critical risk: This is direct wagering facilitation, not content provision. The service is operationally part of the betting process.

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Direct "Bet Now" buttons:

• Buttons/links that take users directly to betting sites
• Integrated betting widgets on tips site
• Real-time odds display with betting links
• Mobile app with betting integration

Why this is high risk: Creating a frictionless path from pick to placed bet demonstrates the service's purpose is wagering facilitation.

Source: FTC Endorsement Guides

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Affiliate tracking infrastructure:

• UTM parameters, referral codes, or tracking pixels in all betting links
• Commission tracking visible in URLs
• Different bookmaker links for different user segments or geolocations
• Retargeting pixels to track betting conversions

Why this is high risk: Sophisticated affiliate tracking demonstrates the business measures success by betting volume, not content engagement.

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Exclusive bookmaker partnerships:

• "Official partner" or "preferred sportsbook" arrangements
• Revenue-share deals with specific operators
• Particularly concerning if partnered with unlicensed operators

Why this is high risk: Exclusive relationships suggest commercial arrangement beyond simple content affiliate marketing, indicating revenue dependence on betting volume.

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Geo-redirects to bookmakers:

• Different betting site recommendations based on user location
• Automatic redirects to bookmakers legal in user's jurisdiction
• Sophisticated geotargeting of betting links

Why this is high risk: This level of sophistication in routing users to appropriate bookmakers indicates deep operational integration with betting ecosystem.

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Acceptable Linking Practices

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No direct betting links:

• Content stands alone
• Users must independently find betting platforms
• Multiple friction points between content and any betting activity

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Disclosed affiliate relationships:

• If betting links exist, clear disclosure: "We may earn commission if you sign up"
• Prominent disclaimers
• Links only to licensed, compliant operators

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Informational linking:

• Links used to compare odds across multiple bookmakers (transparency)
• No pre-populated bets
• Educational purpose (showing how odds work)

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No preferential treatment:

• If multiple bookmakers are linked, no preferential placement
• No exclusive deals
• Recommendations based on user benefit, not commission rates

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What to Request from Merchant

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Testing protocal

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Before approving merchant, conduct your own tests:

1. User journey test:

• Start at content (e.g., "Today's Pick")
• Time how long to place a bet following their links
• Document number of clicks required
• Target: >60 seconds and 5+ clicks = acceptable friction
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2. Link inspection:

• Click all betting links, inspect URLs
• Check for tracking parameters
• Verify affiliate disclosures
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3. Geo-testing:

• Use VPN to test from different states/countries
• Do betting links change based on location?
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4. Mobile app review (if applicable):

• Install app, document betting integration
• Check if betting is integrated within app

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Red flag threshold:

• Pre-populated bets = CRITICAL RISK (Auto-decline)
• "Bet Now" buttons = HIGH RISK
• Extensive affiliate tracking = HIGH RISK
• Partnership with unlicensed operators = CRITICAL RISK

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Ongoing merchant monitoring is essential to detect when merchants add betting integration post-onboarding.

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4. Customer Journey to Wagering

Why it matters:
The complete user experience from first touchpoint to potential betting action reveals the business's true purpose.

Mapping this journey shows whether the service is designed for content consumption or wagering facilitation.

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High-Risk Journey Patterns
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Frictionless betting path (<60 seconds):

1. User visits tips site
2. Sees "Today's Lock: Team X -3.5"
3. Clicks "Bet Now" button
4. Redirected to betting site (potentially pre-populated)
5. Completes bet

Total time: 30-45 seconds

Why this is high risk: This journey is operationally identical to a betting platform. The tips service is functionally part of the wagering infrastructure.

Source: New Jersey Division of Gaming Enforcement - Advertising Regulations

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Integrated betting instructions:

• Picks delivered with step-by-step betting instructions
• "Log into [Bookmaker], go to NFL, select Team X, place $100"
• Screenshots showing how to place the bet
• Mobile notifications prompting immediate betting action

Why this is high risk: Detailed betting instructions transform analysis into wagering facilitation.

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Community wagering coordination:

• Private Telegram/Discord groups where users share:

• Betting slips (screenshots of placed bets)
• Bookmaker account setup tips
• Deposit/withdrawal strategies
• Coordinated betting (multiple users on same bets)

Why this is high risk: Community facilitation of wagering activity indicates the service's purpose extends beyond information provision to active betting participation.

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Onboarding support for betting:

• Assistance setting up bookmaker accounts
• Recommendations for funding methods
• Instructions for circumventing restrictions (VPN usage)
• Customer support helping with betting logistics

Why this is high risk: Supporting the betting process directly (not just providing picks) demonstrates operational integration with gambling activity.

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Acceptable Journey Patterns

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Content-first experience (multiple friction points):

1. User subscribes to analysis service
2. Receives research report with statistical analysis
3. Studies methodology, team metrics, injury reports
4. Forms own betting decision (if they choose to bet)
5. Independently finds and uses betting platform
6. Returns to analysis service for next research

Total time: Hours to days between analysis and any betting action
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Why this is lower risk: The service provides information; the customer controls whether and how to act on it. Multiple decision points and friction exist between content and wagering.

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Educational journey:

• Users guided through:

• Statistical modeling concepts
• How to interpret data
• Building their own predictive models
• Understanding variance and bankroll management

• Focus on teaching analytical skills, not providing betting instructions

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Community learning:

Discussion forums focused on:

• Analytical techniques
• Model improvement
• Data interpretation
• Sports strategy and tactics

• NOT focused on sharing betting slips or coordinating wagers

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What to Request from Merchant

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Testing Protocol

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Map the journey yourself:

1. Sign up for their service:

• What information do they collect during registration?
• Any questions about betting experience or preferred bookmakers?
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2. Consume content:

• How is information presented?
• Are picks delivered with betting instructions?
• What is the call-to-action? (Learn more? Bet now?)
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3. Track time to bet:

• Starting from receiving a "pick," time how long it would take to place a bet
• Count clicks required
• Document friction points
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4. Join community (if exists):

• Request access to any private groups
• Observe conversations for 1-2 weeks
• Are users sharing betting activity or analytical discussions?
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5. Contact support:

• Ask analytical questions (methodology, data sources)
• Ask betting questions (which bookmaker, how to deposit)
• How do they respond to each category?

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Red flag threshold:

• Content to bet in <60 seconds = CRITICAL RISK
• Betting instructions provided = HIGH RISK
• Community shares betting slips = HIGH RISK
• Support assists with betting logistics = HIGH RISK

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5. Jurisdiction Targeting and Regulatory Arbitrage

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Why it matters: Where a business operates from and who they target reveals regulatory compliance intent.

Legitimate content businesses operate transparently within regulatory frameworks.

Betting facilitators often use offshore structures to evade oversight while targeting restricted markets.

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High-Risk Jurisdiction Patterns

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Operating from low-oversight jurisdictions:

• Business registered in: Curacao, Costa Rica, Gibraltar, Malta (without proper licensing), offshore tax havens
• WHY these jurisdictions? Lower regulatory burden, minimal gambling oversight
• Red flag: Offshore registration + targeting US/UK/AU customers

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Targeting restricted markets:

• Marketing heavily in jurisdictions where online gambling is:

• Prohibited (e.g., Utah, Hawaii, Washington State)
• Tightly regulated but merchant is unlicensed (e.g., US states with legal betting)

• Advertising spend concentrated in restricted areas

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Geo-blocking from regulated jurisdictions:

• Blocking users from UK, New Jersey, other jurisdictions requiring licensing
• WHY? If they operated in these jurisdictions, they'd need licenses and face scrutiny
• Deliberately avoiding regulatory oversight by excluding jurisdictions that would enforce standards

Source: UK Gambling Commission - Licensing Conditions

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VPN encouragement:

• Instructions for using VPNs to access service
• Recommendations for circumventing geo-restrictions
• "How to access from anywhere" guides

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Why this is critical risk: Actively helping users evade geographic restrictions demonstrates intent to serve markets where the service would be illegal.

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Regulatory avoidance patterns:

• No business address or uses mail forwarding service
• Domain privacy protection hiding registrant
• Payment processing through multiple entities in different jurisdictions
• Cryptocurrency-only payments (avoiding traditional banking scrutiny)

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Acceptable Jurisdiction Practices

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Transparent registration:

• Clear business address in jurisdiction of operation
• Properly registered business entity
• Verifiable corporate structure
• Public ownership information

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Targeting only legal markets:

• Geographic marketing aligned with legal markets
• Clear Terms of Service listing eligible jurisdictions
• Proactive geo-blocking of restricted markets

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Regulatory compliance:

• Registration with relevant content/media authorities
• Compliance with advertising standards in target markets
• Age verification for all users (18+ or 21+)
• Transparent about regulatory status

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No circumvention support:

• No VPN instructions
• No assistance accessing from restricted jurisdictions
• Terms of Service prohibit accessing from restricted areas

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What to Request from Merchant

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1. Business registration documentation:

• Articles of incorporation
• Business licenses/registrations
• Physical address verification
• Ownership structure
• Why did they choose this jurisdiction?
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2. Target market documentation:

• Which countries/states do they target?
• Marketing spend by geography
• User base breakdown by location
• Revenue by geography
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3. Geographic restrictions:

• List of prohibited jurisdictions
• Geo-blocking implementation (how do they enforce?)
• Terms of Service geographic restrictions
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4. Regulatory compliance:

• Any licenses or registrations required in operating jurisdiction?
• Compliance with local advertising standards?
• Age verification procedures?
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5. Banking relationships:

• Where are bank accounts held?
• Payment processors used
• Why these specific financial partners?

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Investigation Steps

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1. WHOIS lookup:

• Who registered the domain?
• Domain privacy protection used?
• Registration date (recently created?)
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2. Business entity verification:

• Search corporate registry in claimed jurisdiction
• Verify business actually exists and is in good standing
• Check for other entities with similar names (shell companies?)
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3. Marketing analysis:

• Run domain through advertising intelligence tools (SEMrush, SpyFu)
• Which geographies are targeted with ads?
• Which keywords are targeted?
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4. Competitor research:

• Who are similar businesses in this space?
• Where do they operate from?
• Have any faced regulatory actions?
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5. Regulatory action search:

• Search: "[Company Name] + cease and desist"
• Search: "[Company Name] + enforcement action"
• Check state AG consumer protection actions
• Check gambling commission enforcement databases
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Sources to check:

• American Gaming Association - State Gaming Map
• UK Gambling Commission - Enforcement Actions
• State Attorney General websites
• Better Business Bureau complaints

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Red flag threshold:

• Offshore registration + restricted market targeting = CRITICAL RISK
• VPN encouragement = CRITICAL RISK
• Geo-blocking from regulated jurisdictions = HIGH RISK
• Recent cease-and-desist or enforcement action = CRITICAL RISK

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For merchant acquiring platforms, these jurisdiction red flags require sophisticated detection during onboarding.

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6. Age Verification and Responsible Gaming Controls

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Why it matters: Even if a business is classified as "content" rather than "gambling," responsible operators implement age verification and responsible gaming measures.

The absence of these controls especially when combined with other red flags indicates the business is either negligent or deliberately avoiding gambling-adjacent compliance.

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Required Age Verification

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Why age verification matters for "content":

• If content is used for betting, it's gambling-adjacent
• Responsible operators prevent minor access
• Most jurisdictions require 18+ or 21+ for gambling-related content

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Inadequate verification methods (Red Flags):

• Simple checkbox: "I am 18+" or "I am 21+"
• Self-reported date of birth with no verification
• No age verification at all
• Age verification can be bypassed (forgotten password → new account)

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Adequate verification methods (Green Flags):

• Government-issued ID verification (driver's license, passport)
• Third-party verification services (Jumio, Onfido, Trulioo)
• Credit bureau cross-verification
• Identity document + database cross-check

Source: Best practices from licensed gambling operators and UK Gambling Commission guidance

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Responsible Gaming Measures

Expected controls even for "content" services:

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Self-exclusion options:

• Users can voluntarily exclude themselves from service
• Permanent or time-limited options (24 hours, 30 days, permanent)
• Exclusion actually enforced (not easily circumvented with new account)

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Deposit/spending limits:

• Users can set limits on subscription spending or recurring charges
• Particularly relevant for high-priced "VIP" tiers

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Problem gambling resources:

• Links to NCPG (National Council on Problem Gambling)
• Resources for problem gambling help (1-800-GAMBLER)
• Information about gambling addiction

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Marketing restrictions:

• No targeting of minors (no youth sports themes, cartoons, etc.)
• No aggressive retargeting of users who've canceled
• Clear messaging about risk

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What to Request from Merchant

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Testing Protocol

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1. Age verification test:

• Attempt signup with fake DOB showing underage
• Try bypassing verification
• Result: Should be rejected

2. Self-exclusion test:

• Request demonstration of self-exclusion process
• Verify it cannot be easily circumvented

3. Marketing review:

• Review all advertising materials
• Check social media ad targeting settings
• Look for minor-appealing content

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Red flag threshold:

• No age verification or checkbox-only = HIGH RISK
• No responsible gaming resources = MEDIUM RISK
• Marketing appeals to minors = CRITICAL RISK

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What Good Looks Like: The Compliant Sports Content Provider

When all elements align properly, a legitimate sports content business presents:

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Documentation Package

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Example: Compliant Provider Profile

Company: Sports Analytics Pro Model: Subscription-based statistical analysis and research reports Pricing: $29.99/month or $299/year (fixed, no outcome-based pricing)

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Value Proposition:

"We help you understand the game better through advanced statistical modeling and data analysis. Our research reports provide deep dives into team performance, player metrics, and predictive modeling techniques. While some subscribers use this information to inform betting decisions, we do not facilitate wagering, endorse specific betting operators, or guarantee any outcomes. All information is provided for entertainment and educational purposes."

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Revenue Breakdown:

• Subscriptions: 85%
• Affiliate commissions (disclosed): 15%
• No performance-based fees

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User Experience:

• Detailed research reports (10-20 pages)
• Video analysis of statistical models
• Educational courses on sports analytics
• Community forum discussing analytical techniques
• No betting buttons or betting site integration
• Affiliate links clearly disclosed and only to licensed US operators

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Compliance:

• ID verification at signup (Jumio integration)
• Self-exclusion available (30-day and permanent options)
• Problem gambling resources on every page footer
• Terms of Service prohibit minor use and betting in restricted jurisdictions
• Marketing targets 21+ only

This profile represents acceptable risk for payment processing.

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Common Misses: Red Flags That Disqualify Merchants

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1. "Entertainment Only" Defense with Facilitative Reality

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The claim: "We're just entertainment content. See our disclaimer."

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The problem: A disclaimer stating "for entertainment purposes only" does not override functional analysis when the business operationally facilitates betting.

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What's really happening:

• They have an "entertainment only" disclaimer buried in Terms of Service
• BUT: Marketing promises profits, "Bet Now" buttons lead to bookmakers, revenue is affiliate-driven
• They believe the disclaimer protects them from gambling regulations
• They may even cite examples of other companies using this defense

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Why this fails:

1. Functional analysis over form: Regulators examine actual business model and use, not just disclaimers

• UK Gambling Commission: "We look at what businesses actually do, not what they say they do"
• US DOJ: Wire Act violations determined by functional reality of wagering facilitation
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2. Totality of circumstances: A disclaimer doesn't negate:

• Facilitative website design (Bet Now buttons)
• Affiliate commission revenue model
• Wagering-focused marketing (profit promises)
• Seamless betting integration
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3. Established legal precedent: Courts have rejected "entertainment" defenses repeatedly

• Example: Fantasy sports operators claiming "entertainment" when functionally operating gambling
• Example: UK Gambling Commission 2019 enforcement actions against tips services with entertainment disclaimers

Source: UK Gambling Commission - Enforcement Actions; US DOJ - Illegal Gambling Business Act

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Real-world example: In 2019, the UK Gambling Commission investigated multiple "tips services" that prominently displayed "for entertainment only" disclaimers while:

• Earning 80%+ of revenue from affiliate commissions
• Using "guaranteed winner" marketing language
• Providing direct "Bet Now" buttons to bookmakers
• Offering revenue-share arrangements with operators

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Result: Several lost banking relationships, faced enforcement actions, and were required to obtain gambling licenses or cease operations.

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How to catch it:

1. Look beyond the disclaimer: Request and review full business model documentation
2. Map revenue sources: If affiliate commissions dominate, disclaimer is insufficient
3. Test user journey: If path from content to bet is frictionless, disclaimer doesn't protect them
4. Review marketing: If marketing promises profits, disclaimer is contradicted by actual positioning

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Red flag phrases:

• "We're covered by our entertainment disclaimer"
• "Other companies do this, so it's fine"
• "We're not a gambling company because we have a disclaimer"
• "Users are responsible for their own betting decisions" (while providing Bet Now buttons)

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What good looks like:

• Disclaimer is consistent with actual business practices
• Business model doesn't depend on betting volume
• No facilitative design elements
• Marketing aligns with "education" positioning

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For merchant onboarding systems, detecting these inadequate "entertainment only" claims during initial due diligence is critical.

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2. Affiliate Model with Weak Controls

The claim: "We earn affiliate commissions, but we're not facilitating betting. We're just marketing."

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The problem: High affiliate revenue concentration combined with facilitative design transforms a "content provider" into a betting facilitator, regardless of how they label themselves.

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What's really happening:

• 50-80%+ of revenue comes from betting affiliate commissions
• Commission structure is revenue-share (they profit when customers lose at betting)
• "Content" is designed to drive betting traffic (SEO optimized for betting terms, optimized conversion funnels)
• User journey is engineered to maximize betting conversions
• They may use aggressive retargeting and remarketing

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Why this is high risk:

1. Revenue model dependency: Business cannot sustain without betting volume

• If customers stopped betting, business would collapse
• This proves functional purpose is wagering facilitation, not content provision
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2. Regulatory exposure: Many jurisdictions hold merchants responsible for affiliate marketing

• UK: Operators liable for affiliate content and marketing practices
• New Jersey: Operators must ensure affiliates comply with advertising standards
• If your merchant's affiliates violate regulations, merchant (and potentially processor) face liability
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3. Payment risk: Affiliate-driven traffic has higher fraud and chargeback rates

• Bonus abuse: Affiliates teach users how to exploit welcome bonuses
• Multi-accounting: Same users create multiple accounts via different affiliate links
• Friendly fraud: Users claim "unauthorized" charges after losing bets
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4. Facilitation evidence: High affiliate revenue proves business purpose is driving betting volume, not providing educational content

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How to catch it:

1. Request revenue breakdown:

• What % of revenue comes from affiliates?
• Threshold: >50% affiliate revenue = HIGH RISK
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2. Examine affiliate commission structure:

• CPA (cost per acquisition): Lower risk (one-time payment for signup)
• Revenue share: Higher risk (ongoing % of customer losses)
• Hybrid: Depends on ratio
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3. Analyze traffic sources:

• What % of traffic comes from affiliates vs organic/direct?
• Are affiliates driving majority of new customers?
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4. Review affiliate agreements:

• Do agreements require affiliates to comply with regulations?
• Do agreements prohibit targeting excluded states?
• Do agreements prohibit misleading claims?
• How does merchant monitor affiliate compliance?
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5. Inspect affiliate marketing:

• Request sample affiliate websites, ads, social posts

Look for:

• Targeting of restricted jurisdictions
• Minor-appealing content
• Misleading profit claims
• Aggressive bonus abuse tactics
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6. Check affiliate vetting process:

• How does merchant approve new affiliates?
• Background checks?
• Compliance reviews?
• Ongoing monitoring?
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Red flags:

• 50% of revenue from affiliates (critical threshold)
• Revenue-share commission structure
• No affiliate compliance monitoring program
• Affiliate agreements lack regulatory compliance requirements
• Cannot provide list of active affiliates
• Affiliates using aggressive or misleading tactics
• 70% of traffic from affiliates
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What good looks like:

• <30% revenue from affiliates (content is primary)
• CPA or flat-fee affiliate structure (not revenue share)
• Robust affiliate compliance program
• Regular affiliate audits (quarterly marketing material reviews)
• Affiliate training on regulatory compliance
• Ability to immediately terminate non-compliant affiliates
• Affiliate agreements include detailed compliance requirements
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Real-world example: A sports picks service earned 75% of revenue from affiliate commissions with offshore betting operators.
Affiliates ran Google Ads targeting states where the operators weren't licensed.
When state regulators investigated, the tips service claimed "we just provide picks, we don't control affiliates."
Payment processor was named in enforcement action for facilitating unlawful gambling transactions.

Result: processor terminated relationship, merchant lost banking access.

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3. Offshore Structure Targeting Restricted Markets

The claim: "We operate internationally and happen to have US customers."

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The problem: Operating from offshore jurisdiction with lax gambling oversight while deliberately targeting US markets (especially restricted states) indicates regulatory arbitrage and avoidance of compliance obligations.

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What's really happening:

• Business registered in Curacao, Costa Rica, Gibraltar, or similar

WHY? These jurisdictions offer:

• Minimal gambling regulations
• Low licensing costs
• Limited oversight
• Privacy protections
• Banking secrecy

BUT: Majority of customers and revenue from US, UK, or other regulated markets
They're avoiding licensing and compliance costs by operating offshore while serving onshore customers

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Why this is critical risk:

1. Deliberate regulatory avoidance: Structure is designed to evade compliance

• If they were legitimate content provider, why offshore structure?
• Location choice indicates intent to avoid scrutiny
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2. Unlicensed gambling facilitation: Serving US customers from offshore without proper state licenses may violate:

• Wire Act (18 USC § 1084) - interstate gambling
• State gambling laws in target markets
• UIGEA - payment processing for unlawful gambling
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3. Payment processor liability: Processing for offshore gambling operations violates UIGEA

• You can be held liable for facilitating unlawful gambling
• Banks/card networks will terminate relationships
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4. Enforcement risk: Multiple states actively pursue offshore gambling operations

• Cease-and-desist letters from state AGs
• Payment processor demands to stop processing
• Domain seizures
• Criminal charges in some cases

Source: UK Gambling Act 2005; Australian Interactive Gambling Act 2001

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How to catch it:

1. Business registration location:

• Where is business legally registered?
• Red flag jurisdictions: Curacao, Costa Rica, Gibraltar (without proper licensing), Malta (without MGA license), BVI, Cayman Islands
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2. Target market analysis:

• Which countries/states do they target with marketing?
• Where is majority of customer base?
• Where is majority of revenue generated?
• If offshore registration but onshore customers → RED FLAG
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3. Geo-blocking patterns:

• Do they block users from highly-regulated markets (UK, New Jersey)?
• WHY? Because those markets would require licensing
• Blocking regulated markets while serving less-regulated ones indicates avoidance
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4. Payment processing setup:

• Where are bank accounts held?
• Which payment processors do they use?
• If offshore banks + high-risk processors → RED FLAG
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5. Domain and hosting:

• Where is domain registered? Privacy protection?
• Where is website hosted?
• If privacy-protected domain + offshore hosting → RED FLAG
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6. Marketing tactics:

• VPN instructions or encouragement?
• "Access from anywhere" messaging?
• If encouraging circumvention → CRITICAL RED FLAG

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Red flags:

• Business registered in low-oversight jurisdiction
• Majority of customers from US, UK, EU, or other regulated markets
• Geo-blocks highly-regulated jurisdictions
• VPN encouragement or circumvention support
• Domain privacy protection
• Offshore banking and high-risk payment processors
• Recent domain registration (common with enforcement-avoidance operations)

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What good looks like:

• Business registered where it operates
• Target market aligns with registration jurisdiction
• No geo-blocking of major markets (unless properly licensed)
• Transparent corporate structure
• Traditional banking relationships
• No VPN encouragement
• Clear physical presence and contact information
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Real-world example: A "sports analysis" site registered in Costa Rica marketed heavily in US states where sports betting was illegal or newly legal (unlicensed).
They earned affiliate commissions from offshore bookmakers serving US customers illegally.
US DOJ sent cease-and-desist; payment processors were warned processing their transactions violated UIGEA.
Multiple processors terminated the merchant. Eventually domain was seized.

Action required: Offshore + restricted market targeting = IMMEDIATE DECLINE. No exceptions.

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4. "Content" with Outcome-Dependent Pricing

The claim: "We're a content subscription, but we only charge if you profit from our picks."

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The problem: Tying pricing to betting outcomes definitively transforms the service from content provision to gambling partnership.

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What's really happening:

Pricing structures like:

• "Pay us 10% of your winnings"
• "Free until you profit $1,000"
• "We only get paid when you win"

• They claim this "aligns incentives" and shows confidence
• Functionally, this creates a direct financial stake in customer betting outcomes

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Why this is critical risk:

1. Gambling partnership: Revenue tied to betting outcomes means the business:

• Has direct financial interest in customer wagering
• Profits from gambling activity, not content value
• Operates more like a betting operator or bookmaker than content provider
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2. Regulatory classification: Outcome-based pricing likely triggers gambling licensing requirements

• Sharing in gambling proceeds requires operator licenses in most jurisdictions
• This structure is functionally identical to revenue-share partnerships between operators and platforms
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3. Unsustainable model: Only profitable if customers have sustained betting success

• Gambling is negative expected value for bettors (house edge)
• Model requires recruiting new customers constantly (unsustainable)
• Attracts bonus abusers and arbitrageurs (high fraud risk)

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How to catch it:

1. Review all pricing tiers:

• Are any tied to customer betting outcomes?
• "Free trials" that convert only if customer profits?
• Refunds offered if picks lose?
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2. Examine Terms of Service:

• How is "profit" defined and calculated?
• How do they track customer betting results?
• What reporting is required from customers?
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3. Ask direct questions:

• "Do you charge customers based on their betting outcomes?"
• "Are any pricing or refunds tied to win/loss records?"
• If YES to either → CRITICAL RISK

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Red flags:

• ANY pricing tied to betting outcomes
• "Pay us % of winnings"
• "Free until you profit"
• "Guaranteed profit or refund"
• Refunds based on losing picks (not content dissatisfaction)

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What good looks like:

• Fixed pricing regardless of customer outcomes
• Refunds based on service quality, not betting results
• No tracking of customer betting activity
• Value proposition: "Access to analysis" not "Betting profits"

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Real-world example: A handicapping service charged customers 20% of documented winnings.
They required customers to submit betting receipts proving profits.
When investigated, regulators classified this as unlicensed gambling operation (sharing in gambling proceeds).
Service was ordered to cease operations and obtain gambling licenses.

Action required: Outcome-dependent pricing = IMMEDIATE DECLINE. This is gambling facilitation, not content.

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5. Additional Disqualifying Red Flags

Technical red flags:

• Website frequently offline or poor performance (indicates lack of investment/professionalism)
• No SSL/HTTPS (security concern)
• Website design resembles betting sites (integrated odds, live scores with betting context)
• Mobile app with embedded betting functionality

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Operational red flags:

• Cannot provide basic business documentation
• Vague or evasive answers to direct questions
• No clear ownership or management structure
• Overseas customer support only (no US-based staff)
• Generic contact emails (info@, support@) with no named personnel
• Recent business formation with immediate high-volume processing needs

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Financial red flags:

• Cannot provide financial statements
• No bank statements or held at high-risk offshore banks
• Unwilling to discuss revenue sources in detail
• Requesting unusually high processing limits for new business
• Previous payment processor terminations

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Reputational red flags:

• Numerous negative reviews citing:

• "Guaranteed picks" that lost
• Difficulty canceling subscriptions
• Unauthorized recurring charges
• Aggressive upselling

• Better Business Bureau complaints with unresolved issues
• Social media posts from customers claiming scam
• Industry forums warning about the merchant

Legal red flags:

• Active litigation (especially class actions)
• Cease-and-desist letters from state AGs
• Previous regulatory enforcement actions
• Pending investigations

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Where to check:

• Reddit: r/sportsbook, r/sportsbetting
• Trustpilot and similar review sites
• Better Business Bureau
• State AG consumer protection databases
• Google: "[Company Name] scam" or "[Company Name] complaints"
• Industry publications: Legal Sports Report, CDC Gaming Reports

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Your First Questions: The Critical Inquiry

After reviewing this framework, the sequence of questions to ask merchants is:

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Question 1: "How do you make money?"

This single question reveals the business model. Listen for:

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✅ Good answer:

"Subscription fees. Customers pay $X/month for access to our analysis and research. We have [number] active subscribers."

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🚩 Red flag answer:

"Affiliate commissions from betting operators. We earn when customers sign up and bet."
OR "Performance fees based on customer winnings."

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Why this is first: Revenue model determines everything else. If affiliate-dominant or outcome-based, you can stop here.

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Question 2: "Can you show me the typical customer journey from discovering your service to consuming content?"

Request:

• Screenshots or screen recording
• Description of each step
• Time estimate for each phase

What you're looking for:

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✅ Multi-step, content-focused journey with significant time spent learning

🚩 Direct path from "pick" to "bet" in <60 seconds

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Why this is second: User journey reveals whether service is designed for information or facilitation.

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Question 3: "Do you have any links, integrations, or partnerships with betting operators?"

Follow-up if YES:

• Which operators?
• What's the nature of the relationship?
• What commission structure?
• Are operators licensed in the US?

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✅ Good answer:

"We have affiliate relationships with [licensed US operators], fully disclosed on our site. They represent <20% of revenue. Links are for informational purposes comparing odds."

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🚩 Red flag answer:

"We partner with several international operators. We can't disclose commission terms. Links are integrated throughout the site for user convenience."

Why this is third: Direct betting integration is disqualifying. Need to understand extent and nature.

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Question 4: "Please provide your business registration and any relevant licenses."

Request:

• Articles of incorporation
• Business licenses
• If claiming licenses in specific states, provide license numbers

✅ Good answer:

Provides clear documentation. Business registered in transparent jurisdiction. No gambling licenses because they're pure content.

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🚩 Red flag answer:

Offshore registration. Can't provide documentation. Claims "we don't need licenses because we're content."

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Why this is fourth: Verifies legitimacy and regulatory standing.

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Question 5: "What age verification and responsible gaming controls do you have?"

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✅ Good answer:

"We use [ID verification service]. Users must verify age before access. We provide problem gambling resources on every page and offer self-exclusion."

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🚩 Red flag answer:

"Users click a checkbox confirming they're 18+." OR "We don't need age verification because we're not gambling."

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Why this is fifth: Even content providers should have basic protections if content is gambling-adjacent.

Immediate Disqualification Criteria

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