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Introduction
Since the original publication of this guide in 2023, AI’s role in the gambling industry, as with many others, has accelerated dramatically. New threats have emerged, most notably a surge in deepfake-enabled fraud, and regulators on both sides of the Atlantic have moved to bring AI-powered gambling tools within formal oversight frameworks. At the same time, operators are deploying increasingly sophisticated AI embedded across fraud prevention, player engagement, odds-setting, and responsible gambling tools. This update examines the key developments across fraud, regulation, player protection, and the growing use of generative AI.
Fraud and the deepfake threat
Fraud remains a pressing AI challenge in the industry, but the nature of the threat has shifted. AI-powered fraud has escalated sharply in the U.S. market. In February 2026, two individuals in Connecticut were charged with using thousands of stolen identities to defraud major online gambling platforms of $3 million. Such fraudsters are increasingly using multi-step schemes, combining synthetic identity creation, deepfake verification selfies, and automated bonus abuse. Between 2024 and 2025, in-person casino identity fraud nearly doubled.
The majority of identity fraud losses occur post-onboarding, meaning that traditional one-time know-your-customer (KYC) checks are no longer sufficient. This has created an important and valuable market for AI-powered fraud detection in the gambling industry, and operators are shifting from static, one-time KYC checks to continuous monitoring using passive liveness detection (a security check that confirms a user is a real, live human present at the time of capture), behavioral biometrics, and graph-based machine learning.
Responsible gambling and AI personalization
Major operators now use AI systems to identify behavioral markers of harm – such as loss-chasing, frequent session spikes, and increased deposit frequency – and initiate interventions including automated messages, cooling-off suggestions, and limit-setting prompts. However, operators are still working to scale and incorporate these systems to meet their strategic ambitions for AI. A 2026 industry report found that only 70% of gaming companies globally have some form of responsible AI practices, and less than 5% describe them as embedded throughout their organizations. The majority of regulators in the United States do not believe the gaming industry can effectively self-regulate its use of AI.
Legislative efforts to directly regulate AI’s role in personalization are also advancing. The federal SAFE Bet Act, reintroduced by Senator Richard Blumenthal and Representative Paul Tonko, would prohibit sportsbooks from using AI to track individual bettor behavior, generate personalized and targeted promotions, or create AI-driven microbetting products. Illinois’ SB 2398 and its companion Gambling Data Collection Act (HB 1565) would similarly bar AI-enabled tracking of wagering activity and AI-generated betting products, with related bills pending in New York and Oklahoma. Separately, the bipartisan Gaming Advertisement to Minors Enforcement (GAME) Act, introduced by Senators Blumenthal and Katie Britt, aims to ban digital platforms and websites from using algorithms, AI, and targeted data to direct gambling advertising at minors.
Emerging research adds a further wrinkle: a 2025 study found that AI chatbots themselves can exhibit problem-gambling behavior patterns, and that AI-powered bots deployed within peer-to-peer gambling apps have been used to cheat users – a risk category distinct from, but related to, the personalization and fraud concerns discussed above.
In the UK, player protection has moved from aspiration to obligation. For example, in August 2024, the UK Gambling Commission introduced mandatory financial vulnerability checks at a £500 net deposit threshold, which was subsequently lowered to £150 in February 2025. AI can be useful for checks, but operators need to carefully design and deploy such tools to accommodate other legal requirements, including automated decision-making requirements and privacy rules.
Regulators are also deploying AI themselves. The UK’s Advertising Standards Authority launched an AI-powered Active Ad Monitoring System in June 2025 to sweep gambling advertisements for compliance with rules protecting individuals under 18 years old. This marks a shift: regulators are no longer simply requiring operators to use AI responsibly – they are using AI to police that requirement.
AI models trained on historical data can now identify markers of harm earlier, flagging at-risk players before significant harm escalates. However, the increased data collection on vulnerable individuals creates privacy tensions, particularly under the GDPR, the EU AI Act’s restrictions on emotion recognition and biometric categorization, and state privacy laws.
The EU’s regulatory timeline has also shifted and falls in stages. Provisions of the EU AI Act already in force impacting the sector include prohibitions on subliminal and manipulative AI and certain social scoring. In addition, some of the transparency requirements under the legislation – which require it to be clear when a user is interacting with AI rather than a human and regulate deepfakes – are already in effect as of August 2, 2026.
AI-driven litigation risk
A parallel trend is the use of AI-related allegations in gambling addiction litigation. Plaintiffs are increasingly framing sportsbook apps as products whose AI-driven behavioral profiling and algorithmic engagement features caused foreseeable harm, invoking product liability theories previously applied to other technology platforms. For instance, a July 2026 lawsuit against one operator alleged that gambling addiction problems were caused by intentional algorithm design, and a March 2026 lawsuit alleged that AI-powered microbetting, combined with official league data and platform design, converts casual fans into continuous gamblers. An amended Massachusetts complaint similarly advanced algorithmic engagement features as a distinct theory of liability, separate from traditional deceptive marketing claims.
AI and the rise of prediction markets
AI-driven prediction market platforms are creating a new front in gambling regulation. These platforms rely on algorithmic risk-pricing and settlement systems for event contracts, and federal courts have issued conflicting rulings on whether state gambling laws may be enforced against them. An Arizona federal court blocked state enforcement on preemption grounds, while a New York federal court allowed parallel state enforcement to proceed despite the Commodity Futures Trading Commission (CFTC) claiming exclusive jurisdiction over such event contracts under the federal Commodity Exchange Act. A federal judge blocked Minnesota’s first-in-the-nation prediction market ban shortly before it was set to take effect. Forty-four states have now called for state-level regulation of these platforms as trading volume has surged past $24 billion per month.
Looking ahead
Operators should expect intensifying scrutiny of how AI is used for personalization, fraud prevention, and player protection – and should prepare for the possibility that federal intervention, whether specifically for gambling or through broader AI legislation, may eventually follow. With players increasingly placing legal bets via mobile platforms and AI embedded in virtually every customer touchpoint, the stakes for getting governance right have never been higher.