Alliance for Gambling Reform chief Tim Costello told a Senate inquiry he had spoken with an individual currently in a Sydney prison facing charges for stealing more than $12 million due to his addiction.
"He was TAB's biggest customer ... he was also Sportsbet's biggest customer," he said.
The man was given free accommodation at Star casino, offered $50,000 in bonus bets and flown to grand finals by VIP member managers, Mr Costello said.
"They were offering him escorts, drugs, whatever he wanted," he said.
Former NRL player Luke Bateman said he was targeted in a similar way during the worst of his gambling addiction.
"There were times I would be flown interstate and taken to race days, put in marquees with alcohol and food provided all day," he said.
Mr Bateman recalled an occasion when he was doing drugs with the senior executives of a betting agency in the back rooms of an exclusive event when he was 23 years old.
"These are men in positions of power with influence who should be looking out for your welfare and this is the kind of behaviour they are drawing you into," he said.
In a statement, Sportsbet said it had "no evidence whatsoever" of the allegations raised by Mr Costello and the company had zero tolerance for the described conduct.
"Given the seriousness of these allegations, we ask that any evidence supporting them be urgently provided to us so that we can investigate them thoroughly through the appropriate channels," a spokesperson said.
TAB has also been contacted for comment.
Advocates have called for laws to regulate the sector and prevent gambling companies from offering deals and free bets to customers, commonly referred to as inducements.
It's one of 31 recommendations featured in the final report from a 2023 inquiry chaired by the late Labor MP Peta Murphy.
Legislation due to go before the parliament in August does not include any effort to ban inducements.
Instead, Labor's reforms will include fewer gambling ads across various media, including none during television broadcasts, a ban on "pocket pokies" and improved financial counselling.
Gambling Harm Lived Experience Experts co-founder Anna Bardsley said the government's reforms were disappointing considering the years-long delay in responding to the Murphy report.
"This bill is all we get and, frankly, it's piss-weak," she said.
"It is patently clear that we are instead dealing with the protection of an industry that's entire business model is predicated on harm, an industry that exploits people to the point of extinction."
Advocates appearing in Canberra on Monday said they had not been consulted by Communications Minister Anika Wells in drafting the legislation to curb gambling harms.
But Ms Wells said BetStop, the national self-exclusion register, was already working to stop inducements.
"I would say to people who are either suffering from gambling harm or who have been advocating in the space of inducements, to assist the cause by making sure that people who might benefit from BetStop are aware of BetStop," she said.
Reform advocate Kate Seselja, who lost $500,000 to a gambling addiction, was brought to tears during her appearance at the inquiry.
Ms Seselja said it was particularly insulting to hear the prime minister say the bill had "struck a balance" when he had not consulted those with personal experience of harm.
Greens senator Sarah Hanson-Young said it was not surprising Labor tried to avoid taking the legislation to an inquiry in the first place.
"They know that it is not going to protect families," she said.
Senator Hanson-Young urged the coalition to work with the cross bench to agree to a stronger bill when parliament returned later in August.
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