I feel upset just reading your post. In the UK, this would be classified as animal cruelty and the dog would be rescued.
This is a tough one. Do you have a good relationship with the owners? Can you calmly chat with them about your concerns?
I'd suggest the following, to add 1-2 teaspoons of apple cider vinegar to her water bowl every day (will help with itchiness)
I DON'T agree with any type of chaining ... but I know we're looking for solutions here...
I have seen these plastic, extending chains that are spiral by design, they can't get tangled. Can you look for one in your pet/animal shop and buy it for them?