Friday, July 27, 2007

No One at the New York Times Understands Gambling

In his entertaining memoir, Betting On Myself, Harvard-educated horse-racing writer Steven Crist tells of an incident early in his journalism career, when he asked Abe Rosenthal at the New York Times for permission to move from the op-ed page to the racing beat:
So I went to him, apologized profusely, and sought his blessing. He gave it conditionally: He would be very disappointed if I didn't get bored with racing within three years and come back to the newsroom. At 24, he said, I was still young enough to become a metro reporter at 27 and move on to Washington or Prague and eventually back to the newsroom as an editor. Racing could be a great beat for a young writer, he allowed, but it was a terrible world because of the gambling -- he knew because his father had been involved with bookmakers. If I stayed around the track for more than three years, he said, it meant I was a gambler and not a writer.
I imagine the Times would treat someone like Crist similarly today, and it's a shame, because they could use someone who knows a thing about gambling. Based on this op-ed piece, which I found through Jane Galt, they don't have such a person now. It has to be one of the most confounding things I've read in a major newspaper.

In it, Justin Wolfers, a professor at the very prestigious Wharton School, addresses the NBA gambling scandal, and believes there are ways to avoid similar situations in the future. I'm going to quote the piece at length, which means you'll probably spot all the logical errors before I point them out. Here we go:
...sports betting scandals are fairly common. They are the result of persistent economic incentives that can be traced to the structure of sports gambling markets. And these incentives can be changed.

The activity known as "point shaving" gets at the heart of the problem: a corrupt player or official is rarely asked to throw a game to one team or the other. Instead he is asked to influence something rather immaterial, like the winning margin. This is profitable because gamblers typically bet on whether a team will exceed some point differential — the "Vegas Spread" — rather than whether a certain team will win.

The common thread in each (scandal) has been the existence of large-scale betting on immaterial outcomes, like the point spread, or how many combined points the two teams will score... Not all gambling leads as easily to corruption. For instance, if betting were allowed only on which team would win a game or a series, then corrupt gamblers would find it much more difficult to get referees or players to cooperate with them. The Black Sox players are famous precisely because they are rare.
In terms of gambling, the spread is not "immaterial." The spread is everything. It's a number that's painstakingly reached to ensure equal action on each side of a proposition. Those who handle both legal and illegal bets make their money on a percentage they charge for their services (the vigorish, or the "vig"). They're most vulnerable when one side is heavily bet over another. You can bet on either team to "just win," as Wolfers suggests, but this requires odds (which replace the point spread), and greatly affects the money that's paid out. Let's use a non-sports example. Let's say Hillary Clinton represents a very strong team (the Spurs) and Dennis Kucinich represents a significantly weaker one (the Hawks). If you want to bet just that Clinton will garner more votes than Kucinich in the primaries -- if anyone would even take the bet -- you'd have to do something like put up $500 to win a buck. Likewise, if you wanted to wager that Kucinich would best Clinton at the polls, you would simply remove the rainbow-colored colander from your head and put down a dollar to potentially win $500. See how that works? (I know this is simple, but the Times ran this piece! I'm taking nothing for granted.) Now. I acknowledge that scenario is an extreme example of imbalance, but those bets aren't appealing to many people. Kucinich would only attract desperate Lottery-type players, and Clinton wouldn't offer enough money back to make it worth anyone's investment. So, how to handle this situation? A point spread! You decide, given all the relevant information, that Clinton is likely to get, say, 16 million more votes than Kucinich in the primaries. You establish the spread at 16 million, and voila -- you're likely to get a reasonably equal number of bets on both sides (if you don't, you've miscalculated the spread).

This is just to establish the fact that point spreads are essential to football and basketball betting. Without them, the markets would largely dry up. More from the op-ed:
If David Stern wants to reduce gambling-related corruption in the N.B.A., he should try to find a way to encourage the types of bets that do not promote corruption. When faced with a betting scandal, a sports league usually hardens its anti-gambling stance. But that doesn’t work. A smarter approach would be to become more tolerant of some kinds of gambling in an effort to crowd out the bets that create incentives for scoreboard manipulation.

That’s right: Legalizing wagering on which team wins or loses a particular game, while banning all bets on immaterial outcomes like point spreads, would destroy the market for illegal bookmakers and make sporting events less corruptible by gamblers.

Point-shaving is a crime of opportunity, and the opportunity comes from the structure of sports betting markets. The commissioners of the major sports need to address these systemic issues.
We've jumped the rails. First, Wolfers has the creation story backwards in what I bolded above. The illegal gambling market doesn't exist because bookies make point spreads; bookies make point spreads because the illegal gambling market exists.

Secondly, I have no idea why Wolfers believes that Stern, or any other commissioner, has any effect on what gambling propositions are or aren't allowed. So when he writes that Stern should "try to find a way to encourage the types of bets that do not promote corruption," he can only rationally mean Stern should encourage players, refs, and other league employees to make different kinds of bets, but of course, he can't mean that. He somehow thinks illegal sports gambling -- by far the majority of sports gambling -- will be influenced by a league's anger or needs. It won't. It's up to the league to avoid corruption. Point spreads aren't going anywhere. They remain as material, for the gambler, as the chair I'm sitting on.


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