Legalized Sports Betting in the United States: Analyzing the Impact of Legalization on Corruption Risk

The rise of corruption in sport has captured the attention of many anticorruption groups, including Transparency International and the United Nations Office on Drugs and Crime. Sports corruption takes many forms, but one of the most prevalent is match fixing, which occurs when players or officials alter the outcome of a sporting event in a way that benefits those who bet money on those “fixed” games.

In the United States, concerns about match fixing, among other things, led Congress to enact the Professional and Amateur Sports Protection Act (PASPA) in 1992. The Act prohibits most states from legalizing sports gambling, with only Nevada allowed to offer betting on single games. Yet PASPA failed to curb gambling on sports, mainly because bettors turned to the black market; each year, Americans gamble an estimated $150 billion-$400 billion in illegal sports betting.

PASPA appears to be in legal jeopardy: Last December, the U.S. Supreme Court heard oral arguments in the case of Christie v. National Collegiate Athletic Association (NCAA), and while a decision in the case is not expected until later this year, legal experts believe that the Supreme Court will invalidate PASPA. This would provide all 50 states with the opportunity to legalize and regulate sports betting in their state. With that in mind, it is important to consider the effects that legalized sports gambling may have on bribery in professional sports.

There is a debate in the anticorruption community about whether legalized sports betting will increase or decrease the prevalence of corruption. Some people believe that legalizing sports betting in the United States will decrease corruption risk for the following reasons:

  • Increased monitoring. By taking gambling out of the black market and “into the light,” regulators may be better able to monitor and track gambling activity, and to identify irregularities that suggest possible corruption. There are already some examples of how this can work: Two of the biggest college sports scandals in the last 20 years, involving Arizona State University and the University of Toledo, were uncovered when regulated Las Vegas sports bookmakers noticed betting irregularities on certain games and reported this behavior to authorities. With improved tracking technology and information-sharing across countries, regulators may become even more effective in detecting illegal activity. Indeed, other countries that have legalized sports betting have seen the benefits of increased monitoring to detect match fixing. Consider, for example, the European integrity service Sportradar, which tracks the betting action on more than 65,000 matches annually. Since 2009, Sportradar has sent out more than 1,800 betting fraud reports on matches it was confident had been manipulated.
  • Incentives for legal betting markets to be free of corruption. For legal sports bookmakers, match fixing scandals hurt their bottom line. Such scandals cause gamblers to lose confidence in the fairness of their bets, and to place fewer bets as a result. Legal bookmakers thus have incentives to share with authorities betting patterns that look like bribery. Black market bookmakers, by contrast, do not want to make their operations known to regulators.
  • No more black markets. There is good reason to believe that legalized betting markets will lead to the end of black market sports betting. Betting requires two parties: one side to make the bet and another side to accept the bet. While bad actors may hope to continue operating in the black market in order to avoid detection, they may struggle finding another side to take their bets. People who want to participate in sports betting may no longer participate in black markets because of the heightened risk that they are placing a bet that is doomed from the start.

For these reasons, many might hope that the anticipated Supreme Court invalidation of PASPA will actually reduce corruption in sports, by promoting the development of legal, well-regulated markets in which match fixing is less feasible. But there are important competing considerations—similar to those that motivated PASPA’s enactment in the first place—that suggest that legalization of sports betting might increase sports corruption overall:

  • Increased volume of sports betting. There is a widespread consensus that legalization of sports betting will result in a significant increase in gambling opportunities across the country. This increase in gambling opportunities may give rise to more match fixing in the aggregate, even if the proportion of match fixing incidents decreases. Indeed, this problem has played out in European countries that have legalized sports gambling. Match fixing in Europe is now at an all-time high, driven by the vast amount wagered on sports in legalized betting markets across the world.
  • Improvements in monitoring will not be enough to offset the increase in volume. Everyone agrees that legalization will increase the overall level of sports gambling. The claim that legalization will reduce overall sports corruption, then, relies on the claim that this increase in volume will be more than offset by the improvements in monitoring and detection that will occur when gambling shifts from unregulated black markets to regulated legal markets. But skeptics doubt whether this will occur. First of all, there is no guarantee that black market betting will disappear following legalization. One of the appeals of black market bookies is their ability to offer gamblers a number of benefits that legalized bookies will not be able to provide, including generous lines of credit and tax-free bets. Additionally, some types of sports betting are difficult, if not impossible, to monitor. One such area is “spot fixing,” where a player takes a bribe to fix not the overall outcome of a match, but rather a specific event during the match. Unlike match fixing, which typically requires an elaborate scheme and multiple parties, spot fixing requires only one individual performing one specific act. This “one-off fix” in a sporting event can be virtually impossible to detect through existing monitoring techniques.

Whether legalization reduces match fixing in the aggregate remains to be seen. On the one hand, legalization will increase the total volume of sports gambling, and increase the opportunities for fixing. On the other hand, legalization will improve monitoring and detection and reduce the proportion of sports bets in which the gambler tries to fix the match. While it’s challenging to predict one way or the other, I anticipate that legalization will decrease match fixing by bringing sports betting out of the black market and into a regulated space, coupled with incentives of bookmakers to keep bets corruption-free. But I acknowledge that this is largely speculative. We may learn more about the impact of legalization on match fixing—whether we want to or not—if the U.S. Supreme Court does indeed open the doors to legalization with its ruling in the Christie v. NCAA case later this year.

3 thoughts on “Legalized Sports Betting in the United States: Analyzing the Impact of Legalization on Corruption Risk

  1. Great, informative post. I wonder how states will address prop bets, should they have the chance to legalize sports betting. If they outlawed it, spot fixing would seem to be a huge reason that the black market will continue to thrive. But if they allowed prop bets, then certainly that would increase the volume of prop bets made (and the incentives for spot fixing). I suppose that different states may take different approaches, which might make for a nice set of contrasting state systems to help figure out what works best — provided the data is clear. Otherwise, it might just be a race to the bottom with every state wanting to take as much market share as possible.

    • Thanks for the comment, Kees. Your comment is spot on, and is something that state legislators are struggling with right now. I think that if states don’t offer such betting options for their patrons, the betters will take their bets elsewhere, likely the black market. I frankly think it’s much more likely that large-scale fixes occur in the black market than a legal betting market, so would prefer to see states include such options in legislation.

  2. Thanks Jimmy for this very interesting post. I share your concern that black markets may continue to thrive afterwards. Not sure if I understand what you meant by the heightened risk of placing a bet that is doomed from the start though. If bad actors would want to remain in the black market, what happen when both parties placing and accepting the bet are bad actors? Will they place/accept the bet and then engage in some kind of “bribing war” and see which party has the more “resource” to fix the game? This sounds extreme when there’re only two parties betting against each other, but black markets must have numerous players betting on thousand kinds of things right?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s