Improving the integrity of sports betting - November 2010

Three years ago in their article, “Beating the Betting Cheats”, Steve Donoughue and Fabian Adams-Sandiford identified a number of steps that could be taken to help protect the integrity of the 2012 Olympic Games. Following this summer’s ‘spot-fixing’ scandal involving cricket, the authors revisit sports betting and conclude that urgent action is still required if the Games are not to be compromised by corrupt bookmakers.

Three years ago in their article, “Beating the Betting Cheats”, Steve Donoughue and Fabian Adams-Sandiford identified a number of steps that could be taken to help protect the integrity of the 2012 Olympic Games. Following this summer’s ‘spot-fixing’ scandal involving cricket, the authors revisit sports betting and conclude that urgent action is still required if the Games are not to be compromised by corrupt bookmakers. “It’s déjà vu all over again!” exclaimed Yogi Berra as he watched Mantle and Maris belt back-to-back home runs in successive games for the Yankees. And it is likely that those words would have been on the lips of many sports fans when the details of the latest allegations involving cricket were revealed. Cricket-related betting scandals are becoming as reliable an indicator of the end of summer as the unveiling of new television schedules.

For sports administrators, the temptation will be to write match-fixing and spot-fixing off as ‘a cricket problem’, perhaps whispering sotto voce that it is an Asian cricket problem at that. And certainly the fact that betting is prohibited in India and Pakistan has made it easier for organised crime to effectively annex cricket. However, the problems that afflict cricket affect at least two Olympic sports – tennis and soccer – so it is not unreasonable to assume that others are also affected. It is only a matter of time before the Games themselves are hit with a betting scandal of their own.

To its credit, the IOC has long recognised this. Only a few weeks ago IOC Chairman, Jacque Rogge, argued that “cheating driven by betting is the biggest threat to sport after doping”. Last year the IOC set up its own company, International Sports Monitoring (ISM), to investigate suspicious betting patterns.This is a welcome development, but more needs to be done. Not least to address ISM’s greatest weakness: poor market covering. ISM can only monitor suspicious betting patterns provided to it by those bookmakers with whom it has information-sharing agreements. And ISM has no access to information held by illegal bookmakers (who, of course, were at the centre of cricket’s recent woes). The ISM has one other weakness: it is charged with investigating one of the effects of betting scams – irregular betting patterns – rather than the root causes. It is time for the IOC, governing bodies of sport and the betting industry itself to focus on this side of the equation, specifically:

  1. Fraudulent sporting/athletic performances;
  2. Information asymmetries in betting markets;

It is easy to lose sight of the fact that at the centre of every betting scandal has been an athlete or team that has deliberately underperformed during a sporting contest. And the way that they have been persuaded to underperform is through the offer of a financial reward that exceeds the rewards of delivering a legitimate performance. Again, the recent case involving cricket is illustrative. The sums of money available that accused players stood to earn from spot-fixing significantly exceeded their playing salaries, leaving them vulnerable to temptation and corruption.
One partial solution to this problem is to offer athletes financial rewards for achieving, maintaining and - if possible - exceeding performance targets. The mechanism to support this are now well established with many governing bodies in developed countries now use sophisticated systems to track and predict the performances of their athletes. Sadly, most use those systems only to penalise underperformance – by reducing and removing central funding – rather than to reward good performance. Of course, not all governing bodies have access to such systems, but this is where international federations of sport, and perhaps the IOC itself, could play a role by brokering and funding knowledge- and technology-sharing to level the playing field.

The IOC should kick-start the move to universal performance bonuses for all athletes by offering prize money to medal-winners. The prizes need not be lottery-sized (they would likely be dwarfed by the endorsement deals many medal-winners would secure on their return home in any case). However, by paying prize money the IOC would set the tone, and would help establish a culture in which it is expected that athletes are rewarded financially for their achievements. At present, it is merely allowed.

However, there will need to be sticks as well as carrots. And the other side of way of deterring fraudulent performances is by ensuring that punishments for this behaviour are severe. The inexact parallel here is with anti-doping. Thanks to efforts of the World Anti-Doping Agency (WADA) sports collective approach to doping is clear and generally consistent. Athletes know, for example, that a positive test for performance enhancing substances means an automatic two-year ban. And in some countries, like the UK, a doping ban also means a lifetime Olympic ban. There is a strong case for putting in place a similarly robust regime for betting. For example, an athlete found to have agreed to deliver a fraudulent performance might receive a one-year ban. An athlete found to have actually delivered a fraudulent performance might receive a two-year ban. Clearly, this approach presents problems, not least in determining the difference between a fraudulent performance and, say, a managed one (for example, where an athlete or team simply does enough to qualify for the latter stages of a competition rather than tries to win every round). But the fact there are difficulties is not a reason to do nothing. The IOC could play a major role here, expanding the role of International Sports Monitoring role to make it the WADA of sports betting and by allowing as Olympic events only those sports that have ISM-complaint rules on fraudulent performances and on betting.

And on the subject of betting...Information Asymmetries
The existence of insider trading is one of the other root causes of corrupt betting. In our view, the reason that many sports have not addressed this issue is because their administrators do not understand how betting works. More specifically, they do not understand ‘value’ betting.
The image that many sports administrators have of betting is of casual punters popping down to their local bookmakers on the day of a big sporting event, and placing a bet on the athlete or team that they think will win or that they support. For the most part, much of betting is exactly like this. However, a lot of the kind of betting that drives cheating is more akin to the activities of financial markets.

Professional punters and their organisations (yes they have organisations employing maths and IT experts) will use a variety of computer aided analytical techniques to assess the chances of the competitors in a sporting event. These chances can be converted into betting odds and where there is a discrepancy between what the professional punters think and the odds offered by the bookmakers, value can be found. Professional punters will also arbitrage bets, whereby the odds offered by one bookmaker on one outcome covers any loses made on a bet on the alternate outcome with odds derived from another bookmaker and vice verse, thus hopefully providing a no-lose scenario. With the advent of betting exchanges, where punters can offer odds like a bookmaker (they lay bets) and, in effect back competitors to lose, this becomes more and more like financial trading. But does this cause illegality? The ‘traders’ would argue not and propose they inject much needed liquidity into markets. What we know is that the greater majority of professional punters use publicly available information and huge amounts of brain power in trying to beat the bookie.

Some, however, do try and get an advantage by getting the inside information from ‘the horse’s mouth’. Buying insider information from sources close to the competitor (or the competitor him/herself) is one of the grey areas of betting integrity. In horseracing, trainers and stable staff have traditionally sold information about their charges. This has been seen as an acceptable top-up of poor rural wages.

Anecdotal evidence suggests that there is much to be gained from betting on athletics as it’s possible to glean useful information just from talking to the coach and the competitors at the track. Many sports still enjoy an environment where people talk freely about each other’s chances and whether such and such a horse/ athlete/ darts player woke with a streaming cold and won’t be performing up to standard that day. Few sports consider the implications of such information on the betting markets. Insider information is outlawed in the dealing of stocks and shares for a very good reason. Those with the inside knowledge can alter the market to benefit themselves and disadvantage the rest. For most people this just means that a bookmaker usually knows more about which horse or football team will win than you do. But considering only about 30% of favourites win, this is hardly a foolproof system.

The solution to the problem of the problem of insider trading is to erase the distinction between insiders and outsiders. One strand of this is to ban insiders from betting. In our view, athletes, coaches, medical staff and administrators should all be banned from betting on any sport. This is a draconian as it sounds, but is based on the reasoning that:

  1. It would reduce the likelihood that insiders will come into contact with either professional gamblers or illegal bookmakers who might seek to compromise them (this is one of the reasons why there are no major professional sports teams in Las Vegas);
  2. It would make it more difficult quasi-insiders, such as athletes in the close confines that are Olympic Villages, from taking advantage of privileged information.

Further, consideration should also be given to banning paid staff and volunteers at major events from betting. A member of the security personnel at a warm up track may well have access to information about injuries or performance.The other strand is ensuring that market-sensitive information is disseminated as quickly as possible as widely as possible. This is particularly true in the case of injuries to players. Information on injuries can change the probability of a given outcome, it can move the line on spreads, and it can even change the odds on exotic bets. It is vital that this information ceases to be privileged information.

Here, the National Football League provides a possible model to follow. In order to prevent insider trading, every NFL team has to provide an injury report to League headquarters on the Friday before the game, and then update that report as the weekend progresses (including during the game). In addition, specific language has to be used in those reports. A player listed as “probable” must be more likely to play than not. A player listed as “questionable” must have a 50/50 chance of playing.

Finally, a player listed as “doubtful” must have a 75% chance of not playing.Athletes and coaches may balk initially at having a tactical weapon – misinformation - taken away, but they would adjust as the NFL adjusted when it adopt this approach in the 40s. In any case, the gains from increased transparency will outweigh the losses. Again, the IOC should take the lead here and put in place a system that requires national teams to notify Games organisers of injuries so that this information can be disseminated via the Web.

We began this article by invoking Yogi Berra’s famous maxim about the tendency for history to repeat itself. Given that so little progress appears to have been made since our last article, it seems appropriate to end this one by repeating the conclusion we came to three years ago: “The last 10 years have shown just how far individuals are prepared to go to gain an advantage over other gamblers. Though time is running out, enough still remains for the IOC, governing bodies and betting operators to ensure that the London Olympic Games are gambled on, not gambled with.”

© Steve Donoughue, Fabian Adams-Sandiford - 2010