Time to Rethink Laws Against Sports Betting

I agree with almost everything in this opinion piece by Al Neuharth, the founder of USA Today:

Super Bowl betting spotlights silly laws

More than half of all adults across the USA, about 112 million of us, will bet on the Super Bowl this weekend. Most of the wagers will be illegal. Estimates from noted USA TODAY sports analyst and oddsmaker Danny Sheridan:

More than $8 billion will be bet, most with back-street bookies, offshore, on the Internet, all illegal.

Only between $90 million and $100 million will be bet legally in Nevada.

Laws against betting today are as silly as was the ban on booze before Prohibition ended with the 21st Amendment in 1933.

Legalizing booze means more of us drink in moderation now. I was only 9 when that ban ended, but I remember well the basement or backyard binges on home brew or moonshine by some of my grown-up relatives and neighbors during Prohibition.

My hunch is that if gambling on sports events were out in the open, more of us would bet for fun only. Now, too many recklessly and secretly risk the rent money.

The silliness of betting bans is illustrated when governors, mayors and even university presidents of teams involved in big games now usually publicly announce bets with each other. In some states, that’s not illegal. Same is true of office pools if the organizer doesn’t take a cut.

Politicians in Nevada take a bite for the state on all legal gambling. If Super Bowl betting there is around $100 million, the state tax take could be more than$1 million.

Back to the Super Bowl game itself: I agree with Sheridan that Indianapolis will win, even though I went against his oddsmaker’s advice and properly picked Florida to upset Ohio State in the BCS title game.

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Laws that are so widely violated and blatantly ignored do not make sense to have. History (and economics) tells us that it is typically better to use the price mechanism in the form of legalization with taxes to alter people’s behavior when that is society’s desired goal. Moralistic arguments against sports betting hold no sway when governments have so broadly institutionalized the lottery. Although the NFL might publicly be against sports betting, much of the popularity of the sport rests on the ability to bet on it.

There are a few things in the Neuharth article I don’t agree with.

First, legalization of gambling would almost certainly lead to an increase in the number of people who lose the rent money, just as more people die from smoking today than would be the case if we made tobacco illegal.

Second, I don’t understand why Neuharth and everyone else thinks Indianapolis is such a favorite to win the Super Bowl. Indianapolis is favored by 6.5. A good rule of thumb during the regular season is the spread is equal to half of the gap between the two teams’ point differentials in games so far, adjusted for the home field advantage. During the regular season, Indianapolis outscored its opponents by 67 points. Chicago outscored its opponents by 172 points. During the playoffs both teams outscored their opponents by 28 points (Indy in 3 games, Chicago in 2 games). By this usually reliable rule of thumb, Chicago should be favored by 2 or 3 points.

The answer that people will give, I suppose, is that the Super Bowl is different, whatever that means. For that same reason, the over/under is always much higher than one would expect based on regular season game outcomes. My own view, though, is that forty Super Bowls is too few to know whether the Super Bowl is different or not. Absent a good theory on why the Super Bowl should be different, I think it makes more sense to treat the Super Bowl like it is just another game, at least from a betting perspective.

So I’ve got my money on the Bears and the under.


Mack

Laws that are so widely violated and blatantly ignored do not make sense to have

It can be argued that having laws on the books that are widely flouted contributes to a decline in respect for all laws. The same is often said of arbitrarily low speed limits and an excessive number of stop signs, etc.

While I take a libertarian stance on both, I find comparisons between liquor prohibition and gambling prohibition strained at best. Even allowing that both can affect families, the damage done by drunk drivers (for example) has no analog in gambling.

But in the general case I agree. The societal costs of the prohibition of vices are far greater than the costs of the vices themselves. This goes for alcohol, gambling, drugs and prostitution. The amount of money we spend fighting human nature is staggering, and the effects -- crime, corruption, etc -- are corrosive.

lermit

Compulsion rests on the assumption of odds being the law. Betting could be against the law and illegal. Even semi/legal, as one may have it.

But betting is compulsive or non-compulsive according to each person's assumptions on what the odds would turn, motivated by a more complex set of social and psychological factors.

So I'd go with poster Mack above in that societal costs exceed vices as such.

Andrew

I think the reason the line is so high is twofold. On one hand, the AFC is much better than the NFC this year. This is evidenced by the 40-24 record of AFC teams vs. NFC teams, and can be seen in the Bears' 2-2 record vs. AFC teams compared to their 11-1 (regular season) record vs. NFC teams. Because most of the games teams play are within conference, a team in the stronger conference might appear weaker simply because they played better competition.
On the other hand, once a line is set for the Super Bowl, it doesn't move much, if at all. The bookies learned their lesson from Super Bowl XIII, where the line moved from Steelers -3.5 to -4.5 and the game ended with a 4 point Pittsburgh victory - meaning both Pittsburgh -3.5 (where all the betting was early) and Dallas +4.5 (where all the betting was late) paid out.
This means that a very high 7 point line conceived in the heat of the AFC title game and the perceived AFC dominance might seem excessive after further analysis, but it's not going to change.

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shanek

Excellent post as always; I just have one thing I disagree with:

First, legalization of gambling would almost certainly lead to an increase in the number of people who lose the rent money, just as more people die from smoking today than would be the case if we made tobacco illegal.

I really don't see how you can conclude that. In Prohibition, the death rate from alcohol increased; more people are dying from cocaine and heroin overdose now than they were before the War on Drugs. Also, alcohol poisoning is a huge problem among those under 21, who cannot legally drink.

I suspect if you make tobacco or even caffeine illegal, people will simply turn to the black market to get them--and there won't be the checks on safety levels etc. or the guarantee that you're actually getting what you paid for.

pkimelma

shanek, I do not see how you can compare consumables with gambling. Banning a product means that the black market will manufacture or import illegally, but that often leads to poor quality - often dangerously so, due to lack of quality controls.
Although illegal gambling will continue when banned, it seems unlikely that it would be dangerous (other than dealing with rough bookies or something). You can lose as much or more with illegal gambling, since it is more likely crooked. But, more importantly, fewer people would get involved in anything other than friendly events (card games, betting on sports with associates, etc), and so less people would lose money. There is also an issue of location (where you go to gamble), although the internet has changed that. For alcohol and cigarettes, there is a "cleaning" hierarchy that hides the dirty underbelly, just as happens with certain drugs. That is, there are those who deal with the rough and nasty people, but are themselves reasonable to deal with (likely a neighbor). They may even upsell one more level to someone in the upper social classes. This way, the product is "scrubbed". Importantly, once scrubbed, it can be consumed in one's own environment. Gambling does not work that way, except friendly events among friends or associates.

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Nainil Chheda

Again this is a nice post !!

Gambling is the new tax for state government entities, and these entities will look to expand their tax base as the current ones run dry.

Delaware did flirt with a sports lottery briefly in 1976, but it failed and was stopped after 14 weeks.

Acting as per the society's needs is a very logical step towards prevention of illegal activities which cannot be monitored.

RandyfromCanada

wow to say gambling does no harm is like saying acholoh does no damage ...bet could fill pages with people who started by making a freindly wager and now life is ruined

Keegan

First, legalization of gambling would almost certainly lead to an increase in the number of people who lose the rent money, just as more people die from smoking today than would be the case if we made tobacco illegal.

On the other hand, one must consider the murders and other crime that would emerge with the inevitable creation of a black market to deliver tobacco.

T

Re: Indy favored by 6.5.
I thought the spreads were made to get an equal number of bets for both sides. So if betters think the Superbowl is different, you as a bookie/casino has to take that into account to spread your own risk.

jimw

Good theory (wrt to the point spread), too bad reality had to rear its ugly head. :)

elconejo

Stephan, I disagree with your comparison. To quote or paraphase your book, I would like to bring up the subject of incentives. A person gambles because he or she would like to become wealthy or acrue wealth. They drink or smoke or do drugs to soften pain or anxiety. You are comparing apples to oranges.
To expand on the issue of gambling,I see it as an aspect of the worship of "Mammom". Mammomism is the worlds largest religion and permeats and over shadows all other religions. I see it as the as the basic driving force or incentive to the degradation of humanity and the enviroment in which we live. Can you speak to the economics of Mammomism.

lermit

Incentives are only subsequent to outcomes. Thus, behaviour is not going to be motivated by incentives, but by assumptions on the outcomes associated to gambling, drinking, or downloading a book.

That's why I find economics (my true love) such satisfying an activity, and not math or gambling (my two darlings). I should find and support an actual hobby now.

.lermit

bgriffs

Steve...you appear to have forgotten the bedrock of betting on football: The Bears still suck.

gestrada

Someone said earlier in here, "I really don't see how you can conclude that. In Prohibition, the death rate from alcohol increased; more people are dying from cocaine and heroin overdose now than they were before the War on Drugs. Also, alcohol poisoning is a huge problem among those under 21, who cannot legally drink." Except I think this person needs to think about those things a little harder. First off, in the case of tobacco, people die of exposure. It's not something people do all the time and then die of the day they get it wrong. Alcohol, cocaine, and heroin are all things that won't kill you simply from doing them for a long time. They kill you from an overdose. So, a lot more people dying from heroin or coke use once the war on drugs was lifted has nothing to do with what would happen to tobacco deaths if tobacco was made illegal. Imagine how hard or expensive it would be to smoke a pack a day if tobacco were made illegal. You can think of how marijuana does a LOT more damage to the body than tobacco, but not nearly as many people die of their marijuana smoking habits, because it's illegal and expensive. As for alcohol... same thing. Drinking everyday won't kill you, it's overdosing on alcohol that will. So I'd agree with Professor Levitt here, a lot of deaths would be prevented by making tobacco illegal and a lot of people would lose the rent money if it were made legal to bet and places where you could bet the money were accessible to everyone. Although, I think it would be because of how many people who would otherwise never start gambling would have no fear and no moral pressure to shy away from it. So it'd be everyone who goes to extreme lengths to gamble away their rent money plus everyone who stays away, because it's discouraged and illegal.

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Kent

Steve, Gene Fama would say that markets are efficient, and you'd be just as well off flipping a coin then trying to guess if the point spread is too large or too small. The Colts did cover the spread toay. So Gene Fama 1 - Steve Levitt 0.

George S

Gambling should not be illegal on 'moral' grounds. That it is considered a 'vice' should be strictly a personal choice.

Nor should it be illegal on grounds of protecting people from themselves. This is not the state's responsibility. It is their duty to protect citizens from external harm, which in the case of gambling would be things like fixed games, rigged contests, etc. Educating and regulating should be enough. The government should not be responsible for people who eat too much, drink too much, or gamble too much as long they know the dangers of their behavior. Banning these activities is not the answer.

So I would certainly approve of all gambling being made legal, since some already is. However, to argue that legalizing gambling would pretty much destroy illegal gambling is probably misguided. It will not.

First, the amount of illegal gambling continues to grow despite the fact that there are more legal gambling outlets in this country then ever, from Tribal casinos, lotteries, OTB, casinos on cruise ships, etc. So providing more legal venues for gamblers has not curtailed illegal betting.

Second, if 'legalized' gambling required licenses and background checks and other bureacratic hurdles, the types of people who currently run illegal gambling operations would continue to do so, knowing they would never pass 'legal' muster.

Third, some gambling involves other illegal activities, such as animal fights, drag racing, or unlicensed boxing.

Fourth, legalizing gambling will raise the price significantly. Not just regulation and other requirements, but taxes and things like liability insurance will make the costs go up. Just like with smoking and fast foods, new 'victims' would blame the industry for their problems. The market for unregulated (cheaper) gambling would still be there.

Recalling Prohibition destroyed the bootleg alchohol industry, but only because the government stayed out of the legitimate alchohol business (other than health and safety aspects). Had the government decided to run it themselves, we would still have bootleggers today. For gambling, the more the state decides to involve itself through regulation and actual participation, the more illegal gambling you will still have.

Legalize (and tax) the activity, set the parameters, and regulate out the abuses, but let the market work it's way and the illegal gambling industry will be significantly reduced. But it will always be there.

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Mack

marijuana does a LOT more damage to the body than tobacco, but not nearly as many people die of their marijuana smoking habits, because it's illegal and expensive

We actually know very little about the effects of pot on the body, because we're not allowed to conduct any meaningful studies. But it's probably true that no one has ever died from a marijuana overdose. Certainly there are no documented cases of that.

But the sad truth is that people die all the time because of marijuana prohibition. We make it expensive because we make it illegal. Driving it underground doesn't make it go away, it just enriches some bad people, and in the process makes more bad people out of the ranks of the police. Many more are harmed because it's illegal than are harmed because of some inherent property of the drug.

In this way, if not in all ways, it does have a lot in common with gambling prohibition. And it's especially insidious because the state makes arbitrary and wholly artificial distinctions between legal and illegal forms of gambling.

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lermit

This function of the state extends to all parties involved in the legitimation processes that accompany different vices subject to prohibition. Government tries at the same time to support and define what the common good represents.

.lermit

jeblucas

I'm with commenter #9. The "line" on a game is set to equalize the betting on both sides. The losers pay the winner and the bookie keeps his vig. I think if you asked oddsmakers how many points they felt Indianapolis would win by it would be a very different number than the point spread selected as the line. Chicago is a major market and has fans all over the country that would bet for their (terrible) team no matter what. Indianapolis has some fair weather action, but nothing approaching Bears fandom. The line needed to be set such that betting on the Colts becomes attractive--even to a nominal Bears fan.

WillClark

Most bookies actually DON'T set the line to attract equal action on both sides, instead using bettors bias to inflate the house profits. There is good discussion of this on Wikipedia: (http://en.wikipedia.org/wiki/Sports_betting) and I remember reading an article about it a few years ago (Sports Illustrated, perhaps?).