Justin Wolfers’s Solution for Gambling Scandals: More Gambling

The economist Justin Wolfers, who has turned up on this blog more than a few times, has an interesting OpEd in today’s New York Times about the N.B.A. referee-gambling scandal. Wolfers is a sensible choice since he wrote a widely discussed paper about point-shaving in NCAA basketball and an even more widely discussed paper about racial bias among NBA referees. He makes at least two really compelling arguments in his OpEd.

The first is that certain kinds of bets are much easier for a participant — a player, ref, or coach — to manipulate, and these would include a point-spread bet or an over/under. In either case, you can manipulate the outcome of the bet without having to change the outcome (i.e., winner) of the game itself. So Wolfers proposes that one solution to gambling corruption would be less gambling — specifically, fewer bets of the type that can be marginally manipulated for gambling purposes.

His other solution, though he doesn’t come right out and say so, is for more gambling. He argues that gambling markets are susceptible to corruption in large part because they are often unregulated. For instance, just about all sports betting is illegal in the U.S. outside of Nevada. But that hardly stops people in the other 49 states from gambling. They just do it with illegal bookies or via offshore websites. Here is Wolfers’s pitch:

The competitive advantage conferred by regulation may also channel problem gamblers into the legal sector. If policymakers build in sufficient safeguards, we can direct victims of compulsive gambling into treatment. Instead, today’s problem gamblers are channeled by illegal bookmakers into ever-higher losses, and their mounting financial pressures sometimes lead to criminal conduct.

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. A transparent and well-regulated gambling sector could easily out-compete the unregulated offshore bookmakers and the illegal onshore ones. More important, it would reduce the number of betting scandals we’re likely to see in the future.

Like I said, Wolfers doesn’t quite come out and say that every state should just go ahead and legalize sports gambling, but you don’t have to read very hard between the lines to jump to that conclusion. That said, given our country’s chaotic and contradictory views on gambling — state-run lotteries are okay, but online wagering is not — I wouldn’t hold my breath.

Wolfers also mentions an interesting-sounding paper by a Stanford economics student named Jonathan Gibbs suggesting that point-shaving may be regularly practiced in the NBA.