« Freakonomics Radio

The Economics of Sports Gambling (Ep. 388 Rebroadcast)

2020-08-20 | 🔗

What happens when tens of millions of fantasy-sports players are suddenly able to bet real money on real games? We’re about to find out. A recent Supreme Court decision has cleared the way to bring an estimated $300 billion in black-market sports betting into the light. We sort out the winners and losers.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This podcast dynamically inserts audio advertisements of varying lengths for each download. As a result, the transcription time indexes may be inaccurate.
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and now today we are playing for you and episode about the economics of sports gambling first released last year. You remember sports right back in March as the covert making pandemic was setting in the sports industry went dark, including the professional leagues March Madness Summer Olympics in their absence eastwards continue, grow. Long with gambling on sports now live sports Army, no way back onto television, albeit without my fans. This is good. Who's, not only for people who like to watch sports, but again for those who, like to bet on the pent up, demand forbidding opportunities coupled with the fact that online betting is a very pandemic friendly activity means that the sports betting industry, which seem to be
pretty good shape. Last year, when we were, this, episode is now headed for blockbuster territory. So here is our look at the past present and future of sports gambling hope you enjoy I understand that you may be the longest running player in fantasy sports history. Longest running continuous players are true, not maybe no question about it. Absolutely because I was in the original rotisserie league, so one of the founders of fantasy sports, nobody from now League is still playing, I'm still in the original league, everyone's been replaced. So there is no question: I'm the longest living continue This fantasy sports player on the planet earth that is Peter gathers
I do various things most of these. Various things involve words. Novelist and on fiction, but greater screenwriter television rider and producer a playwright, an I'm, an editor and publisher at the canal, publishing group at Penguin, Random House in eighteen. Eighty gathers belonged to a gang of other people who worked with words Lee Eyes and bird Who, then was the editor in chief of the Squire couple of people at sport? illustrated Rob Slater Harry Stein. I think then was writing for the New York Times. There is one woman Valerie Salon Ba who is a magazine publisher. The ringleader was the magazine, editor and writer Dan Open Gonna play very loose version of this in college and then went wait this be really fun. It's for people who would want to own a baseball team but our rich enough to own a baseball team. In those days too
George, Steinbrenner without George Steinbrenner money was the way he thought of it. Steinbrenner, was the autocratic owner of the New York Yankees, you may best from the parity version in Seinfeld, George Diamond, I want to talk about. Costumes are dividing US time between us and you. I cannot have that. Ok, so for someone who doesn't know fantasy sports at all- and maybe doesn't even really know sports at all. Give me just a very he's elevator description of fantasy baseball, how it worked. So you put any sum of money that work The league I plan The initial input is two hundred and sixty dollars, and you have to put together a team. Roster the same way the Yankees or the matter, the Dodgers or the Kansas City Royals do within a budget of two hundred and sixty dollars. In my leg, we do it by auction, so a few bid eight dollars for it.
You then have two hundred and fifty two dollars to pay for the rest of your players and what the play are you own does every day that goes into your statute and its cue, a lot of and if the end of the year, the team with the best districts wins the planet. There had been plenty of earlier games that replicated baseball and other sports Games Board, games, even games with statistics, but gather says this league was the birth of fantasy sports as we know it its Defenders definitive throughout league was named after the restaurant, where the founders often eat lunch gathers was it's supposed to be an original member. I was called in, because there was someone else who had a team who decided he couldn't afford the original two hundred and fifty dollar entry say: oh you were a minor leaguer who was called a exactly and I couldn't afford the two hundred and fifty dollar fee, either side split up with a guy named Glenn Wagner, and we
became partners and we won the first year. How much did you win them? We want close to three thousand dollars now. Was this consider gambling at the time you know? Do you have people from the IRS listening not yet we're going to forward the tape to them assumes redone. Ok, then know if your after the Irish? Yes, of course, Levinsky importing the whole thing was created to gamble. Gathers is, to this day a big fan of sports gambling on final, four weekend of March madness. I have for the last thirty five years gone to LAS Vegas with the same group of guys, and we gamble non stop for forty eight hours and I like it, going so much that I dont really care. If I win or lose, I can't think of anything that is much fun for me. The rotisserie baseball league being based in Manhattan and comprised of men. At an media elites quickly gained attention, we invite
it onto the today show and we talked about how it worked and what we did and then bring Gamble was the host of the today show. Then he started league and then started to really really catch on just how much did a catch on today, roughly sixty million people in the? U S in Canada play fantasy sports. India has a hundred million players with cricket the most popular sport here. The most popular sport is football, but you can also play a fantasy baseball basketball hockey soccer cycling, tennis, Gulf E sports. You name it those sixty million people. Play for fun, they play for pride and they play for money fantasy revenues in the. U s alone, around billion dollars a year. So, as you well know, fantasy sports has become really big business. Yes, as
an original. How big is your tuscan villa? It's about the size of us small days did hotel room fun it is what happened. We invented this thing. We did it for fun, It truly never occurred to us that a ton of other people would. I also want to do this, even though almost Everybody in the league was a person whose whole life and job was to observe cultural trends and cap of eyes loved them. It never occurred to us and we did it before computer when everything one online everything changed. Yes, we think changed with the computing revolution as well here in a minute, but also the sports industry itself has exploded in the decade since the rotisserie league began how much of this explosion has been driven by the fantasy sports industry. It's hard to say,
it certainly makes the games themselves more relevant for more people. If you think it's sad that Peter gathers and his friends didn't get even a tiny piece of the fantasy sports bonanza just wait. It's about to get much worse, because the big fantasy sports companies recently got the gift of a lifetime courtesy of the? U S Supreme Court ranking as the Supreme Court this morning, striking down the federal ban on sports betting. That's right! it is no longer the province of casinos and a few select places legalised sports betting on real sporting events is coming to America. We ve seen hundreds and hundreds of millions of dollars worth of bats made since we launched in seems to be in bigger every month. Today economics radio, how did the sports gambling decision happen, states are happy to argue against gambling when it's in their best interests, and
happy to argue for gambling when they can get a big cover, the money and if you are going to bet on sports. The best bet you can make is also the most boring that you can make. It's a gambling strategy, only an economist love, friends, stature and Gunnar productions. This history economics, radio broadcasts and explores the inside of everything. Here's your home Stephen governor in nineteen. Eighty the same year? The Peter gathers and his Manhattan media friends help give birth to modern family sports. There was an action or physical birth of a boy
named Jason, Robins Freddy, from the earliest age. I can remember an interest in sports. My parents are both big sports fans, my dad and mom both also actively played sports. First, never remember. Watching on TV is yes Pierre, as I older and I got more into numbers and things and also simultaneously, I was finding out there are not so good on the actual feel there on the corridor, whatever at the time it was still you know, box scores in the newspapers and I would play a game with my parents- were they would quit me after? I had read back scores and try to remember every little detail. If robins had been a contemporary of Peter gathers, he might have been a candidate for the rotisserie league, but this was a different era, then soon as the internet star Did you have fantasy sports come about in a late nineties, early two, thousands, it was instant love for me. The early days of fantasy sports coincided with the rise of the dock,
I'm boom. There were a lot of start up companies like my fantasy leagues sports lie. Which CBS eventually, but there is some kind of joint ventures between CNN and sports illustrated. I was just trying to every one of them doing: college at Duke Robins had more than a hundred fantasy teams in various sports He was majoring in economics in computer science with the idea of becoming tech entrepreneur, but his graduation coincided with the bursting of the dot com bubble, so instead so I was almost a decade. I was in corporate Amerika playing fantasy sports helped lessen the sting of not having his own start up. Robins had to coworkers, Paul Liebermann and MAC Kailash, who were also way into fantasy sports and who else want to start their own company. Might one day that me down like, I think I have an interesting idea you're gonna like so, he told me very high level basis for draft kings. The high level basis of draft kings was
this millions of people already love playing online fantasy sports, but most competitions had a really long time table an entire baseball season or football season. For instance, what if you could draft a new fantasy team every day daily, fancy sport how much fun would that be and how lucrative I went home- and I just couldn't stop thinking about that night and then we proceeded for next year know. Six month their sounded as fumble around trying to figure out how to get it off the ground. Other People were already working on daily fantasy sports. Most significantly, a company called fan dual, but robins and his friends thought they could do it better. So they set up meetings with potential investors, lots of meetings, in least fifty. Maybe in closer to a hundred
and some of them were brutal, I mean they would take us to like second third fourth meeting or, like I heard they're going to get there they're going to get there and then like we just couldn't get there. One problem with robins and the two other guys still had their day. Jobs ever you're telling me that's like a sand when you're trying to raise funding that you know the investor says. If you don't believe in the idea enough to do it for time. Why should I believe enough in it to put a bunch of money in which is fair, but there's natural constraints me. None of us can from wealthy backgrounds and we were using what little money we had saved the fund, the business so eventually, He figured out a way to time it where he told them investor we are committed to creating on a certain time frame assuming that they put money in and that work. What sort of comparative advantage did the draft kings founders thing
they had. We had really been INA trained at companies and in areas tat analytics in marketing that we thought or corridor to really building the best mouse trapped in daily fantasy sports. Their mouths trap worked because dressed kings. Dot com combines one day fantasies force with winning life. Changing amounts of cash drift kings, launched in two thousand twelve with robins, as CEO quickly attracted a lot of users. Their number, Today we have north of eleven South, the twelve million registered users that you know, are playing a combination of free and pay games as far whereas market share goes our best gas and fantasies were about sixty percent of the market with so many users there, many different games and tournaments, and there are significant stakes, somebody's aims or you have tens of thousands of participants there can be put,
as is ranging, unlike their hundred thousand or even million dollar, plus range. If you finish first and what cut has draft kings historically taken, we take about temper now you may be asking yourself was all this evening: fantasy sports, but real money, Was it legal, the short answer sort of the longer answer. We need to get into the legality of betting on actual sporting events in ninety ninety two years? government passed a law that prohibited states from legalizing sports betting for states were grandfathered in Nevada Organ Delaware in Montana, but betting on actual sir Boarding events was explicitly illegal everywhere else. This, of course, did not mean that people were not betting on sports in those states. You might have as much as
you know three hundred billion dollars being bet in the United States every year, that is Victor Matheson sports economists at wholly cross. That's people, estimate might be going on under the table, the table, meaning with amateur or professional bookmakers on the black market. For an economist black market. Doesn't mean bad things. Black market for an economist simply means that this is something that's not recorded and the government doesn't know about. So when I ask my students, you know what sort of black market activities are out. You know, they'll tell me drugs, prostitution, gambling running guns and I will come right back and I'll tell them. Oh yeah, and baby sitting and bowing wants fantasy sports. Meanwhile, as with many big
this is borne on. The internet fell into a grey area, unregulated, but also not quite illegal as it grew. It drew scrutiny, including high profile corruption charge in two thousand fifteen. The New York Times published in exposing about a draft kings employee who had one three hundred and fifty thousand dollars on fan, do the big rival famously site by using what was alleged to be insider information Jason. Robins disputes this account, so it actually happen. Was this employee got sent to a secure means some data that included picks on our platform for leader games and those later games were not in our platform lock yet but unfavourable they were vandal, actually had a different set up where you could not enter players.
And later games and then change them during the earlier games. You had to pick off them up front so that information could not have even possibly benefited that employ not to mention In fact, the fan actually was making public the overall pick from mission, which is what he had published because they lock there's so It was kind of trumped up story, fourteen immediate already run with the story calling it inside you? Whatever draft kings research, did by, among other things, banning all its employees from playing fantasy sports, it was in order. Which control time for us and then that kind of lead to state regulators start to come down on us. Regulators came our on fantasy sport sites, because upon close inspection, what they were doing looked an awful lot lake gambling. So the way it's something gets determined to be gambling in most states is. It has to hit all three of three criteria.
It has to be consideration, which means something of value is paid to enter box number one checked there s three pricing, which means something a value comes out. When you win box number two checked and then there has to be chance in whether its chance or skill then falls at state level to define. So the question of whether playing fantasy sports was an act of skill or chance. This became a very important question. Four draft kings and their biggest rival, fanned or in the early years. There is a pretty intense rivalry and, of course, there are still some element of that now, but as we are getting it act by attorney general's and in a handful of states that forced us to together on the legislative and government affairs policy front, and we ve been collaborating on that. Since early twenty fifteen draft kings and fan dual in fact considered a merger The reason we try to marriage is both companies thought they could be successful, combining forces and working together. In reason it didn't
Happen was the government blocking it? the Federal Trade Commission blocked the draft kings annual merger on the grounds that the new company would quote control more than ninety percent. Of the? U S: market for paid daily, fantasy sports contest. So company stayed separate, fan dual wound are being acquired by Paddy power Backfire, which is now known as flutter. Gaming company based in England in Ireland where like the? U S, outright sports, he's been legal for decades and drafting stage an independent operator. Still the big question remained in the U S were drafting space was vanished sports betting, legal, ass Jason Robins explained, the answer would hinge on whether it was considered an active skill poor chance, so the people
we wrote, is called luck in the law, quantifying chance in fancy sports in other contexts. That's Petko, who soy I'm a professor of mechanical engineering at MIT. The soil is also Co. Director of the MIT Sports LAB so we bring students and faculty together with proteins in industry partners to look at sort of the abundance of data. That's coming out of sports today in two thousand and fifteen. So I got a call from fan dual. They asked us if they gave us there entire data set, could we tell them whether or not these contacts were conscious of skill or contests of chance? Now, when you hear about the company asking academic researchers to analyze their data, when the outcome of that analysis may have huge business or legal implications for that company, you may be a bit sceptical. So here's the first thing has soy says she told fan do when they
True to answer the skill, vs luck question I told you this is a terrific question more than happy to look into it. I also told them that we were going to publish the results regardless of what the outcome was, and they said. That's fine, so I said great: send us the data armed with a couple years worth of Fanduel data, the soy and her colleagues set out to analyze the roles of skill. Vs luck! So You do that. You know you have to think about skill in luck. Is a spectrum and ask where do these activities fit on the spectrum? Nothing is purely luck or purely skill like when you drive to work. It's mostly skill but you also got lucky that nobody ran into you. She and her colleagues used a model that compared fantasy players, win fractions during the first half of the series of competitions. Against the wind fractions over the second half, if you're flipping coins on, emerge, a person would win half of their games in the first half and half their games in the second half. If it's a game of let's say a grand master in chess playing against China,
obvious, though, probably when all the games, they applied the same thinking to the fantasy sports data, so we split it into fantasy baseball, fantasy hockey, fancy basketball and fantasy football, and if you're, trying to x lane to let's say an attorney general where fantasy sports lie on the spectrum, you have to give them something to compare it to it's. The number that we give them doesn't mean anything on its own. So then we compare that too real baseball hockey, basketball and football and just to add further context. We also included bicycle racing coin. Flipping and the stock market. We put all of those on spectrum to see where fantasy sports clustered Anne would they find so imagine, the spectrum, where zero is pure luck and one is pure skill
in flipping sat at zero, which is good so check, the algorithm gets that right. The next point on the luck end of the spectrum was the stock market, so that sad in about a third of the they up now move to the skill end of the spectrum, the one that is the top end of the scale spectrum is bicycle racing which again makes sense, because, if you're fast, your fast right, sometimes you a bad luck in open a bicycle race but for the most part, whoever's gonna. But the most powers gonna win. So now we come to the interesting chunk of the spectrum, which lies sort of between zero point, six and point nine, so basketball rewards skill. The most hockey rewards skill, the least because basketball has a large number of scoring opportunities in each game and a large number of games in the season. So that means that One lucky shot in basketball doesn't matter very much, whereas one lucky shot in hockey can matter a lot and football and baseball
are somewhere in the middle and what about the fantasy sports versions of those real sports? The fantasy sports are closely tied to where the real sport set meaning. Yes, some luck is involved, but also a lot of skill, which varies by sport, is not super surprising because the further upon the spectrum, you are the easier it is to predict the outcome, and if it is easy to predict the outcome, then it is easier to choose players in your fantasy lineup. The soil submitted her analysis as part of an affidavit to the Supreme Court of New York, one of several states where the legality of daily fantasy sports or death s was being challenged. My analysis, a fan, dual data, she wrote shows unmistakably the vandals dss contests are still based games shortly. Thereafter, the New York State legislature
legalised daily fancy sports. Many other states have also allowed fan dual and draft kings to carry on the skill. Finding was obviously good news for these companies. Although some critics used against them, they argued it was unfair that people who are better at statistics are more likely to win at fancy. Sports people who soy says this problem has a pretty easy solution. Number one learned. Some statistics there are lots of ways to do well in fantasy sports My first recommendation would be to not play in the tournaments but to play in something like a fifty fifty, so Fifty fifty everybody pays in the same amount and the top fifty percent of the finishers double their money and the bottom fifty percent lose their money, one fantasy baseball study, show them more than ninety percent of the winnings went to just over one percent of the players. Woe of people don't like to report is that that same group is also doing all the game. Play Jason Robins again from
everything's, so you know it's a scale game and people who are better skill, competed different levels. I find go golf. Maybe I complain. Amateur time and are not competing in the masters, but in the vast majority. Golf prizes are won by a small group of people too, but doesn't mean have to compete again, So there is different prize pools in different areas that each player can play and the people who are playing for large amounts are also putting up large amounts those people generally playing with other players that are like them. So the legal battle over daily fancy sports was clearly one by draft kings and fan do. But what? If fantasy sports betting was just a stocking horse in pursuit of a much bigger victory? Remember long ago. The? U S Supreme Court,
paved the way for states to legalise regular sports betting and draft kings was perfectly positioned to create a sports book to take these bets now, it's just in Jersey, online and mobile, but New Jersey. Won't be alone for long. I thank you, and I see a number of laws passed this year and I think twenty twenty is going to be a big year for a bunch of new states getting launch. Indeed, since we interviewed Robins draft kings is launched on sports betting in Colorado, Indiana, Iowa, New Hampshire, Pennsylvania and West Virginia. How Much money was already flowing through the draft kings, app in New Jersey. We ve seen hundred hundreds of millions of dollars worth of bats made since we launched in seems to be bigger every month, as their revenue centre for draft kings were it's going to be bigger in the future straight up, sports betting, your fantasy sports doll, deaf I'd, be sports betting,
even in the short time and in Jersey it's already become a substantial portion of our business way more so than the same size. Customer fantasy revenues coming from the Jersey market was the positive. Only of legalise sports gambling on your horizon from the outset was the kind of long term plan built around the possibility of that Definitely so you know, we thought that there is a broad I get in the: U S of people that four years had been confined to the black market for all kinds of activity, sports, betting being one of them. In the audience we felt had been are, they did during the online poker boom in the early two thousand, So we said look further meantime in me for a while. The way to certain will be fancy sports, but we are absolutely believe long term that other forms of sports, betting and gaming- you now that hadn't.
In legalised at this point, but we're very prevalent and in other countries that those would be made legal here and it actually happened a lot faster than we thought, but that was always part of the long term thinking coming up after the break we ask whose position to win and lose as sports gambling goes broad. The big Loser in this whole thing is for sure the SBA. We look at the potential costs. Whose society we shouldn't at all pretend that gambling is completely victim. And we wonder what all this new gambling data will tell us. This is a dream for economist right. It's coming up right after this. For economics, video sponsored by roguish planning to take the GM. E Matt, Elsa or M cap roguish online testbridge can help reduce, provides the flexibility to study from home with tons of
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a laureates and more about why we make irrational choices and how we can make better ones. The new season of choice. Ology is out now listen, unsubscribe at Schwab, dot, com, slash, podcast or find it were, You listen the Holy Cross. Economist Victor Matheson, whom we met earlier, is double threat, not Does he studied sports economics? I also do gambling economics, I've done a lot of research on lotteries and other types of gaming. So, of course, worth gambling is a right of my alley. Suit sports go back pretty much to the beginning of human civilization. What about sports gambling?
yeah, so the oldest organise sports that we have a good data on is the Olympics. The Olympic sought came about in seven seventy six b c. We have good evidence of that. We have fairly good instead, the first gambling on the alleged pics occurred and about seven seventy five b c so out as soon as they started playing games. Someone start of gambling on it. The legality of sports gambling has varied greatly over time and place in the. U S. Most forms of sports gambling had been illegal in me. This places until last year. The push for legalization gained momentum in New Jersey in two thousand eleven when voters thereupon, the non binding referendum in favour soon after the state, began issuing sports betting licences to casinos, but the pro sports leagues.
And the see sued in one and the sports books were shut down. What followed were a series of cleverly engineered lawsuits designed to make it to the Supreme Court? The case it finally did the trick was Murphy V National Collegiate Athletic Association. The justices voted sixty three to strike down the ninety. Ninety two federal law against gambling prior to this rule Congress had said that it was illegal for a state to legalise gambling. Wait. What so I know, that's all goofy, but again Congress said it was illegal for states to legalise sports gambling in less those states were already engaging in it. What these Supreme Court ruling said is it didn't legalise sports gambling, but it made it
illegal for the federal government to prohibit states from legalizing at the loaded hard to get the mind around here, but it doesnt all of a sudden mean that everything is legal everywhere, but it does mean that states are now allowed to legalise it if they want, as if today, sports betting is fully legal and operational in several states with others having already passed legislation only a handful of stay say they are not considering some form of legalization, which means most states will likely legalise. So what is incentivize in all these states to embrace sports gambling? Keep in mind that governments throughout history have argued given activity is morally or otherwise reprehensible until they decide that perhaps it isn't, or at least not so reprehensible- that a new revenue stream can't make a feel better states are happy to argue against Gay
Lange when it's in their best interests and their happy to argue for gambling when they can get a big cover. The money, as some states legalise gambling before others each on there, timetable, depending on a number of factors in negotiations, have been do if he no state legislators and gambling people and so on, what sort of opportunities. Does this staggered introduct? can create for a com It's like you to study the knock on effects of legalise gambling services. This is a dream for, regardless writer. We need something to turn on one place and then turn off another place and compare the two though this will really be interesting and will be interesting and a lot of ways like does the introduction sports gambling actually increase. The total amount of gambling and a state, or does it just cause people to stop going to the casino and stop buying lottery
tickets and start betting on the NFL. Instead, and that's a real question: if you're trying to raise revenue for the state, does it actually help you? If people are gambling on the NBA, but not buying lottery tickets. The taxes are always figured out part of the legislation because no other cases the primary reason that their passing it is the taxes Jason Robins again the ceo of draft kings. Most though ban in either the high single digits or low level digits in New Jersey. The state takes an eight and a half percent cut for sports gambling in casinos and thirteen percent for online bets, but the states do need to be careful. They don't tax it too much. He may be saying this out of self interest, of course, but also keeping in mind competition from existing black market gambling outlet, Because you know, if you have to pass- and you will, if you're going to exist and survive its business, if you have to pass it some of that off to the consumer, will those are taxes that aren't being paid?
by the offshore, is in there just going to create a better value proposition. Better pricing What is the optimal level of sports gambling taxation is widespread gambling onto effect sports athletes, the average better and society as a whole. Because legalised sports betting in the. U S is so new and moving so fast. There are all sorts of questions like these. That will be hard to answer for a while. So economists, like Victor Matheson, have been looking at data from other places the UK, before anything like the Brits, the average American in the course of a year, would end up making over a thousand dollars worth of bets on sports, and we know that's true, as we actually have the receipts. These are all legal bats being made through a huge network of local betting shops, plus there doing much more online nowadays
How would you describe gambling as a force on society and I'm not asking you to turn into a philosopher all of a sudden or illegal scholar? But you know it's concentrate on the economics of it anything from productivity, tab
in crop sea levels and so on. What does gambling tend to do so? There's? Definitely some winners and losers from gambling. The winners tend to be the sports wigs themselves, because when people get interested in sport, more people watch, I mean there's a reason that the March Madness TV contract get sold for almost a billion dollars by ironically. The big losers can also be the sports leagues, because, again as soon as you have gambling, you have the potential for corruption, and we ve seen this historically. The first major gambling scandal in major League baseball happened within a year of Major League baseball, forming that was the Louisville Gray scandal, the precursor the NFL collapsed in nineteen o eight in large part because of gambling scandals. We and, of course we know of things like the black socks and nineteen nineteen, throwing the world series
people think sports were fixed. Then they don't want to watch hand. So it's this real balancing act for the leagues. They want people to be interested, but they also want people to think that there is real, fair competition. I understand you Victor used to be a Emil S Major League soccer referee firm for some number years. Yes, yes, that is correct and were you ever approached by gamblers or their representatives about altering the outcome of a match so It was not, although very specifically, we were encouraged to not even go into it Tina and we are also encouraged to obviously or do anything immediately and we were prohibited by contract from engaging in any type of sports gambling and now with include filling March man is bracket. Historically, U S. Sports leagues have been opposed to gambling and these efficiently. Today it's a different story drafting
became, what's called an authorized. Gaming partner of mutually baseball in the old days sports League state, as far as I could from most Vegas, fearful of any association with even legal sports betting, but three years ago, Vegas landed a national hockey team, the Golden Knights, and this year the NFL Oakland Raiders became the LAS Vegas readers. The NFL itself has a partnership with the Caesars, team incorporation, the NBA as a partnership with India. Resorts, so it looks like most of the major sports in the United States have pretty much taken a at least moderately positive stand towards sports gambling again, knowing that p, we'll be more interested in their sport if they can gamble on it and knowing that they don't have to worry about their athletes being on the take, because all of our big sports, you know,
the average salaries or in the millions of dollars, not the sort of thing that most athletes are willing to sacrifice. In order to You know earn ten thousand dollars under the table from some black market bookie. On the other hand, in the big loser in this hall, thing is for sure the NBA, because the answer is absolutely ripe for corruption. Here the agency a is again the National Collegiate Athletic Association whose athletes are essentially unpaid, which means players are a massive target for corruption. So here's what the incident lays webpage says, quote the anti doubly opposes all forms of legal and illegal sports wagering, which has the potential to under and the integrity of sports contests and jeopardizes the welfare of student athletes and intercollegiate athletics community. What is and see double are going to do now that sport
Gambling is legal in many states. They can't prevent, let's say a dry. Kings or a casino from allowing betting on their sport. Can they they cannot. So what happens? This is a real conflict and you know I actually agree with everything the answer says there is that gambling certainly does have the possibility to undermine the integrity of sports, and it has particularly the worry to undermine college sports again, because college athletes are generating huge amounts of money for the unseen while not getting paid. The obvious solution is pay the athletes what they're worth, but we're not going to see that any time soon. So you know
they're going to maintain their integrity by placing the wrath leads rather than by actually giving them a living wage right, meaning the more you're paid the lessons and if you have, the throw game order, participated all collaborate with gamblers. Historically, one of the most corrupt sports is cricket, and that's because Intel about Twitter,
years ago, the only cricket out there were national team game, so you know India playing Pakistan or England playing Australia. The problem is, you didn't. Have any free agency cause it's very hard for an Australian to become an indian, and so a players were stuck on their teams and because players were stuck on their teams, they didn't make much money, even though cricket was wildly popular in places like India. So here you have a sport where there are literally hundreds of millions of people watching, but the athletes themselves work making any money. That is pretty much the prime recipe for corruption and again mass of corruption and cricket, both known and suspected, but guess what about ten years ago, they started actually playing some professional club cricket called the IP all the Indian Premier League, and now you actually have cricket players making some decent money. There is evidence that suggests
that the number of suspicious matches in cricket has gone down sense cricketers started actually making some real money and have something to lose if they get caught. So I mean this is another area where were completely aligned with everyone else. That again, is just robins from draft kings. Talking about corruption in sports, we don't want to get defrauded either It costs us money. Casa reputation potentially sours people's views towards the sports integrity and make some less likely to want to see regulated sports betting nor market. So we're on percent align their you now being able to. To tell right away if there is a regular activity and reported to the proper authorities. That's really the important part of the role that we play. So let's say that I bribed Lee you know: Didn't fifty fourth ranked world men's tennis player and
All I get him to do is to intentionally double fall on. You know the fourth sir, But the six game of the third set- and I put twenty grand on that subject- an easy one can t be a huge outlier betting. Twenty grand on a single point that he also was bedding. That kind of volume on any other points anywhere else in the match. So it would stick out like a sore thumb and whether we were a black market or legal regulated, but we would immediately flag that and say were not taken that that the differences we would report it to the authorities, sports betting becomes more more reliant on technology. You have to wonder what sort of an edge there is to be gained by betters, who are more analytically, adept that your room, as was the case with fantasy sports betters, as Victor Matheson sports gambling will be dominated by the team of quartz. That builds the best algorithm,
There is no doubt that big data allows you to engage in all sorts of gambling strategies that look like they have an advantage for you. The problem is, most of that turns out to be data mining. It works great, looking backwards, but going forward it doesn't work. One number two is that, even when you find a strategy that work you gotta, keep it under wraps, which is hard. You can't help These anomalies persist very long before someone figures without an and then all of a sudden they get Preston. Related question, then, is the stock market, in your view of form of gambling absolutely there is no question about it. The difference is this. Is that historically yeah? There's no doubt that betting on the stock market, as is purely gambling. That being said, it's a gamble that, in the long
run pays a positive net return? Gambling on sports has negative expected return rate, but let's also talk about where the money is going. When I buy a stock, the company indirectly, He is getting money to fund operations in research and so on, right, correct, and I make a bet- let's say, on a sports team: the athletes are not getting any of that, so that money he is being directed to a different set of winners. If you could orchestrate the way the handle was divvied, would you do it differently than an exists? Now, that's a good question and thought about that before yeah the place that the money goes now is not the casino takes. What called the big takes up a piece of that money for facilitating the bat and the rest goes out as winnings too.
Side that wins anything that the insecure or the NFL makes right now is all incidental. The way they benefit is maybe the person who takes out that bet is more likely to tune in. To the game or go to the game and therefore that's how the unseen gets the money mind do the NBA and Anna fell and other pro leagues in the United States have been trying to negotiate with states. Saying hey we're the ones whose product has been dead on. We should get a piece of that bet. As of this point dont- think the leagues have been successful in negotiating any those yet, but there's no reason to think they can't be. I do like what it's been called in some cases they call it and integrity tax to be fair, you know
if the answer a or other sports have to engage in a lot more compliance and a lot more investigation to keep their athletes honest, redirecting some portion of the of the gambling to those extra expenses, might be fair. On the other hand, Mark Cuban told us that he estimates it legalised words. Gambling will basically double the valuation of franchises, which has nothing to do with them, me flowing directly from the gamblers themselves. Right, that's exactly right. If you're gonna say that pro sports leagues should get money from the casinos for the extra costs, then it would also be exactly fair that the NBA should have to pay casinos for the extra benefits and I dont thing. The links have been saying that so, in your view, does the
I'm coming legalization of sports gambling and states across the. U S, especially very accessible gambling veal. It say a phone up. Does that spike demand for sports gambling and to what degree. So there is reason to believe that sports gamblers are different than all gamblers in that legalizing. Sports gambling actually brings new people into the gambling realm, who wouldn't otherwise be buying lottery tickets or playing crap or playing the one arm bandit in the casinos is spending on sports gambling regressive? I dont think we our nearly enough data to answer that question.
We certainly know that gambling on, for example, lottery tickets highly progressive, especially scratch Arctic, its super regressive? We do know that gambling is associated with lots of bad social effects. We know that introduction of state lotteries and casinos into neighborhoods increases crime. It increases bank, dropsy, a huge portion of consumer bankruptcies involve at least some amount of gambling that occurs, and There is reason to believe that sports gambling puts a particular group at specific risk. Think of all those sports fan
As we say you know, I'd never buy lottery ticket. That's just luck, but I know everything about sports. I should be able to win this and guess what you can't beat the casino these amateurs who think their experts don't stand a chance, but do stand a chance of really getting sucked in and the question is: how quickly can they extricate themselves and realise that yeah. I M actually not any good at this, so that sounds potentially pretty bad, at least for the Minos subset of people who are potential problem gamblers again, I realize you're an economist, not me, no political scientist, not a politician, not a theologian, but Are you concerned that fairly rapid legalization. Ports gambling in the. U S is going to lead to pretty soon
Nick again downsides ITALY's first certain portion population yeah. So I'm a college, professor and so I concerned about my students and the the data looks like this about seventy five percent of all college students report. Having gamble in the previous year about six percent of college students report having a severe gambling disorder resulting in psychological, difficult, he's unmanageable that failing grades. All all these bad things. Male students are even more likely have gambled and the report more problems with gambling more money in and having gambling problems and pair to students without gambling problems in these students are also more likely to use tobacco to drink heavily, to bend drink some marijuana use. Other illegal drugs, DR under the influence, have a low GPA. You know we shouldn't at all pretend that gambling is completely victimless.
According to the National Council on problem gambling, the rate of problem gambling in the? U S is about one percent. How does this compared? other countries? So there is not a uniform hoarding of gambling across places, for example at least officially the numbers in the United States or something like ten times higher than the numbers in Germany. Now the question is this As you know, all Germans were very rational people who would never get themselves involved in this, or do the Germans just have a much different definition of what you mean by problem gambling How much would you say that the media? Sports gambler operates on logic and all its manifestations. The verses, emotion. We know that They operate a tonne on emotion. We talk about casinos, balancing the books so that they make money either way, but casinos also do a pretty good job of of following the dumb money.
So Viktor, you ve told us about all the ways in which sports betters are illogical and emotional and overconfident. So let's say I'm all of those, but I still want to bet- and I wanna increasing chances a little bit. Do you have any advice, for how to be a less terrible, gambler, yeah actual he's the one sports gamble that we know has a long. One pay off is actually betting on the horse, races and bedding heavy favourites to show so what that means is you're you're, taking a horse that everyone thinks he's. Gonna win the race. You bet on them to at least come in no worse than third, it turns out that that is they. Winning bad dollar why's that is so boring. It is.
Literally, the most boring wait, awhile horse races in the history of horse racing, but it makes money. It's a gambling strategy, only an economist, gonna love. One obvious, please to look for parallel insight into the legalization of sports gambling is the recent legalization or decriminalization of marijuana in many states. Some people argue that asthma I is made more widely legal, but firm like Pfizer will move, in and dominate the medicinal market, while affirm like an Heizer bush. My dominate the recreational mark I asked Jason Robins of draft kings if he anticipates that sort of top down power play a sports betting becomes more common That's not something we want we'd like to build a big independent company in which it just about our space. Is that because of the in a regulatory aspects of it and because it states
I stayed it's not gonna, be all at once this huge opportunity. The opportunity could take several years to get bigger and bigger by. Thank you. I see where some of the bigger companies, like you knows, lotta regulatory stuff we got to deal with in so that give this a window by that windows, not open forever. When we have you Jason Robins. Last year, draft kings was still a privately held company. With a likely valuation in the single digit billions robins didn't sound like he was in any hurry to cash out. I mean we There are growing really quickly now and I think the opportunity or going after is one that has the potential to build a people may not believe me now, but will see in a few years. I think there can be a hundred billion dollar plus company built in this space, so we're going after that kind of size opportunity. But in April this year draft kings went public at the market capitalization of around six billion dollars. Since then, it is nearly double.
Like a variety of other companies and sectors that have benefited from the pandemic, shut down, draft kings and sports betting generally are flaw. Rushing even more than you would have predicted just a year ago, the first game in this year's trunk hated Major League baseball season between the New York Yankees in Washington Nationals attracted the most bets for a baseball game in draft kings. Sports book history. I'm Majority interviewed somebody else's made money off this thing. That again is Peter gathers who helped get the fantasies. Ports, juggernaut, rolling back and nineteen duties with the rotisserie baseball league. For this he told me He would love to get his own billions of dollars someday. I ask where he expected those billions come from the idea, that's the problem Vienne, unless you want give me some. What do you think would be inappropriate, dowry hundred bucks?
how many members were there of the original Rotisserie league, the ridge only twelve years aim for twelve hundred dollars. Jason Robins could basically make all of you happy, but more than we ve made up till now. That's our show for this week remember to listen for Steve Levitt, new podcast people. I mostly admire who here the first few episodes here unfrequent with radio, but you should go ahead and subscribe to it on your favorite podcast. We will be back next week with brand new for economics. Radio episode until then take care of yourself, and if you can someone else to economics, radios produced by sticker and W productions, this episode was produced by Zack Levinsky. Our staff also includes Allison Craig,
Greg Ribbon married to Duke met picky, Daphne Chan anchoring months in turn is immaterial. Our theme song is MR fortune by the hitchhikers. All the other music was composed by me scare. You can get free economy. Radio on any podcast up. If you want the entire back Camelot, use this teacher or go to for economics that com for we also published transcripts, show notes as always thanks for listening, stature. Back I've dromedary and I'm David Roth. We ve progress, will not right now supports that you never called Strachan cuts available everywhere. You stick father. Five apple gold was right after the distraction right now. It's do it please
Transcript generated on 2020-08-20.