Widespread corruption in sports gambling: fact or fiction?

• Author: Borghesi, Richard

1. Introduction

   While approximately $1 billion is wagered legally on college sports each year in Nevada, between 30 and 100 times more is wagered illegally throughout the United States (Public Citizen 2001). Legal and illegal gambling markets are intertwined because illicit bookmakers often balance their positions by placing bets at legitimate sports books. Furthermore, legal casinos may unwittingly play an essential role in the ability of corrupt gamblers to fix sports contests via point-shaving.

   Point-shaving is a scheme in which an athlete is promised money in exchange for an assurance that his team will not cover the point spread. The conspirator then bets on that team's opponent and pays the corrupt player with proceeds from a winning wager. Given the high cost of bribing players and enormous risks inherent in violating federal laws, the orchestrator must place massive bets for conspiracy to be worthwhile. Since local bookmakers are generally unwilling to accept unusually large bets, conspirators must wager at legitimate casinos. So, ironically, while the economic viability of legal sports betting markets depends on the perception that transactions are fair, Nevada casinos are potentially instrumental to gamblers who conspire to fix games. (1)

   Because few cases of point-shaving have been documented, most market participants believe that legal sports books are fair. (2) However, this perception has recently been called into question. In examining 44,120 men's college basketball games played between 1989 and 2005, Wolfers (2006) offers evidence that point-shaving occurs far more frequently than previously believed and estimates that at least 1% of games involve gambling corruption, while 6% of strong favorites (those favored to win by 12 points or more) shave points. According to Wolfers, conspirators target favorites because bribed players obtain positive utility both from profiting and from winning games, and a player can receive both only when his team is a favorite. It follows that strong favorites are ideal targets because the optimal win-but-fail-to-cover outcome is easier for a player to achieve when the spread is relatively large.

   In quantifying the pervasiveness of the problem, Wolfers proposes that manipulated games have two measurable identifying characteristics that differentiate them from legitimate games. First, teams having a bribed player perform worse, not better, than expected. It is presumably far easier for corrupt players to reduce effort than to increase effort, as most players typically compete using their full abilities. This reduced effort should result in poor team performance relative to market expectations. (3)

   Second, the frequency at which shaving teams narrowly miss covering the spread is higher than otherwise expected. Shaving players want to win, but they profit only when the victory comes by a margin less than the closing spread. The theory therefore predicts that if corruption is pervasive and strong favorites are ideal conspiracy targets, then strong favorites will win but fail to cover more frequently than expected.

   If well founded, the point-shaving theory suggests that hundreds of college athletes have committed felonies and that legitimate sports bettors have been swindled out of hundreds of millions of dollars. However, we provide evidence that is inconsistent with the premise that point-shaving is widespread in college basketball. To examine the prevalence of corruption, we analyze point spread and game outcome data from college and professional sports leagues. These data and the methodology employed are discussed in section 2. Results are presented in section 3, and an alternative explanation is presented in section 4. Closing remarks are contained in section 5.

2. Data and Methodology

   Our data set contains the final scores of 74,586 men's National Collegiate Athletic Association (NCAA) basketball games from 1990 to 2005, 30,129 National Basketball Association (NBA) games from 1978 to 2005, and 6015 National Football League (NFL) games from 1981 to 2005. Associated closing point spreads are obtained from Computer Sports World, which records lines posted at the Stardust Casino in Las Vegas. We remove from the sample all games for which no point spread is available. The final data set consists of final scores and closing point spreads for 43,656 college basketball, 28,905 NBA, and 6015 NFL games.

   Wolfers's theory predicts that among favorites, the proportion of win/no cover (W/N) outcomes will be unusually high...