Monday, August 30, 2010

Easy Cure for Sports Betting Corruption

The recent scandal involving the Pakistani Cricket players fixing games just highlights a problem that will only get worse as a sport becomes more popular and global. But there is an easy answer. It only requires honest politicians who don't benefit from the sports industry, and the special interest groups that promote them.

The global reach of a sport separates the players from the bookies and fans they are bilking. My growing away from sports was a gradual process. I gave up on pro football first, then basketball, then college football, then college basketball, and finally giving up even on attending or watching many popular high school sports. The "Hulk Hogan" syndrome has progressed through all of those sports as I've retired from them. The Undercover Economist and Superfreakonomics books explain how this happens and why we shouldn't get too wrapped up in the predetermined outcomes of many games. Surprisingly, even Sumo wrestling is considered to be extremely corrupt, with the Yakuza (Japanese Mafia) making a killing while the general public loses their shirt.

All that is required to fix the problem is to allow betting on all sports and natural disasters with 2 regulations:
1) All bets and payoffs must be registered electronically
2) Anyone taking a cut of the bets will be motivated to comb through the statistics of the bets to maintain the systems integrity

The bet registration system could be as simple as an e-mail list server. This would be enough to get bookies and corrupt players worried that their corruption would be noticed. Alternatively, the system could be more sophisticated, allowing registration of bets and recording of payoffs to be made by e-mail. SMS, twitter, voice, whatever. And a markup language could be developed to minimize the bandwidth required to identify the parties in the bet, the monetary amount of the bet, and the fine print of the legal terms of the bet and the conditions by which it pays off. Authentication could be achieved with the same authentication used for SMS banking, e-mail signatures, etc. That technology could easily evolve without affecting the expense of operating and maintaining the registration database.

Governments and academics should love the registration system because it allows them to tap into a new, expanding revenue stream and gather endless statistics on the health (mental and financial) of their citizens. Governments with big brother laws could spy on their citizens all they like. Citizens of governments with strong privacy protection could be assured of their protection by a variety of means, including segregating bets according to the citizenship of the submitter and storing all information associated with them on a server located within the country of origin. With the proliferation of shared server farms, this would be logistically quite simple.

Of course whoever maintains the registration system should take a cut per transaction (justified by the portion of the maintenance costs that are proportional to the number of transactions) and as a percentage of the payoff amount (justified by the increased enforcement cost for larger bets). The system could be privately run, like an eBay for bettors. There could be several competitors around the world. Governments could get into the act for "under-served" populations. Of course some international treaties and regulations would have to be put in place to keep shoddy operations from setting up shop in corrupt Caribbean environments.

And the simplest way to weed out dirty bets is to simply not accept any bets placed that hinge on the single intentional action of one player, as was the case in most past sports fraud scandals, including the recent problems in Pakistan. The idea is that a person could bet on the fact that the Saints will go to the Superbowl in 2010, but you couldn't have that Archie Manning would throw the ball out of bounds on the final play of the season in 1995. Archie was never a dirty player, but he might have been tempted to intentionally make a single bad play, if the stakes were high enough. The saints would never collude to throw a Superbowl game, so you can be sure such a bet would be safe.

I'm sure others will l have ideas for even better betting standards to reduce the motivation for fraud. Standard bank fraud detection software could aid in automatically identifying suspicious betting and payoff patterns. So you could bet on the fact that the Saints will go to the Superbowl in 2010, but you can't bet Archie Manning will throw the ball out of bounds on the final play of the season in 1995.

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