If the game is fixed, it ain't the bookie's fault

Some of the worst legislation is generated as an immediate response to a crisis. That is because, faced with a crisis, government institutions face pressure from the public to "do something immediately," without much care whether or not the something that is done makes sense or not. For example, if there is a stock market panic caused by a spreading belief that some assets are wildly overvalued, the government will face pressure to prohibit betting on those assets being overvalued. If there is a scandal going on that has to do with the gambling industry, the government will face pressure to punish betting houses.

This is what recently happened in Poland. Last year, a number of Polish governing coalition MPs have been caught red-handed doing some shady deals with some shady businessmen. The allegations are that some coalition members who worked on legislation designed to regulate the market of slot machines, took bribes from the owners of slot machines. As damage control, the prime minister fired or suspended some people, as well as had the coalition work on a new piece of legislation that is supposed to regulate the whole gambling market, making it more transparent and less prone to corruption.

At least that's the rhetoric. In reality, the new gambling bill (which has taken effect January 1 this year) does nothing of the sort; it just gives the appearance that the government is "doing something" about the "gambling industry problem." One of the provisions of the new bill forbids sports teams to display any ads of sports betting houses. It's an attempt to prevent cash flows from betting houses to sports teams, and as such it must be made on an assumption that those transactions can create conflict of interests. This assumption is a result of a very common (and very false) belief that betting houses want to fix games.

Betting houses do not fix games; it's against their interest to do so. They make their money through fixing odds, not games. While the details of how they do it can be complicated, there's a simple way to think about it that allows you to understand the incentives they face: What the betting houses are doing is essentially equivalent to charging a fixed percentage fee on each bet placed with them. Given that, they maximize their profits if an only if two things happen: 1) the volume of bets is as high as possible and 2) there are approximately equal amounts of money placed on both sides of each bet. First condition is obvious: if you live on commission, you want to sell as much as possible. So is the second one, really: if the bet amounts are imbalanced and the result breaks the wrong way, the house can lose much more money than they made in fees. So what the betting firms are doing is adjusting the odds of, say, a Brazil vs. England soccer game such that those who favor England will bet about the same amount of money as those who favor Brazil. This means, of course, that the house does not care about the actual result of a Brazil-England game at all and so has no incentive to fix it. (It does care what bettors think the outcome of that game will be, but it doesn't have much control over that.) In fact, betting houses have an incentive to disclose large game fixing conspiracies, because very large amounts of money being placed on one side of the bet may make it impossible for them to offer realistic odds that could balance those amounts.

I think the belief that betting houses want to fix games comes mostly from a false notion of how they make their money, that notion being that their profits come from figuring out which team is more likely to win and then somehow fooling lots of people into betting on the other one. This can't work; if profits of the house depended on one team winning, then everyone would bet on that team (because, by looking at the odds, they would know which team it was)--thereby wiping out the profits.

This is not to say that game fixing doesn't exist. It does, of course; very large game fixing scandals have been recently uncovered in German and Italian first-tier soccer leagues, for example. But it was never the bookies who did the fixing: it was bettors or teams themselves. I am also far from thinking that Polish soccer league, in particular, is clean as a whistle. In fact, I think it's corrupt as hell, as evidenced by the fact that literally hundreds of Polish referees and team officials have pending corruption charges. But, as everywhere else, the fixing is done by bettors who want to cash in on their inside knowledge, by teams that need wins buying them from teams that don't, and by players and referees who take their cut for making sure that what's supposed to happen, happens. Cutting sports teams from a legitimate source of advertising revenue is definitely not going to change that.