Wednesday, October 28, 2009

Black Sunday in Vegas 

Yahoo Sports columnist Dan Wetzel had an interesting column yesterday about the beating that Vegas sports books are taking on NFL games this season. The "standard" model of sportsbook behavior predicts that point spreads are set to attract an equal volume of betting on either side of a game. Since point spread betting requires that bettor to risk $11 to win $10, when betting is equal the bookie collects $11 from losers, pays $10 to winners, and pockets a tidy 10% profit from the vig. However, when the betting is unbalanced, the sports book "takes a position" on the game, and can either win big or lose big. There is a huge academic literature indicating that point spreads are efficient in that on average the spread is equal to the expected point difference on games, but this does not mean that betting volumes are equal on games.

There are a lot of bad teams in the NFL this year. According to this article, the Vegas books are unable to set lines big enough to attract equal betting on games involving the dregs of the league (Lions, Rams, Bucs, Chiefs, Redskins, Titans, etc.), leading to big losses.

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Monday, August 31, 2009

Mixed Grill 

The Dallas Morning News reports that the Cowboys "stand to make as much as $4.2 million from the team's new Texas Lottery scratch-off tickets." In May, the NFL dropped a ban on team sponsorship of lotteries, and about half the teams are poised to capitalize this season.

I've puzzled over the NFL's motive in its recent lawsuit to stop Delaware from offering point spread wagers (so far successful, see Brad's post below). This news on the Texas Lottery strengthens my suspicion that the motive behind the Delaware suit is 100% pecuniary. How can they walk in to court with a straight face?

Looking ahead to the NFL and NBA seasons, here are two pieces on the challenge of selling tickets in the current economic environment. NFL teams with strong traditions like the Bears and Broncos (and one suspects, lengthy waiting lists for season tickets) will play before sellouts at home, as usual. But new wrinkles on promotions are being tried in Jacksonville, and across the NBA. The wackiest one: "In Philadelphia, the 76ers are running a Back 2 School promotion: four tickets to the home opener, two backpacks, two T-shirts and two hats for $75." Ay caramba! I'm sure the seats suck, but that's a lot of schwag!

Finally, on a different note, John Tamny has a piece at Forbes on the collapse in the baseball card market. Remember those card shops that sprang up in shopping malls 15 to 20 years ago? The failure rate was enormous: of "5,000 card shops in the early '90s, according to Sports Collector's Digest, there are only 500 now." Tamny points out that the card market was undone by entry: at the peak, "Fleer, Donruss, Score, Stadium Club and Upper Deck joined more established card company Topps in pursuit of large gains." What were once collectibles became commonplace. No matter what marketing spin the card companies could put on a Derek Jeter or Greg Jefferies card, ultimately the flood of cards undermined the essential element -- scarcity -- on which a market for collectibles is based. The card market might come back in a couple of decades, but I'm not betting on it.

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Monday, August 24, 2009

Hold Your Bets 

A three judge federal appeals court ruled today that betting on individual football games in Delaware is illegal, according to an Associated Press report. The NFL and the NCAA filed for an injunction stopping Delaware from allowing bets on single games. But rather than rule on the injunction, the appeals court upheld the NFL/NCAA claim that allowing bets on individual games violated federal law.

At one point I thought I understood the legal aspects of sports betting in the US. I thought that the the Professional and Amateur Sports Protection Act (PASPA) of 1992 outlawed sports betting in all states except Nevada, Oregon, Montana, and Delaware. And I thought that those four states were grandfathered into legal sports betting because they had previously allowed some form of legalized sports betting. So much for my knowledge of the law. It's a good thing I'm an economist.

As an economist, I have trouble understanding the resistance to sports betting in the US. Watching sports and betting on sports are complementary activities. Sports betting is legal in the UK and the Premier League seems to function well in that environment. The NCAA's rabid anti-gambling stance arises because they continue to pay student-athletes a fraction of their marginal revenue product. As long as that continues, there will be incentives for NCAA student-athletes to shave points. Never mind that office pools contribute heavily to interest in the NCAA Men's Basketball Tournament, which happens to pay a lot of the bills at NCAA headquarters in Indianapolis. Kids, don't bet on sports. Bettin' on sports is baaaaaad, m-kay?

But the NFL caters to betting on one hand, and deplores it on the other hand. What's up with that? In the major North American sport leagues, the famous gambling scandals involve Tim Donaghy, Pete Rose, and the Chicago Black Sox. One is a certified numbskull, and the other two might not have happened if not for relatively low pay. Beyond that, what are the big gambling scandals in the pros? Paul Hornung and Alex Karras in the early 1960s? See my comment about low salaries.

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Tuesday, June 16, 2009

The NFL and Gambling 

In the WSJ here. The article suggests that the NFL's stance in opposition to gambling is hypocritical and motivated by its appetite for public subsidy. John Vrooman of Vanderbilt states that $17b in public subsidy for NFL stadiums has been obtained in the past two decades. Makes sense to me.

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Monday, November 17, 2008

Weekend Wrapup 

Quite a weekend in sports economics...

Pittsburgh, San Diego, and Vegas

There was an interesting finish in the game between the Chargers and the Steelers. On the last play of the game, Steelers defensive back Troy Polamalu appeared to return a fumble for a touchdown that would have given the Steelers an 18-10 victory. However, the referees later ruled that an illegal forward pass occurred prior to the touchdown, resulting in a final score of 11-10. This was reportedly the first 11-10 final score in NFL history, an odd outcome since 10 is a common score and 11 can be generated a number of ways (3FG+Safety, the outcome in this game, TD+2 Point Conversion+FG, and the unlikely FG+4 safeties). The interesting angle on the game is that the Steelers were a 4 or 4.5 point favorite in the game. If Polamalu's TD counts, the Steelers cover; after the reversal, bets on the Chargers paid off. According to the betting volume data available on Sports Insights, 70% of the straight bets against the spread were on the Steelers, the home favorite, so the reversal put a lot of money into the pockets of Vegas sports books and bookies.

Mark Cuban and the SEC

Dallas Mavericks owner, and wanna be Cubs owner Mark Cuban has been charged with insider trading. According to reports, Cuban owned 6.3% of the shares in search engine Mamma.com in 2004, making him the largest individual stockholder. The SEC claims that Cuban dumped his 600,000 shares prior to a public offering of additional shares that he had inside knowledge of, thus avoiding $750,000 in losses.

In March of this year, Cuban's estimated net worth was $2.3 billion, which begs the question of why he was willing to break the law to avoid a piddly $750k loss. Recall that Martha Stewart did five months in a federal correctional facility for insider trading a few years ago. I wonder if Cuban will also wind up in the slammer?

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Thursday, August 14, 2008

The Production Value of Brett Favre 

Former students Andy Weinbach (now teaching at Coastal Carolina) and Mark Wilson (St. Bonaventure) were discussing this with me. Their assessment, derived from market prices: pretty small. Here's their take:
How valuable is Brett Favre to the New York Jets?

The Jets acquired Brett Favre, believing their team would be improved, but what do the markets reveal about this move? For proposition bettors wagering on the number of regular season wins by the Jets, the move seems to be an improvement.

Betting markets can provide insight into how much the Jets have improved, but the answer is unfortunately not straightforward. Many books temporarily took the Jets regular season wins proposition off the board in reaction to the Favre acquisition. Bodog sports currently offers the Jets at 8 wins (-155o),(+125u). If this is assumed to be an unbiased forecast, (which is a reasonable, but not necessarily accurate assumption), using some statistical wrangling, and ignoring pushes, assuming all money will be refunded in the case of a tie, this translates to a roughly 57.8% chance that the Jets will win more than 8 games and a 42.2% chance that they will win fewer (Again, this assumes ties are not possible. While ties are indeed possible, they should be revenue neutral for bettors).

Unfortunately, we don’t have the Bodog price from July. However, a reliable source tells me that a local shop had the Jets priced at 7 wins (-150o),(+120u) on July 22nd, when Pennington was still the expected starter. As of August 10, that same shop offered the Jets at 8 ½ wins (-115o),(-115u). If we ignore the possibility of a tie, the July 22 price at this shop would suggest a 56.9% chance of winning more than 7 wins, and a 43.1% chance of winning fewer. The current price suggests a 50% chance of 9 or more wins, and 50% chance of 8 or fewer.

While these figures are not directly comparable, a loose and perhaps fair interpretation might be that the acquisition of Brett Favre is expected to return one additional win for the Jets this season.

Meanwhile, in the NFL.com fantasy league, www.nfl.com/fantasy/rankings/wr current rankings indicate a recent increase in value for Jets receivers Laveranues Coles and Jerricho Cotchery, suggesting fantasy players believe Favre will have a positive impact on the two wide receivers.

The same reliable source reports that the local shop has priced in slightly lowered expectations for Miami (Pennington’s new team) since July. In July, the price was 5.5 wins (-125u) and (-105o), but has now moved to 5.5 wins (-130u) and even.
Obviously, one additional expected win at this stage might represent a significant boost to a team's playoff chances. That would be another calculation worth making. If you know or can quickly determine the answer, do leave it in the comments.

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Saturday, April 12, 2008

Pete Rose's Bets: How Smart? 

Most readers will recall that Pete Rose has been banned from baseball for betting on the game. Rutgers Professor Douglas Coate does the sums on the bets listed in the Dowd Report as having been made by Rose:
In this paper the betting on baseball games from April 8, 1987 to May 12, 1987 attributed to Pete Rose in the Dowd Report to the Commissioner of Baseball is analyzed. The results show Rose lost $4,200 betting on the Cincinnati Reds, the team which he managed; $36,000 betting on other teams in the National League, and $7,000 on his American League wagers. These losses, which include about $20,000 to $25,000 in transaction fees are small relative to the $450,000 in winning and losing bets (including the transaction fees) and are consistent with an informational efficient market. Assuming these bets are Rose's, his expertise (24 years as a player, 4 years as a manager, major league leader in games played) was not an advantage when betting on his own team, on other teams in his league that he studied and competed against, or on teams in the other major league.
Rose typically bet four or more baseball games each day, in addition to a bet on the Reds (always to win, apparently). Coate doesn't include betting on NBA games (see exhibit 16 of the Dowd report, which shows winning and losing bets on NBA spreads). It would be interesting to test the null hypothesis that Rose's wagering on MLB and NBA games was equally futile.

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Monday, February 04, 2008

Anomalies: Super Bowl Coin Toss Betting 

In terms of betting, the Super Bowl is one of the most popular events in the world. Sports books, as well as trading markets like TradeSports that operate like betting markets, offer a wide variety of bets/contracts on the Super Bowl. I like to follow the trading of contracts on TradeSports in real time for large handle events like the Super Bowl to see how markets interpret the information that is revealed on the field. While surfing around the TradeSports web site before the game, I noticed among the “proposition” contracts offered was a contract on the Super Bowl coin toss coming up heads. Based on the volume of trades, this was the most popular Super Bowl proposition bet on TradeSports, and based on other web sites, proposition bets on the Super Bowl coin toss are one of the most popular Super Bowl prop bets.

For those unfamiliar with TradeSports, and other prediction markets, this site allows members to buy and sell contracts on specific events occurring. Each contract is worth $10 if the event happens and zero if it does not. So if you purchase a contract on the event “heads on the Super Bowl coin toss,” you get $10 if the toss is heads and zero if the toss is tails. Up until the coin toss takes place, these contracts can be bought and sold on a market at whatever the prevailing price is at that moment. By convention, TradeSport prices are normalized to the 0-100 interval, so that the price can be interpreted as an estimate of the buyer or seller’s subjective probability of the event taking place.

As anyone who has taken a statistics class knows, the expected value of the toss of a fair coin is 50/50 – a 50% chance of heads and a 50% chance of tails. So the expected value of a $10 contract on “heads on the Super Bowl coin toss” is 0.50*$10+0.50*0=$5, or 50 when expressed in the TradeSports price metric. TradeSports also makes price-volume data available for all contracts. There were 86 transactions, involving 275 contracts, in this particular market. The graph below shows the frequency distributions for the prices paid in these transactions.


This distribution is interesting, to say the least. The mean price was 50.33 and the median 50.35. Why would anyone pay more than 50 for a contract with an expected value of 50? Of the 85 transactions, 52 of them took place at a price greater than 50. Those two trades at 52, which are the equivalent of betting $5.20 for a 50% chance of winning $10, both came minutes before the coin toss.


There are several possible explanations for why we would observe prices not equal to 50 in this market. Risk seeking in the Friedman-Savage sense, consumption benefits from gambling, and a number of Kahneman-Tversky type heuristic decision rules immediately come to mind. FYI, in 42 Super Bowl coin tosses heads has come up 20 times and tails has come up 22 times. I was unable to locate a year-by-year list of outcomes, so we can’t determine if there is a “hot hand” in Super Bowl coin tosses.

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Saturday, March 24, 2007

Paying Them What They Are Worth Improves the Integrity of Games 

Stef Szymanski argues below that monopsonistic exploitation via international competition is a primary driving force behind the fixing of international matches.

We don't hear much about players throwing games/shaving points in major professional team sports in the US these days. We can't say that about past history when player salaries were controlled through monopsonistic practices.

Game fixing is more likely in US collegiate sports than in the pros, primarily men's basketball and football, because the average player receives far less than he's worth - a restriction made, it's often said, for the sake of amateurism. The most likely players to fix games in collegiate sports are those in the money sports who have little shot at a professional career. Taking what amounts to bribes to fix the outcome of games is a way for them to earn income. And while the rent seekers - coaches, athletic directors, and others take extra large slices of the football and basketball pies, the integrity of the games is put at risk

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