The world’s biggest sporting event in 2022, the World Cup, will begin in Qatar. In addition to being a viral spectator sporting event, the World Cup is also a viral gambling event. The Wall Street Journal speculates that the 2022 World Cup will be the most significant betting event in history and reports that between one and three billion pounds sterling could be wagered in the UK alone. Since much of World Cup betting involves office pools and informal bets among individuals, it is impossible to estimate the actual amount of money wagered, but it is sure to be substantial.
Football betting’s two institutional characteristics make World Cup betting interesting from an economic perspective. First, most football betting takes the form of fixed-odds betting on three outcomes (home team win, draw, visiting team win). The low scores of football matches make point spread betting impractical. Second, unlike in North America, sports betting is legal and readily available to fans and punters globally. There is a betting shop on nearly every corner of every city in the UK. On much of the continent, governments sponsor sports betting operations. Online betting is also readily available and quasi-legal in the EU and other countries.
The combination of fixed-odds betting, easy access to domestic sportsbooks, and many “sentiment” bettors who only want to bet on their national team to win World Cup matches leads to a lot of risk for domestic bookmakers. For example, consider the World Cup betting action in the UK, where getting a bet down on a World Cup match is extremely easy. The World Cup attracts a lot of casual bettors who want to put a few pounds in England to win a game or the entire tournament. This leads to large imbalances in betting volume, as most of the money is bet on England to win.
Recent media reports point out the unbalanced betting volume in the UK, where a large number of wins by England could cost bookmakers a lot of money. One solution to this problem is for bookmakers to ensure against this outcome by “laying off” (placing offsetting bets on England to lose or a draw with other bookmakers.
Transactions costs, in the form of “over-round” and, for UK bookmakers, in the form of currency exchange costs (if every bookmaker in the UK has an unbalanced book on England to win matches, then any layoff bet would have to be made internationally), may keep bookmakers from insuring. There is little evidence that bookmakers in the US ensure against losses due to betting imbalances; how much bookmakers lay off and why they don’t appear to exercise this option very often is an exciting and open research question at this point.
Another option open to domestic bookmakers faced with unbalanced betting on international football matches is to “shade” the odds by systematically offering worse odds on the national team to win than would be expected based on the national team’s strength. Economists have taken notice of this phenomenon, and a few papers examining odds or point spread shading have been written.
A recent working paper by two German economists examined patterns in domestic betting on matches in the 2008 UEFA European championship qualifying and tournament. They found systematic odds shading by domestic bookmakers in Italy, France, Spain, Slovenia, Denmark, and Bulgaria. I recently published a paper containing evidence of similar phenomena in betting on NBA games.
On Saturday, England is a heavy favorite in their opening match against the US. A win for England may mean a loss for many UK bookmakers in that match.