Edited by Neil Longley
In this chapter the author takes a broad look at malfeasance in betting markets through match-fixing. He confronts the critical issue of how and why match-fixing might occur in some sporting competitions. This chapter sets out economic motives for players to engage in match-fixing and also establishes the structural features of betting markets that lead to fixes. The solution, however, is not to make betting markets illegal as this would be counter-productive and would harm consumer welfare. Instead, Forrest argues for the need for sports governing bodies and national and supranational governments to cooperate in detecting and punishing match-fixing.
Kent R. Grote and Victor A. Matheson
In North America and Europe, many sports betting operations are state-owned and could be argued to suffer from inefficiency and failure to innovate. Privatization of state betting operations could raise efficiency and lead to more product innovation. In this chapter the authors use the case of the Illinois State Lottery to analyse whether privatization could lead to increased lottery revenues and hence greater transfers to public projects. The privatization case they consider did not yield extra revenues and the authors examine why this might be so.
Xiaogang Che, Arne Feddersen and Brad R. Humphreys
In this chapter the authors show how bookmaker commissions, termed ‘over-round’, have fallen over time through greater competition, hence offering improved value for bettors. They take the English Premier League as their test case and focus on the two largest UK bookmakers. The findings are most interesting. First, over-rounds have fallen over time. Second, this reduction is attributable to the emergence of a betting exchange, Betfair, which has become increasingly popular in the UK. Third, perhaps surprisingly, the reduced commissions are not related to the growth of online bookmakers in the UK. Thus, it is increased competition from the betting exchange and not from online bookmakers that has exerted downward pressure on bookmaker over-rounds.
Babatunde Buraimo, David Peel and Robert Simmons
In North America and Europe, the dominant mode of horse race betting is pari-mutuel where the operator takes a fixed commission and winners share a pool of betting money. In the United Kingdom, this betting format is known as the ‘Tote’. But unlike Europe and North America, United Kingdom bettors can choose to bet on the pari-mutuel form or at fixed-odds offered by on-course and off-course bookmakers. This raises the question, addressed in this chapter, of whether returns for winning bets are similar across both types of market. The authors investigate UK horse racing and find that returns for winning bets are superior in the pari-mutuel market, compared to fixed-odds bets, for long shots but not at short odds. The authors rationalize this finding in terms of how odds are set by bookmakers together with gamblers’ attitudes to risk, bearing in mind that the pari-mutuel sector is a more risky proposition for a gambler given that odds are unknown ex ante.
Considerable attention has been devoted to the presence of favourite-longshot boas in sports betting markets where favourites are ‘under-bet’ with odds that are superior to those predicted under fully efficient markets. Underdogs are ‘under-bet’ with odds that are even more unfair than those that would be predicted under market efficiency. The favourite-longshot bias has been well-documented in horse racing. In this chapter the author extends the analysis of favourite-longshot bias to European handball leagues covering six countries. The chapter uses regression-based analysis to demonstrate the presence of favourite-longshot bias in handball with market inefficiency observed as a consequence.
Robert Simmons and Rhys Wheeler
In this chapter the authors test the ‘hot hand’ hypothesis in European football and analyze returns to simple betting rules relating to team momentum effects. They detect some evidence that the market believes in the notion of winning streaks but such beliefs are fully incorporated into bookmaker fixed-odds. In European football, it appears there is no scope for gamblers to exploit team winning streaks so as to generate profits for themselves.