Copy
Share Share
Tweet Tweet
Forward Forward
March 21, 2023

Institutional Sports Betting Poses Potential Threat to NCAA, Pro Sports Leagues

May will mark five years since the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA), a federal law prohibiting sports betting in all but a few states. The decision opened the door for states nationwide to pass their own sports gambling legislation. 

Up until that point, the NCAA and major U.S. professional sports leagues generally maintained widespread legalization would threaten the games’ integrity. The theory was the more people there were betting on sports, the greater the risk of attempts by bettors to gain inside information and/or fix the outcome of games.

While there have been some publicized instances of players and coaching staff suspensions for placing sports wagers with legal operators, there have been no known match-fixing attempts in the major U.S. sports leagues since PASPA was overturned suggesting that, at least to date, concerns around match-fixing were unfounded. 

However, as the expansion of regulated sports betting continues in the U.S., a new frontier could bring a renewed cause for concern.

“Placing sports wagers would be of interest to at least some major institutions,” Doug Mishkin, partner at Bryan Cave Leighton Paisner and former NFL senior counsel said. “The way quant hedge funds approach the stock market, you could see a similar approach to sports betting,” he said.

The presumption is as the betting stakes increase, so too does the threat of corruption.

While institutional wagering may seem far-fetched today, there are reasons to believe it could happen in the future. And it’s not clear if the leagues, which have since embraced sports wagering, are considering that possibility.


With sports betting now legal for more than half the U.S., rights owners are now widely partnering with sportsbooks, recognizing sports gambling as both a revenue stream and fan engagement vehicle. “These partnerships also allow leagues and teams to have some say in sportsbook operator marketing, and ensure collaboration with operators to help reinforce league policies and enhance integrity protection efforts,” Mishkin said.

But replacing corner bookies and illegal offshore websites with a legal, regulated market has potentially opened the door to institutional sports bettors–something few leagues were likely considering during the sports betting prohibition era pre-2018.

“For obvious reasons, institutions are less likely to partake in sports betting if it’s illegal,” Mishkin said.

Having large amounts of institutional wealth consolidated behind a single wager can be viewed, at least superficially, as a threat to the game’s integrity. “The thinking would be that the more money there is on the line from one entity for a single event to happen, the greater the motivation is, and the more money one might be willing to spend, to make sure that outcome occurs,” Mishkin said.

Institutional sports betting has yet to take hold in the U.S. as the sportsbooks have generally not been in the business of taking large wagers from sharp bettors.

So, the rights owners haven’t had to worry about the potential threat.

But there are reasons to believe that could change in the years ahead. 

Nevada established a framework for sports betting investment funds back in 2015. 

That effort failed in part because books were not required to take entity bets and few saw the value in accepting large wagers from bettors that were more likely to beat them. 

There have also been efforts to navigate around the traditional sports betting landscape, namely via the Commodity Futures Trading Commission (CFTC) self-certification process. 

Back in 2020, Eris Exchange (ErisX) planned to clear futures contracts on NFL games before ultimately pulling its application before the CFTC deadline to approve. A subsequent statement by the former CFTC commissioner said ErisX failed to adequately demonstrate the contracts’ hedging utility beyond the occasional use by licensed sportsbooks, a requirement for approval.  

If futures contracts are not created through the CFTC, sportsbooks would have to be willing to consistently book large scale sharp bets for institutional investors to participate.

While it would require a shift in strategy for most operators, logic suggests “if there is demand at an institutional level, someone is going to figure out how to meet it,” Mishkin said. 

One could argue the demand already exists. Funds that supported Eris-X’s efforts are presumably waiting in the wings. 

There are examples of sportsbooks in more mature gaming markets that take large bets from institutional clientele. “There are some in Asia that offer very thin margins, far better odds than what you’re going to get from the standard U.S. sportsbook, that will take massive wagers from sharp bettors and still turn enormous profits,” Mishkin said.

“In fact, by leveraging the information gleaned from those sharp bettors, [those] operators [are able to] improve their own handicapping expertise, which in turn gives them more confidence to accept large wagers at lower margins, unlocking tremendous incremental revenue potential,” he added. 

The key is that those operators are extremely confident in their lines, have the liquidity to back up short-term losses, and, perhaps most critically, are not risk averse. 

It would take a paradigm shift to replicate that dynamic in the U.S. But given the revenue potential at stake, one could imagine the market evolving there. 

It’s not clear if institutional money does in fact pose an increased threat of corruption, particularly if properly regulated. But there is an argument to be made that it could benefit rights owners if institutional might were dedicated to sports betting analysis.

"With more resources allocated to analytical sophistication and accuracy around team and player performance, it’s possible the resulting projection models could help improve competition, enhance coaching decisions,” Mishkin said.
Twitter
LinkedIn
Website
Copyright © 2023 JohnWallStreet, All rights reserved.