It didn’t seem to bother anyone, and it certainly wasn’t illegal. Just a way to pass some time in the afternoon sun.
All these decades later, those same bets are being made all over the country by small-time gamblers who don’t have to move an inch from their perch next to a computer. Last year, Americans legally bet nearly $167 billion on sports. Is there something dangerous about that? Are gaming companies taking advantage of gullible young people throwing their money away and developing an addiction?
One recent survey found that over half of American men age 18-49 have an account with an online sports betting operation. Lately much of the sports action is taking place on prediction markets. The Wall Street Journal recently reported a year-over-year increase in trading volume of more than 1,300 percent, to $24.2 billion, for Kalshi and Polymarket, the two largest such enterprises.
Quite a few public officials think this is a serious problem. They are looking for ways to rein in prediction market gambling without interfering with the rights of free speech. Up to now, they haven’t gotten very far. But the whole situation raises the question of just when sports betting is a benign form of entertainment and when it amounts to a predatory commercial practice. The only way to answer this question is to remember that when it comes to betting offenses, there are distinct levels of wrongdoing.
At the top of the list of nefarious practices is betting on yourself to lose. This is what seven members of the Chicago White Sox did in the 1919 World Series, and they were quite properly banned from baseball for life. Somewhat further down on the list is the case of Pete Rose, who bet on his Cincinnati Reds to win while he was managing them in the 1980s. There was no evidence that Rose did anything other than perform to the best of his ability, but he clearly shouldn’t have placed those wagers. When he pulled one of his players out of a game, he left the impression with bettors that he may have been trying to affect the outcome. I think kicking him out of baseball was an excessive punishment for a limited offense, but the commissioner of baseball didn’t believe that, and neither did millions of Americans. So Rose was ostracized for the rest of his life.
Alleged misdeeds worse than anything Rose did have turned up more recently. Last year, prosecutors accused two Cleveland Guardians pitchers, Emanuel Clase and Luis Ortiz, of colluding with professional gamblers to influence specific elements of their pitching — including pitch velocity and whether pitches would be balls or strikes — allowing bettors to place highly targeted wagers. The prosecution claims the operation generated at least $460,000 in gambling winnings. Both players have pleaded not guilty, and the case is pending.
In the National Basketball Association, more than 30 people were indicted last year on corruption charges that included at least one player being accused of deliberately underperforming in a game so that the opposition team would win and gamblers could collect on rigged bets. The investigation is still going on.
THE ONE CONSISTENT LESSON that you can draw from these cases might be that it is a criminal act to bet on any event in which you can have an influence on the outcome. Sitting at home in front of your computer, you are simply making a guess. We might want to discourage that practice, but it is hard to see it as a crime. It is a legal activity in most of the country.
At the moment, however, a sizable cadre of elected officials has concluded that something needs to be done about sports gambling, even when it doesn’t involve an active participant doing anything clearly wrong.
In fact, there are numerous efforts at the state level to curtail sports betting. Washington state has passed a law prohibiting bets on the performance of individual players and bets made while a game is taking place. Legislators in Ohio have proposed limiting sports gambling advertising and, more significantly, banning the use of phones to make wagers. There are numerous other efforts in states across the country.
At the same time, 41 state attorneys general have filed suit to place regulation of sports-related wagering via prediction markets in the hands of the states rather than in those of the federal Commodity Futures Trading Commission, where it currently lies and where regulation has been relatively mild. All of those states allow sports betting, but currently have little authority to control it. Challenges to the most prominent sports betting firms are currently winding their way through the federal courts.
ALL OF THESE EFFORTS have encountered intense and well-financed opposition from the sports betting industry, which claims that sports prediction markets are no different from betting on elections and world events, which are generally considered legal. The financial options market allows one-day contracts, which seem similar in some ways to sports betting. Critics insist that there is a big difference — that sports bets aren’t like other prediction markets, that no investment is taking place, and that this form of gambling is simply zero-sum exploitation of vulnerable and often addictive customers, many of them teenagers. My longtime Governing colleague Girard Miller has argued this point forcefully.
At the core of this dispute is the widespread belief that prediction markets ultimately take us down the road to insider trading and drag sports further into the scandals that have affected the NBA and Major League Baseball.
But what exactly constitutes insider trading, and how much of it is actually available to gamblers? That’s not an easy question to answer.
The 1919 Black Sox practiced blatant insider trading, and were duly ostracized for it. So, allegedly, did a whole cadre of NBA players and at least two recent MLB players. But when you think about it, any enterprise that allows betting on future results is at least marginally in the insider-trading business. It is based on participants seeking to know things that their rivals have been unable or unwilling to find out. The Daily Racing Form is a variety of insider trading: Horse players pore over past performances to gain an edge over those that aren’t smart or diligent enough to use it. The bets they make influence the parimutuel odds on a given horse race, affecting the investments of everyone involved.
Investment activity of any sort is a search for proprietary information, when and where it is available. Recognizing this, several European countries have taken a much more lenient approach to gambling in prediction markets, accepting that it will always take place in one form or another, although they have begun to tighten up in recent years.
We can’t stamp out insider trading; we can prevent it from ruining the reputations of prominent sports leagues. We can block same-day betting on sports events, wagers on individual performance and betting while a game is taking place. We can make phone betting illegal, as several states are attempting to do. But sports gambling and prediction markets are not going away, no matter how uncomfortable we may become about them. They are aspects of a fundamental human weakness, and one that modern digital technology can only worsen.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
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