De Econometrist

De Econometrist neemt een statistische kijk op de wereld.

The World of Sports Betting

It’s Saturday evening and you’re watching a football game with a couple of friends. Unfortunately, the game is between mediocre teams, so you don’t expect to see a great match. However, one of your friends has an idea to spice it all a bit up and to make the game more entertaining. You decide to all put in 10 euros, so you can place a bet on the outcome of the match. The game which you assumed to be boring before, is now starting to become a bit tenser. And it’s not only you and your friends who like to do this. You can think of tennis, horse riding or whatever other types of sports. Nowadays, it is possible to bet on probably every type of sports there is. Consequently, it is not so strange that the global sports betting market is close to becoming a 500 billion dollar industry. So what is the concept of this gambling business and what are its consequences?

The revenue model of sports betting companies, also known as bookmakers, is very simple. So-called ‘odds setters’ determine the chances of different outcomes happening. The calculation of these probabilities depends on numerous indicators, like a team’s position in the league, its current form, the number of injuries and so on. These odds also change over time, as new events, like an injury, can happen. Of course, the formulas used to translate the information of all the indicators into odds aren’t shared by the betting companies. Otherwise, customers would be able to “beat the system”. After these probabilities have been determined, a profit margin is added to obtain the final odds. The size of this profit margin can vary a lot over different sports, but also for an individual game. It may be the case that a bookmaker has a profit margin of 3 per cent for bets on team 1, while the profit margin for bets on team 2 is 7 per cent. This difference is partly caused by the following. A very important notion namely is that odds setters do not only look at the estimated probabilities of a certain outcome happening. They also take the betting behaviour of the public into account. If, for example, it is expected that 80 per cent of the total amounts of bets will be placed on, say team 1, then the odds for that team will probably be lower than the actual (estimated) chance that team 1 will win. On the other side, the odds for team 2 will probably be higher to deduce customers to bet on team 2. In this way, the bookmakers try to make a profit.

The popularity of sports betting is not difficult to explain. There is a very low threshold for gambling on sports. Bookmakers like TOTO and Unibet are very accessible and it is easy to make a quick bet. For a lot of people, the extra bit of joy it brings when watching sports and the hope of making a nice and easy profit, make sports betting a large temptation.

The popularity of sports betting inevitably also has rather negative consequences. The temptation to take high risks and the easily accessible way betting on sport works, make it an ideal place for people who are sensitive to addiction. This problem of gambling addicts can be seen under younger people as well as adults. In the United States, approximately 750,000 people between the age of 14 and 21 are addicted to gambling. Furthermore, 80 per cent of all people in the US gamble each year. These numbers also include other forms of gambling and not necessarily only sports betting, but that does not take away the magnitude of the problem of course. Next to the financial problems a gambling addiction creates, it also increases chances of violent crimes, it can result in antisocial behaviour and, in some cases, it can even lead to mental disorders. Therefore, gambling addiction is even getting compared with being addicted to any type of drugs.

On the other side, the betting sports industry does not only have negative consequences. Even though it is debatable if we can compare the positive impacts with the horrible consequences of a gambling addiction, the industry does have some economic benefits. Sports betting namely contributes to generating employment. This of course can be seen for the bookmakers who need employees. To make the industry work, complicated models need to be developed for the determining the best odds. These sports betting software developments provide opportunities for people in content creation, security, software development, and customer services. On the other side, some people also use sports betting to make profits by building their own models to predict ideal bets. Lastly, an immense amount of tax is earned from the sports betting industry. Taxes sometimes can be as high as 50 per cent. However, such a high percentage is more applicable to winning a lottery than to betting on a sports game. Nevertheless, if we combine this with the fact that we’re talking about a multi-billion-dollar industry, it’s not hard to realise that these gambling taxes sometimes form a great part of the revenues for a government.

It’s clear that the betting sports industry brings both benefits and problems. Consequently, the debate arises if the gambling industry should be legal. Like for most sensitive subjects where addiction is a big problem, the discussion about gambling is often about whether legalising it stimulates the problem or if it makes it more controllable. Since sports betting is very accessible, legalisation probably makes the number of addicts increase. On the other hand, prohibiting the market doesn’t get rid of the problem as there is a big chance that illegal markets will thrive. National economies also wouldn’t benefit from the industry if it were illegal. It seems like these advantages slightly have the overhand, as in the last few decades a trend of legalisation of the betting market can be seen all over the world.