The Business Ethics Blog

I love economists. Seriously. Economists rock. Far from its reputation as “the dismal science,” I consistently find the work of (good) economists englightening and engaging and it makes me want to be more clear, concise and consistent in my own thinking.

Case in point: this terrific piece by economist Justin Wolfers, in today’s NY Times: Blow the Whistle on Betting Scandals

Wolfers’ commentary is about the recent basketball wagering scandal involving referee Tim Donaghy. Wolfers has studied sports wagering in detail, and he knows a lot about related scandals:

[S]ports betting scandals are fairly common. They are the result of persistent economic incentives that can be traced to the structure of sports gambling markets. And these incentives can be changed.

The activity known as “point shaving” gets at the heart of the problem: a corrupt player or official is rarely asked to throw a game to one team or the other. Instead he is asked to influence something rather immaterial, like the winning margin. This is profitable because gamblers typically bet on whether a team will exceed some point differential — the “Vegas Spread” — rather than whether a certain team will win.

So gambling gambling itself isn’t the problem?

Not all gambling leads as easily to corruption. For instance, if betting were allowed only on which team would win a game or a series, then corrupt gamblers would find it much more difficult to get referees or players to cooperate with them.

Wolfers’ solution?

[T]ry to find a way to encourage the types of bets that do not promote corruption. When faced with a betting scandal, a sports league usually hardens its anti-gambling stance. But that doesn’t work. A smarter approach would be to become more tolerant of some kinds of gambling in an effort to crowd out the bets that create incentives for scoreboard manipulation.
That’s right: Legalizing wagering on which team wins or loses a particular game, while banning all bets on immaterial outcomes like point spreads, would destroy the market for illegal bookmakers and make sporting events less corruptible by gamblers.

You don’t have to agree with Wolfers’ proposed solution to see how much his economic analysis — his economist’s point of view — helps us understand the problem here. “It’s All About Character” might be a great slogan, a great title for an after-dinner speech. But sometimes what you really need is to look carefully at the motivational structure of a situation.

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Thanks to Marginal Revolution for the pointer to the Wolfers article, and thanks to Mark Rowe for encouraging me to blog about ethics in the business of sport.