By Brian Tuohy
Imagine for a moment that you had to be in the state of New York, physically, to invest in the stock market. That you couldn't pick up a phone to call your broker, or use a website to buy or sell stocks and mutual funds, because doing so would be a violation of federal law. Instead, you were compelled to invest your money with criminals who ran their own version of the stock market, using the same basic mechanisms as the NYSE, except with no oversight whatsoever. If your stock went up, you might -- might -- get paid. If your portfolio took a nosedive, and you failed to meet your margin call, your legs would get broken. And no one within the United States had a problem with this system.
This subversive stock market exists. It's known as sports gambling in the United States.
Let's not mince words. While Las Vegas booked nearly $3 billion in sports wagers in 2012, as much as $500 billion is wagered illegally on sporting events in the U.S. each year, by some estimates. No one really knows the exact amount, because it's all conducted under the table, with most of the money in the hands of organized crime. In fact, according interviews with former FBI agents, sports gambling may be organized crime's top moneymaker, followed closely by the loan-sharking activities that haunt losing bettors.
And you, Mr. and Ms. Weekend Bettor, are part of the problem. When you call your "man" to plunk down $50 on 'Bama or the Seahawks this weekend, whether you know it or not, you're funding organized crime.
Here's why: Most "square" bettors are "homers," betting on the teams they follow or the games they watch. For the local, small-time bookie, this can create an unbalanced book. See, a bookmaker desires an even, 50-50 split of the money coming in on a game, because he profits mainly from the "vig" taken from each winning bet. (This is why in most places you have to bet $11 to win $10; the bookie keeps that extra dollar.) A lopsided game can create havoc for the bookie, so he's often forced to "lay off" some of this one-sided action by betting with another bookie.
In the ocean of sports gambling, the small fish feed the medium fish, who in turn feed the larger fish, who are swallowed whole by the sharks. Lurking at the top of this food chain is organized crime. The mob set up a national lay-off system in the 1950s, connecting bookies in Cincinnati with those in Los Angeles to others in Miami, and so on. It smoothed out the process, while maximizing the financial return. Today, that system continues to operate by encompassing many online and offshore sports books.
So while your $50 may have been bet with Phil in the backroom of your neighborhood bar, it's quite possible that your cash circulated throughout the country. And even Phil doesn't realize it.
This situation could be remedied easily, by lifting the prohibition on sports gambling. But in 1992, Congress passed a bill that actually strengthened prohibition, at the behest of the NCAA and all four major pro sports leagues -- the NFL, MLB, NBA and NHL. The Professional and Amateur Sports Protection Act (PASPA) allows only four states -- Oregon, Montana, Delaware and Nevada -- the opportunity to offer any sort of legal sports gambling due to a grandfathering clause in the bill. Of the four, only Nevada is allowed to offer unrestricted, single-game wagering.
New Jersey had a one-year window of opportunity to legalize sports gambling after PASPA became law. A measure to do so failed in the state legislature. If it hadn't, perhaps today Atlantic City would be the center of sports gambling in the United States rather than Las Vegas.
Twenty years later, New Jersey seeks a reversal of fortune. Voters there now favor legal sports gambling and the tax revenues it's certain to create, and they passed a statewide referendum to legalize it in November 2011 by nearly a two-thirds majority. Yet PASPA -- and the sports leagues literally deputized by it -- stand firmly in their way.
By its very name, the Professional and Amateur Sports Protection Act treats the leagues like members of an exotic, endangered species. Is it Congress' job to "protect" sports? Shouldn't the leagues be responsible for insulating themselves against the dangers of gambling and potential game fixing?
In fact, both the federal government and the sports leagues had established several prohibitive measures prior to PASPA. The 1961 Wire Act outlawed the use of wire communications among those in the gambling business, unless the transmission is both to and from a state where sports betting is legal. The 1964 Sports Bribery Act made it a federal crime to bribe a player, coach or referee to alter the outcome of a game. In 2006, Congress also passed the Unlawful Internet Gambling Enforcement Act. Aimed squarely at online poker, this law also works against online sports gamblers, as it "prohibits the acceptance of credit, electronic funds, checks, or the proceeds of other financial transactions, by persons involved in the business of betting or wagering in connection with unlawful Internet gambling."
Each league prohibits members from gambling within their own sport, a rule that's written into every player contract under each league's Collective Bargaining Agreement. For example, the standard NFL Player Contract reads, in part, "Player recognizes the detriment to the League and professional football that would result from impairment of public confidence in the honest and orderly conduct of NFL games or the integrity and good character of NFL players. Player therefore acknowledges his awareness that if he accepts a bribe or agrees to throw or fix an NFL game; fails to promptly report a bribe offer or an attempt to throw or fix an NFL game; bets on an NFL game; [or] knowingly associates with gamblers or gambling activity…[he is subject to fine, suspension, or termination of his contract]."
Each league also has its own Security Division, staffed with former members of the FBI, CIA, DEA, Secret Service and local law enforcement. Though they lack true police powers, such as the ability to wiretap or subpoena, they maintain strong ties with the FBI and other agencies.
On the surface, at least, these measures have been incredibly effective. Consider: Major League Baseball hasn't had to acknowledge a fixed game since the Black Sox in 1919. No NHL player has been accused of throwing a game since the 1940s, while the NBA hasn't observed an incident of point shaving since 1954. (Tim Donaghy was neither arrested nor convicted of fixing a game.) And the NFL proudly proclaims not a single one of its games has fallen under outside influence -- ever.
So what is PASPA's true purpose? Is it to protect sports by limiting the spread of state-sponsored sports gambling, or is it to protect organized crime's best means of income?
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In the courtroom, where New Jersey has already lost two legal battles to block PASPA, the arguments are not as much about protecting sports as they are about Congress' power over what an individual state can or cannot do. The repercussions of a New Jersey win would be much greater than just allowing some casino-goers the ability to drop a C-note on the Nets game. It involves states' rights and the legality of other federally mandated measures like Obamacare.
Publicly, however, the leagues portray this as a battle over the soul of sports. This argument, however, takes the leagues' unabashed hypocrisy -- to use a sporting cliché -- to the next level. Each commissioner filed an official court "Declaration" in August 2012, regarding the continuing need for PASPA. Each expressed the same concern, that if sports gambling were allowed openly, people would turn from "fans" into "gamblers," like the full moon turning lycanthropes into werewolves.
"The new sports gambling scheme that New Jersey proposes would ... greatly increase the likelihood that the allegiance of certain fans will be turned from teams, players and high-level athletic competition, toward an interest first and foremost in winning a bet," wrote NFL Commissioner Roger Goodell. "The core entertainment value of fair and honest competition between teams and athletes that is reflected in NFL games will be replaced by the bettor's interest, based not on team or player performance, but on the potential financial impact of each on-the-field event."
"Instead of enjoying the NHL for the skill of our athletes and to root for their team to win the game," parroted NHL Commissioner Gary Bettman, "many fans will feel cheated and disappointed when they do not win their bets, regardless of whether their team wins or loses. By making sports gambling a widespread institution tied to the outcomes of NHL games, the very nature of the sport is likely to change for the worse."
"Another likely result of sports gambling is that fan loyalty would diminish," MLB Commissioner Bud Selig asserted in his declaration, "as many fans would focus less on their allegiance to certain teams, players, or cities and instead focus more on the outcomes of individual bets. The inevitable shifting 'loyalties' that would result from sports gambling could forever alter the relationship between teams and their fans."
What does that shift in fandom ultimately mean for the leagues? A loss of revenue. As NBA Commissioner David Stern wrote, "The NBA cannot be compensated in damages for the harm that sports gambling poses to the fundamental bonds of loyalty and devotion between fans and teams. Once that special relationship has been compromised, the NBA will have been irreparably injured in a manner that cannot adequately be calculated in dollars."
Can the leagues prove this "certain" harm? According to the U.S. Court of Appeals for the Third Circuit, yes. Explaining the majority decision (the leagues won the last round 2-1), Judge Julio M. Fuentes wrote that the leagues "are harmed by their unwanted association with an activity they (and large portions of the public) disapprove of -- gambling ... Here, the reputational harm that results from increasingly associating the Leagues' games with gambling is fairly intuitive."
The ruling continued: "For one, the conclusion that there is a link between legalizing sports gambling and harm to the integrity of the Leagues' games has been reached by several Congresses that have passed laws addressing gambling and sports ... It is, indeed, the specific conclusion reached by the Congress that enacted PASPA, as reflected by the statutory cause of action conferred to the Leagues to enforce the law when their individual games are the target of state-licensed sports wagering ... And, presumably, it has also been at least part of the conclusions of the various state legislatures that have blocked the practice throughout our history ...
"The record is replete with evidence showing that being associated with gambling is stigmatizing, regardless of whether the gambling is legal or illegal. Before the District Court were studies showing that: (1) some fans from each League viewed gambling as a problem area for the Leagues, and some fans expressed their belief that game fixing most threatened the Leagues' integrity; (2) some fans did not want a professional sports franchise to open in Las Vegas, and some fans would be less likely to spend money on the Leagues if that occurred; and (3) a large number of fans oppose the expansion of legalized sports betting. This more than suffices to meet the Leagues' evidentiary burden…[that] being associated with gambling is undesirable and harmful to one's reputation."
(The studies cited by the court were, of course, provided by the leagues.)
If all this is true, however, then how can the leagues openly encourage fantasy sports? These leagues create the exact situation the commissioners fear would happen with legalized gambling. They make "fans" root for players over and above their supposed team affiliation. Even worse, while in some fantasy leagues no money exchanges hands, the vast majority are played to win a cash pot. While this may not be gambling per se, it's not far off, and the leagues know it. (They also are aware of, and apparently allow, their own athletes taking part.) The rise of "daily" fantasy sports leagues have pushed the boundaries of this legal-gambling question even further, as some online players are winning thousands of dollars a week engaging in these short-term games. So far, though, not a peep has been heard from any of the commissioners over this growing fad.
Aside from fantasy sports, "fans" undoubtedly are already wagering on these games, despite the illegality of it. How can $500 billion be wagered on sporting events, if no fans are betting? But would all fans take up gambling if it was readily available nationwide?
At least some direct evidence against this emanates from legal bastion of sports gambling, Las Vegas, where Jay Kornegay is the manager of the largest independent sports book in the city, the LVH. As Kornegay tells it, "We haven't seen that in the state of Nevada, and we've been taking wagers on UNLV and University of Nevada-Reno games for 13 years. It's not like, when you go to a UNLV basketball game and they don't cover, that everyone is walking out of the Thomas & Mack Center all bummed out. The fans are happy to just get a win."
"We tried to estimate just how many people actually bet on the games held at the Thomas & Mack," Kornegay continued. "We were curious as to how many people in attendance -- and they average around 14,000 to 15,000 fans a game -- actually had a wager on the game. We believe it's a lot less than people outside of Nevada think. It's not like half of the Thomas & Mack is filled up with people who have a wager on the game. It's probably less than 1 percent. If they are true fans, they are going to watch the game and root for their team to win. It has nothing to do with the point spread."
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The leagues also purport (and the courts foolishly believe) that an expansion of legal gambling would undermine public confidence in the games' integrity. "The more pervasive the sports gambling culture," asserted Selig in his official declaration, "and the more that culture is actively promoted by governments, the more likely it is that games will be perceived by the public with increased cynicism. Specific plays, coaching decisions, and umpiring calls would be questioned by fans who suspect that the 'fix is in.'"
"Beyond fostering increased suspicion of underhanded dealing," continued Selig, "increased sports gambling also makes it more likely that people will actually attempt to 'fix' games or obtain inside information from people directly involved in the sport."
Selig's claim is true only in this one respect: The oversight created by legalization would reveal corruption that currently is hidden by its prohibition. In early 2013, Europol, the European Union's law enforcement agency, made the stunning announcement that as many as 680 soccer matches, in all levels of the sport, had been manipulated or fixed by gamblers and organized crime. Matches in the vaunted English Premier League have been fixed, matches in the Olympic tournament have been fixed, and even matches in the World Cup have been fixed. This comes on top of the matches known to have been rigged in other sports, such as tennis and cricket, all over the globe.
How did Europol discover this vast cauldron of corruption? With a lot of help from legalized sports gambling. The legal sports books in Europe are corporate-run entities, much like most of those in Nevada. As LVH's Kornegay explains, "We do our best to protect the games' integrity, and that's why our relationship with the leagues has been better over the last 10 years or so. We both realized we want the same thing -- we want these games to be true and fair. The integrity of these games is their product, as well as ours. And we'll do all we can to assist in any sort of criminal investigation to bring those involved to justice."
Taking it a step further, the European sports books have installed "integrity units" -- investigators who monitor all betting at their sites, as it occurs in real time. Using proprietary algorithms and software, they can predict how the odds and lines should move and watch where money is being bet. When something abnormal occurs within the system, they flag it. This leads to an internal investigation, which in turn may cause the sports book to alert law enforcement and/or the governing body of the sport involved. Then, they follow the money.
It's not a perfect system -- not every aberration flagged means that a game was fixed, and no doubt some fixers slip through the cracks -- but it's a good start. The proof is in the hundreds of arrests and convictions for match fixing, in several sports around the globe. It has ensnared players, coaches, referees and even team owners, in countries as far-flung as Turkey, Greece, El Salvador, Australia, Pakistan, Germany, Italy, Korea, India and China.
But not in the United States. Why? Because sports gambling here is illegal. There is no monitoring system, period. Oh, sure, Las Vegas watches the betting done there, but once again, that represents only one to two percent of all the sports wagering in the U.S. What sort of picture is provided by monitoring one percent of anything?
So are the leagues truly concerned with their integrity, or just the appearance of integrity?
Legalization would create more integrity in the sporting world. It would bring with it an influx of outside oversight, on both the sports leagues and the gambling community. As occurs in Europe and elsewhere, sooner or later, the odds on some NFL or NBA game would jump, and then unnatural money would show up, and the game result would match the irregularity. Then someone outside the league, such as the FBI, would investigate.
The leagues could not hide from these investigations. They would be public knowledge, and the league under scrutiny would have to embroil itself in yet another "isolated incident" afflicting its apparent integrity. Unfortunately, sports are not lacking for scandals: spygate, bountygate, steroids, recruiting violations, labor stoppages -- and the list goes on.
Yet each league has survived despite this sordid history. A game-fixing scandal undoubtedly would leave a stain -- but if it were uncovered due to cooperation between the leagues, the gambling community and law enforcement, it just might be comforting. Instead of their longtime stance of burying their heads in the sand with regard to gambling, the leagues might be seen as proactive. And that would be a good thing.
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Brian Tuohy has been called America's leading sports conspiracy theorist, but really he's just highly skeptical when it comes to what the sports leagues tell their fans. He's also one of the few writers brave enough to tackle the topic of game fixing in sports, detailing evidence of it in his books Larceny Games: Sports Gambling, Game Fixing and the FBI and The Fix Is In: The Showbiz Manipulations of the NFL, MLB, NBA, NHL and NASCAR. He also runs the semi-popular website thefixisin.net.