SCIENCE ASSIGNMENT(NO PLAGIARISM, A++ WORK, QUALITY, ON TIME)

International Journal of Sport Finance, 2008, 3, 135-136, © 2008 West Virginia University

Guest Editor’s Introduction Sport Finance and Gambling Brad R. Humphreys

University of Alberta, Department of Economics

Gambling on sports is a big business, and in North

America it has evolved during the past few decades from

a shady, quasi-legal activity to a widely accepted recre-

ational activity. As with any big business, gambling on

sports has a number of important financial and econom-

ic implications. This special issue of the International

Journal of Sport Finance explores several important finan-

cial and economic issues related to sports gambling.

The size of the handle (the total value of bets made) at

sports books in the United States is undoubtedly huge,

but impossible to estimate accurately because much of

the action is either illegal or quasi-legal. Nonetheless, the

operation of sports books is an emerging research topic

in the finance and economics of gambling. According to

the conventional wisdom in textbooks on the operation

of sports books (yes, several exist), a well-run sports book

should set lines and betting odds to balance betting even-

ly on each side of each game, pay the winners out of

money collected from the losers, pocket the vig, and let

the good times roll. Since bettors must wager $11 to win

$10 in these markets, an equal distribution of bets on

each side leads to a tidy, relatively risk-free profit. Under

these conditions, lines and betting odds should perform a

similar function to prices in other markets, allocating

dollars bet evenly to each side of a wager.

However, the emerging evidence in the literature indi-

cates that sports books do not set lines and odds to equal-

ize dollars bet on each side of wagers. Instead, sports

books appear to take large positions on many wagers,

meaning that the fraction of dollars bet on one side of a

wager frequently exceeds the fraction bet on the other

side. Why this happens and the financial consequences of

this behavior are still open questions in the literature.

Rodney Paul and Andrew Weinbach take an interesting

look at this issue by analyzing a unique data set from a

number of large on-line sports betting operations. Paul

and Weinbach find that NBA bettors bet the favorite and

the over disproportionately, although the expected

returns on these bets are not large enough to suggest inef-

ficiencies in these betting markets. The absence of ineffi-

ciencies suggests that sports books profit from taking

positions on individual wagers, and has important impli-

cations for future research in this area.

Uncertainty of outcome—the idea that sporting events

are random and not deterministic—lies at the heart of the

economic and financial analysis of gambling. While bet-

tors clearly value uncertainty of outcome, a body of

emerging empirical evidence indicates that the average

sports fan also values uncertainty of outcome. Babatunde

Buraimo and Rob Simmons take a close look at the rela-

tionship between uncertainty of outcome, as reflected by

betting odds, and attendance at football matches in the

English Premier League. The results in this paper fly in

the face of conventional predictions about the relation-

ship between outcome uncertainty and demand and sug-

gest that a closer look needs to be taken at traditional

models of demand and outcome uncertainty.

The rapid expansion of sports betting over the past few

years has both negative and unintended financial and eco-

nomic consequences. David Forrest, Ian McHale, and

Kevin McAuley explore a number of important negative

and unintended consequences of sports betting. An

important conclusion that emerges from this paper is that

technology plays a critical role in the generation of these

negative and unintended consequences. The increasing

importance of Internet-based sports betting implies that

this problem may get worse, and it makes the elimination

of these problems through policy changes difficult.

The rapid expansion of global sports betting also has

important consequences for government revenue gener-

ation. In addition to the US approach to taxing legal win-

nings on sports betting, a number of countries around

Humphreys

136 Volume 3 • Number 3 • 2008 • IJSF

the world, including Canada and Spain, have introduced

sports lotteries. These lotteries, which involve bettors

picking the outcome of a number of professional and col-

lege games, differ significantly from traditional random

draw lottery games. When I was growing up in West

Virginia, these games were called “parlay cards” and,

although illegal, they could be obtained in less reputable

establishments in any city or town. Or so I have heard.

Now, in a more enlightened era, the government is in the

business of operating parlay card games.

Jaume García, Leví Pérez, and Plácido Rodríguez exam-

ine one prominent government-operated sports lottery,

the extremely popular La Quiniela in Spain. The results in

this paper indicate that La Quiniela can be viewed as a

regressive tax on participants, and more interestingly,

that sports betting and following sports as a fan have

important complementarities in consumption. These

results have important implications for public finance,

social welfare, and our understanding of the economics

of sport.

This special issue has its origins in the Great Wall of

China. In September 2007, I traveled to China with IJSF

editor Dennis Howard and a group of faculty and gradu-

ate students from the University of Oregon. While taking

a sight-seeing trip to the Great Wall, Denny and I had a

long conversation about interesting new issues in sport

finance, and the financial implications of sports betting

was one of the most promising ideas discussed. Almost

before I knew it, I had been drafted as the guest editor for

a special issue on the topic. As befitting a special issue that

originated in China, it has a distinctly international focus.

I think that the ultimate outcome is a group of interest-

ing, insightful, and important papers. I hope you agree.

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