The wonders and dangers of online sports wagering.

The stadium scene.
Nov. 28 2007 7:08 AM

YouBet

The wonders and dangers of online sports wagering.

Illustration by Deanna Staffo. Click image to expand.

On Aug. 2, online sports gamblers wagered $7 million on a tennis match in Poland. Stunningly, the money favored 87th-ranked Martin Vassallo Argüello, even after the Argentine lost the first set. Suspicious that the fix was in, the Internet gambling site Betfair voided the bets and alerted the Association of Tennis Professionals. Those reservations seemed justified when top-seeded Nikolay Davydenko quit in the third set, citing an ailing toe. In the wake of that fishy match, multiple tennis players have admitted they've been asked to fix results. Along with exposing the seamy side of pro tennis, the scandal has also spotlighted the site that handled the action. Most Americans probably haven't heard of Betfair, but it's the biggest thing going in global gambling.

Betfair, which opened for business in 2000, is best described as day trading for sports bettors. Using Web-based accounts, anonymous users can set their own odds or bid on odds offered by other players. Online "betting exchanges"—there are dozens, but Betfair is the kingpin, with a 90 percent market share—eliminate the role of odds-setting middlemen like local bookies and Las Vegas sports books. Instead of wagering on take-it-or-leave-it odds set by the house, gamblers are free to choose among many different price points, striking bets for as little as $1 up to hundreds of thousands.

Why would you use a site like Betfair to fix a sporting event? Let's say you have some valuable inside information. It would be foolish to place a massive bet with a bookie—overt, conspicuous wagers draw unnecessary attention and depress the return on your investment. Instead, you'd want to fleece other bettors directly, offering such generous odds on the opposite side of your "sure thing" that people will think they are taking advantage of you, not the other way around.

Like any money-driven marketplace, exchange betting is a game of sharks and minnows. Think of it as eBay for gamblers. Anyone can offer or bid on existing odds. The difference is that pros will take hundreds of thousands of dollars in action while a beginner will stipulate that all he can handle is five bucks. Sharks can set traps for minnows if they have superior expertise (or inside information), and the Davydenko match is an example of how such ploys can spiral out of hand: Almost certain that the superior player would lose, Russian gamblers in on the alleged fix flooded the exchange with bloated win odds on Davydenko. These "too good to be true" odds kept getting scooped up by unsuspecting novices thinking they were getting a bargain. At the same time, the syndicate likely laid as much money as it could on Davydenko to lose, chomping up whatever odds it could. When so much cash continued to slam through the exchange on such an unlikely outcome, Betfair raised the red flag.

While betting exchanges can be a dicey proposition for the uninitiated, the odds are vanishingly small that an amateur gambler will get suckered into some sort of match-fixing scheme. On balance, Betfair offers a number of advantages over traditional sports betting. Compared with bookies and casinos, exchanges keep a much smaller cut of the action, a 1 percent to 3 percent "vig" that's far less than the standard 10 percent. (In the long run, the exchanges are banking on greater betting volume far outpacing the difference in price: Betfair handles 5 million transactions a day, processing more than 300 bets per second.) For bettors sick of picking against point spreads or money lines, the site also offers an eclectic menu of diverse wagers. On a recent Premier League soccer match between Derby and Chelsea, gamblers could choose between 26 different side bets, including such esoteric plays as total corner kicks. And the action isn't just limited to major sports. Anyone up for a wager on water polo in Greece? How about the high temperature in the United Kingdom next year, or the Miss World pageant? Currently, Miss Dominican Republic is favored at 6-1, while Miss Zambia and Miss Cambodia are rank outsiders at 900-1. But remember, this is exchange wagering—the price is always negotiable.

Exchanges are also unique in that you can lay odds on a team or individual to losea sporting event. Naysayers believe that betting to lose is, well, unsporting, and that it is an open invitation for corruption and skullduggery. But this argument is idealistic whitewash. Just ask anyone involved in high finance, where betting to lose is an accepted, ethical strategy—on Wall Street, it's called short selling.

The most clever innovation, however, is in-game gambling. No longer must you stop placing bets once the game begins. In-game wagering lends itself best to slower-paced sports like golf. When the action is much faster, the limits of technology get pushed to ridiculous proportions, with frantic players punching in frenzied bets that have more to do with market timing than sports. This can lead to some pretty bizarre happenstances. In British steeplechase racing, a well-backed horse will often enter the homestretch far clear of his rivals, with one final fence to jump before the finish line. Certain of victory, some bold (greedy?) in-game bettors will offer 1-to-1,000 odds against the horse winning—that's right, they will give you $1,000 if the near-cinch loses, provided you pony up a buck if it wins. About once a season, calamity strikes and the leading horse falls at the last hurdle, creating an absurd windfall for a handful of high-risk bettors, thoughts of suicide for the unlucky "layers," and copious amounts of free publicity for the exchanges when the results get widely reported in the betting-friendly British press.

For those who live in America, it's only possible to experience the thrills of the online gambling exchange vicariously. Except for licensed bookmakers in Nevada, sports gambling is illegal in the United States. While exchanges that match buyers and sellers of odds are not explicitly illicit, the wide-ranging U.S. Wire Act of 1961 has regularly been interpreted to prohibit the transfer of bet-related information via the phone and the Internet. The fate of online exchanges was sealed for good, seemingly, when Congress passed the Unlawful Internet Gambling Enforcement Act last year, requiring banks and credit-card companies to block transactions with online gambling sites. As a result, most reputable exchanges now refuse accounts from U.S. residents. (Only one exchange has attempted to set up shop on American soil. Last July, Betcha.com was shut down within five weeks by the Washington State Gambling Commission.)

Betfair is no fly-by-night operation, and it continues to flourish in Europe. One major reason for its success is the company's willingness to share detailed records with professional sports organizations and the government if corruption is suspected. The exchange also operates an internal sleuthing squad to look for dubious patterns—when placing bets, customers are unidentified to one another, but their account information and IP addresses are known to Betfair. These practices exposed the tennis scandal, and Betfair also handed over evidence that led to the ongoing trial of a champion British jockey who allegedly held back horses at the behest of a betting syndicate. Here in America, where an estimated $200 billion in sports wagering takes place underground, such transparency is nonexistent. No black-market bookie, for instance, would ever alert the feds that he was seeing a suspect amount of action on games refereed by a particular NBA official.

If the United States loosened up its regulations, online exchanges would proliferate here. By creating a market-based framework for stateside sports betting, a chaotic gambling scene would, for once, have some order and credibility. Not to mention that the federal government would get a huge stream of taxable revenue currently controlled by organized crime. Just think of the bite we could take out of the national debt in a single weekend if we had legalized, online, in-game betting on NFL matchups.

T.D. Thornton is a Boston-based writer. He is the author of Not by a Long Shot—A Season at a Hard-Luck Horse Track.