The Bulwark Presents
The Triad by JVL

This Is What Happens When the Gambling Industry Turns Into the Insurance Industry

June 11, 2019
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(George Rose/Getty Images)

1. Betting and Markets

Last week I linked to a piece in the Ringer about the coming extinction of professional sports bettors.

I kept thinking about that piece all weekend, for reasons I’ll explain in a moment.

If you didn’t read it, you really should. But I’ll give you a poor man’s summary here:

  • The vast majority of people who bet on sports are marks.
  • However there is a small class of professional bettors who make a living this way.
  • They are data-intensive researchers who find betting lines that are weak and exploit them.
  • Even the best of these bettors makes maybe a 1 percent of 2 percent average profit on wagers.
  • Which means that in order to make a living, they bet enormous sums of money on many, many events.
  • Up until recently, the sports books knew who these “sharp” bettors were, and used their action to help inform and strengthen their lines.
  • But European conglomerates are taking over the American sports betting scene. And they want to get rid of sharp bettors.
  • So even though a sports book at a casino might have a posted limit of, say, $10,000, if a sharp bettor comes in, they will decline to take his wager.
  • If someone wins too often, they will ratchet the maximum wager back for that individual to, say, $300.
  • This throttling is done by computer algo and can be triggered even by one or two prior wagers.
  • The gaming businesses defend these practices by saying, “Hey, we’re a business. Why should we take action from people we think have a chance to win?”

Okay. So that’s out of the way. Here’s why I’ve been obsessing about this subject: Because it’s yet another instance where the free market is a failure. And government regulation is probably needed.

If you’re a sports book who will say that the limit is $10,000 for everyone—except that guy, then you’re not actually in the business of gambling. You’re in the insurance business. Just as insurers won’t insure a person without being able to get some actuarial information about them—and will decline to insure people with pre-existing conditions—well, that’s what these sports books are doing.

Betting markets are often viewed as the purest form of markets. But that’s not happening with the sports books. They’re intentionally manipulating the pool of players in order to make the betting market less efficient. Because that inefficiency helps them.

Should they be allowed to practice this sort of manipulation? Well, it depends. How committed are you to the idea of a “free market”?

I can hear my libertarian friends now: But free markets dictate that the sports books should be allowed to do whatever they want and if it’s somehow bad, then an alternative will flourish!

You can’t just “set up” a competing sports book. They are highly-regulated enterprises. These regulations exist for a multitude of reasons, including to make it harder for criminals organizations to launder money.

But also, how much discrimination do we really want to allow the market to practice? For instance, let’s suppose someone demonstrates a link between educational attainment and success in sports betting.

Would it be okay for sports books to say that only players with less than a college degree could bet?

And at what point does the entire business itself start to look less like business and more like a predatory enterprise?

Perhaps you know this, but the insurance business began as gambling. And it had to be highly regulated because it had all sorts of very bad incentives built into it. For instance, I’m not allowed to take out a life insurance policy on someone else because giving one person an incentive for someone else’s death can lead to very bad outcomes.

At the end of the day, the lesson for what’s happening in the sports-betting world is this: If the sports book is letting you place a bet, then it’s only because they think you’re a sucker. So you probably shouldn’t do it.

It’s a predatory industry.

And once you see one industry this way, it can be hard not to see it, well, maybe not everywhere. But more widely than you might think.

2. Girls

I had missed this piece last week by the great Caitlin Flanagan about two high school girls in Stockton, California.

One is doing porn to make ends meet. The other runs the school newspaper and wrote a story about her.

Flanagan gets positively every single angle of this ten-car-pileup tragedy:

Stockton, California, is inland, hot, 20 percent poor, and crime-ridden. The top nine employers are schools, hospitals, the government, and Amazon, which has two giant fulfillment centers in the city. No. 10 is O’Reilly Auto Parts. It’s a good place to leave, if you can. As ever in places like this, the high schools are full of trouble and promise, and one of them—Bear Creek High School—has lately been in the news because of two of its students: Bailey Kirkeby, a junior, and Caitlin Fink, a senior. . . .