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Major League Baseball held its season openers this week under the shadow of a gambling scandal. Reports surfaced that the National Basketball Association is investigating a player over irregular bets. And college basketball fans await results from a review into unusual betting on a men’s basketball game.
The incidents have highlighted a trade-off that professional sports leagues made when they embraced gambling.
Leagues have signed lucrative marketing deals with betting apps like FanDuel and DraftKings and use gambling to amp up fan engagement. But this new source of revenue has also opened the doors to a fundamental danger: that an explosion of sports betting could threaten the assumption of fairness at the core of athletic competitions.
“The risk is that the game becomes like professional wrestling — which is rigged. And nobody bets on professional wrestling,” said Fay Vincent, the M.L.B. commissioner from 1989 to 1992. “And if baseball becomes professional entertainment the way wrestling is, it’s dead.”
Leagues are unlikely to abandon gambling completely. But is there a way for them to protect their image as they profit from betting?
Clubs can no longer blame gambling itself for scandals. When Pete Rose was barred from baseball in 1989 for betting on games, in one of the most famous gambling scandals in sports history, Commissioner A. Bartlett Giamatti, Vincent’s predecessor, denounced gambling as corrosive. But after a 2018 Supreme Court decision paved the way for states to legalize betting, leagues are now working directly with sports books. The N.B.A. signed an estimated $25 million contract with MGM Resorts in 2018, and M.L.B. has an exclusive multiyear deal with FanDuel.
“There is no putting the toothpaste back in the tube,” said Patrick Rishe, a professor in the business of sports at Washington University in St. Louis. “The money flows too thick.”
Leagues may support limits on prop bets, which allow gamblers to bet beyond the results of games on components like the first player to score. Since the outcome of these bets can often be decided by only one player, they leave individual athletes vulnerable to more pressure from bookies and others. The president of the N.C.A.A., Charlie Baker, encouraged states this week to ban prop bets, sending shares of DraftKings and FanDuel’s parent company, Flutter, tumbling. (Some analysts said a ban would only minimally affect the sports books’ bottom lines.)
Better self-monitoring could help. The largest U.S. sports books announced this week that they were forming the Responsible Online Gaming Association, an organization that will allow them to share information about customers who have been excluded because of problematic gambling.
“This is real money, real participation,” said Chris Grove, an analyst at Eilers & Krejcik Gaming. “But, with that said, it shouldn’t also just be a free pat on the back. There are a lot of questions, especially around what kind of information are you going to be sharing about individual players and then what kinds of actions are you going to be taking based on that information sharing.”
Leagues could also extend bans against in-sport betting to individuals with ties to players, like personal assistants. Anyone who works at the teams “should probably be subjected to the same rules as they’re subjecting the athletes to,” said Jeffrey Kessler, a sports law lawyer at Winston & Strawn.
More taxes may be on the table. “State governments are also major beneficiaries of regulated gambling,” Grove said. “They have an obligation to step up and to help to mitigate whatever problems are emerging.”
States could raise taxes on sports betting, which range from 6.75 percent in Iowa to 51 percent in New York, Rhode Island and New Hampshire, and use the proceeds to fund oversight initiatives such as real-time data monitoring or state-supported teletherapy for gambling addicts.
A flat tax increase might be welcomed by FanDuel and DraftKings, the largest betting sites, which are better equipped than smaller rivals to afford the impact — “though they would never say that out loud,” Grove said.
But many are doubtful this will happen any time soon, given the pushback that higher taxes would most likely elicit from others. Professional sports teams and casinos both “have a very strong track record in terms of lobbying state legislatures,” said Marc Edelman, a professor of law at Baruch College who studies gambling history.
Will the latest incidents damage leagues? Given the lengthy nature of TV contracts and relative steadfastness of fans, any immediate impact may be subtle. Attendance at Cincinnati Reds games dipped only slightly after Rose, who managed the team, was ousted for betting, said Keith O’Brien, author of “Charlie Hustle: The Rise and Fall of Pete Rose.” A year later, it jumped about 25 percent.
“Does that mean that fans wanted to come because they were washing away the scandal? I don’t know,” O’Brien said. “I can tell you, having lived in Cincinnati in 1989, that it ruined baseball. It ruined it. And it was a lost season.” — Lauren Hirsch
IN CASE YOU MISSED IT
Jay Powell says economic resilience gives the Federal Reserve more flexibility on when to start cutting rates. The Fed chair signaled yesterday that robust consumer spending and a strong labor market allowed the central bank to be patient. He reiterated that it wanted to be more confident that inflation was coming down sustainably before taking action.
Sam Bankman-Fried is sentenced to 25 years in prison. The FTX founder was convicted of stealing $8 billion from his customers and faced a maximum sentence of 110 years. He vowed to appeal the conviction.
Visa and Mastercard agreed to reduce swipe fees for five years. The proposed class-action settlement to a long-running fight with retailers could have wider consequences, like making the credit card reward programs that many travelers use for free travel less lucrative.
Disney ended its legal fight with Ron DeSantis. The entertainment giant and the Florida governor have been sparring for two years over control of a tax district that encompasses Walt Disney World. Both sides have now agreed to cooperate on new growth plans for the 25,000-acre area.
Blockbuster spending
Wednesday is the deadline for Disney shareholders to vote in what is expected to be the most expensive proxy fight in history. The company’s board faces attacks from two sets of activist investors — Trian Partners and Blackwells Capital — and all sides are putting their money to work to try to win over retail investors. Trian has spent about $25 million, Blackwells Capital about $6 million and Disney upward of $40 million.
Because a large portion of Disney’s shareholders are retail investors, the battle has morphed into what is effectively a modern-day marketing campaign. And if you’ve been searching for information about the fight, you’ve probably been barraged by online ads. Here’s how the price to bid on Google Ads keywords tied to the fight has jumped over the past year.
How any business can use A.I.
Ethan Mollick, a professor at the Wharton School of the University of Pennsylvania, has built a big following for his research into how to apply artificial intelligence at work and his popular newsletter, One Useful Thing.
He spoke to DealBook about his new book, “Co-Intelligence: Living and Working With AI,” in which he spells out how to get the most out of the transformative new tools. The conversation has been edited and condensed.
What mistakes do companies make with A.I.?
They tend to view this as something that has to be highly centralized. So it ends up being some sort of high-end working group, usually with the I.T. department and the legal department, to define rules and uses. What they often do is lock down use.
Companies also believe that somebody has answers about how to use A.I. They’re hiring consulting companies, and the consulting companies don’t know anything. Even the A.I. companies don’t know how this can be used best.
Have you seen companies use generative A.I. to make big improvements in how they work?
What’s really happening is large numbers of their employees are secretly doing their work with A.I. and just not telling anyone. So a lot of companies are actually being automated and getting huge efficiency gains.
You write that we should strive to use A.I. like a “cyborg” instead of a “centaur.” What do you mean?
Centaur work is divided. There’s some work you give the A.I and some work you keep for yourself. So let’s say I’m not a good writer but I’m good at analysis. I’d say to the A.I.: “You do the writing. I do the analysis.”
Cyborg work is more blended. When I wrote this book, if I got stuck on a sentence I’d ask the A.I., “Give me 10 ways of resolving this issue.” I had it read through part of my books and give me feedback on it, or suggest analogies that might be useful. That is more effective.
If an executive wants to incorporate A.I. into my business, what should be that person’s first step?
You just have to use it. The first use case I see from many, many people is using a chatbot to write children’s stories or wedding toasts. I think the thing to actually start with is everything you legally, ethically can at work. Ask it questions about what you’re working on. Have it brainstorm ideas with you. Have it give you feedback on a meeting that you recorded on Zoom with permission. And that’s how you learn how to work with it.
On our radar: The ancient maritime principle of ‘general average’
Insured losses from the collapse of the Francis Scott Key Bridge, which a cargo ship struck on Tuesday, could reach $4 billion, and sorting out who will foot that bill may take a decade of litigation. Part of that fight may involve a little-known ancient principle of maritime law called “general average.”
The principle, attributed to the mariners of Rhodes in a text from 533, dictates that when there is disaster, cargo shippers and vessel owners jointly share the costs. “General average is a shared sacrifice,” said William Fennell, chair of the Marine Insurance and General Average Committee for the Maritime Law Association of the United States. The principle dictates that “everyone’s in it together.”
Classic cases involved jettisoning cargo — if the crew had to lighten a ship’s load to avoid sinking and tossed some but not all cargo, under general average everyone chipped in for the loss. In modern times, the notion applies more broadly, and it could arise in the case of this week’s tragedy, Fennell said.
If the ship’s owners invoke the principle and are not ultimately found to be at fault for the accident (in which case it would not apply), companies that had cargo on the ship could end up paying for some of those losses.
Thanks for reading! We’ll see you Monday.
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