May 24, 2013cricketeconomic freedomPublic Policyunderground economy

Why sports betting must be legalised

An industry that operates above ground is less likely to engage in fixing

This is an archived blog post from The Acorn.

The ongoing spot-fixing controversy in Indian Premier League cricket has evoked the usual response. We need a new law—to criminalise cheating in sports—, with harsh punishments, strict enforcement and so on. Given statements made by politicians who are also cricket administrators, it is possible that such a law will indeed be enacted. But if you think the problem of fixing will come down substantially because of this, you will be mistaken.

First, let’s be clear—no matter what you do, it is impossible to completely eliminate illegal activity. There will always be some people who will cheat. What you can do, however, is to reduce the incentives for cheating to such a level that very few people cheat and tighten enforcement enough to catch some of those who do. If this is done, there is a possibility that eventually a culture of integrity will emerge and you’ll have few errant cases to deal with.

In other words, you need to drain the swamps. In the world of Indian cricket, the swamp consists of the illegal economy of betting. Because betting is considered illegal, it is mostly under the control of underground international syndicates that are usually mixed up with other, more dangerous types of illegal activity—like arms trafficking and terrorism. These syndicates operate outside the law and often with key operatives located outside the country, beyond the reach of Indian authorities. The criminal syndicates bribe policemen, bureaucrats and politicians in order to be able to carry out their activities. They also employ thugs and other unsavoury characters to enforce contracts’. And yes, it also creates a lot of unaccounted money that then goes into other underground activities.

There is an economic rationale for this entire criminal economy to exist—there is a lot of money in betting. According to FICCI, illegal betting in sports is worth Rs 12000 crore to Rs 20000 crore per annum. If betting is legalised, this rationale begins to weaken. If people have a choice to place their bets at licensed betting counters—like they do for many sports in many countries—the likelihood that they will prefer to deal with unlicensed bookies will be lower. How much lower depends on the regulatory framework—competition among operators, taxation and anonymity, for instance—but to the extent that it does, the illegal operators will suffer.

It makes ample sense, therefore, to legalise betting and regulate it with the purpose of prevent the industry from falling into the hands of criminal syndicates. As the swamp is drained, the likelihood that it will breed disease-causing mosquitos will go down. There will always be unscrupulous individuals who will attempt fixing, but they will be a lot more isolated from the underground criminal networks than they are today. It is riskier to be an individual crook than to be a member of a big criminal syndicate; so fewer people will be tempted. Law enforcement authorities will be able to do a better job apprehending them because they are fewer in number and operate as individuals or small gangs.

Is it necessary to legalise betting? Won’t law enforcement alone suffice? Well, merely tightening laws and enforcement is likely to have the effect of raising the price of fixing. Spot fixing, like match fixing, will continue, but players and bookies will demand higher prices.

From my archives: On legalising prostitution and two thoughts from Amsterdam

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