UNDERSTANDING THE IMPACT OF ASIAN BETTING MARKETS
David Forrest
University of Liverpool, UK
International Association of Gaming Regulators Webinar
March 20, 2015
SLIDE 2: MATCH FIXING
• match fixing for betting gain is as old as organised sport itself
• sometimes the fixes have been “home-made” by the players and they and their families
have carried out the betting (many cases in American college sports, for example)
• sometimes the fixes have been instigated by betting syndicates, often linked to organised
crime, paying players to underperform (as in the historically most famous fix of all, in the
World Series of Baseball, 1919)
• but whichever category of fix was involved, manipulation of sport for betting purposes has,
historically, been a purely domestic crime: the event, the criminals and the betting market
were all located in the same country
SLIDE 3: A NEW WORLD
• but the online world has changed the betting market and therefore the scope and scale of its
abuse by criminals
• the size of the Global market has increased “exponentially”, for example estimated Gross
Gaming Revenue tripled between 2000 and 2010 according to the ICSS-Sorbonne Report
• stakes will have increased significantly faster than this because there was severe downward
pressure on bookmaker margins in a new online competitive environment where bettors
could access suppliers from around the World
SLIDE 4: ASIA
• the market is now globalised; but demand for betting in general is concentrated in Asia
• in the late 1990s, Asian team sports suffered numerous fixing scandals which discredited
domestic leagues and indeed lead to frequent collapses of leagues (eg soccer in China &
Malaysia, volleyball in Taiwan)
• bettors as well as sports fans lost faith in the local product and switched to betting on
supposedly more honest competitions in Europe & Australia- their enthusiasm supported by
increasing access to television coverage of overseas sports
• thus there developed the situation that the majority of sports events taking place in Europe
attracted more betting interest in Asia than at home
• Asia provides the liquidity in the betting market that supports potentially high profits from
fixing
SLIDE 5: ASIA
• this begins to tell us why fixing has moved on to being a very international crime
• the sports event to be manipulated is on one continent but the bets have to be placed in
another continent where liquidity is high enough to support high stakes and regulation is too
ineffective to prevent fraudulent betting
• international organised crime has the capability to organise and synchronise the sports
manipulation and the manipulation of the betting market
• the Bochum case illustrated the international nature of the crime and its scale: Croatian
criminals had fixed more than 300 soccer matches in 12 European countries (plus Canada)
and most of their bets had been placed in Asia
SLIDE 6: ASIA
• prosecutors found that in a single year the Bochum gang had won €19.5m (and had spent
€12m paying for the fixes)
• this sort of return is possible only if bets are placed through Asian markets since only there is
it possible to place large stakes
• even on as low a level of soccer as the Turkish fourth division, the gang’s records showed a
match where it had staked €36,000
• liquidity is high enough in Asia that betting agents told an IRIS investigation that, judiciously
spread across operators, they could place up to €300,000 on a Belgian second division match
• this is a level of sport where player wages are very low- with such potentially large wins to
be made in the Asian betting market, the situation is structurally “made for corruption”
SLIDE 7: ASIA
• domestic regulators face a difficult situation to the extent that the fraudulent money is
flowing outside its jurisdiction- but its own bettors are still being defrauded because the bets
are no longer “fair”
• a starting-point to knowing what might be done is to attempt better to understand the Asian
market and this is the purpose of this session
SLIDE 8: ASIA
• the key feature which has driven the evolution of sports betting in Asia (how it is organised)
is that the activity is illegal in nearly all jurisdictions
• this is not particularly unusual historically- it was the same in Britain prior to 1961 and
prohibition remains in force today in all states of the USA except Nevada
• suppression of bookmaking has never been very effective- in pre-1961 Britain, in
contemporary America and in Asia, it is well documented that participation in betting is still
high in the presence of prohibition
SLIDE 9: ASIA
• historically, supply came from dense networks of street bookmakers with a local focus
• since contracts were not enforceable at law, trust was an important consideration- the
bettor had to have confidence that the bookmaker would pay out winnings due and the
bookmaker had to trust losing clients not to report him to the police
• the need for trust dictated strictly local bookmaker operations, with bookmakers using
agents to recruit and maintain clients, whom they often knew personally
• a study by Koleman Strumpf, based on analysing records seized in police raids and obtained
under FOI requests, richly documents how the businesses of five illegal bookmakers in New
Jersey operated
• the model in America was similar to that found historically in Asia
• but there was one important difference- American bookmakers seldom hedged (into Nevada
sports books) because they carried sufficient capital to bear the risk of unfavourable runs of
losses themselves
• in Asia, a poorer society, street bookmakers had less capital and the structure historically
was for them to pass the bets on upwards to “bigger” players who aggregated bets at a city
and then regional level to manage risk
SLIDE 10: TODAY…
• the structure still remains but it has adapted to the online world
• at the top of the pyramid structure now sit four online supra-national operators which
aggregate bets from super-agents who in turn aggregate bets from illegal local bookmakers
(as well as take bets themselves from big bettors)
• in some cases, the local bookmakers have become virtual franchisees of the supra-nationals,
providing betting parlours where clients can bet directly
• the supra-nationals also do business directly through e- and especially m-commerce
• the supra-nationals, of which SBO (Sports Book Online) and ibcbet are the most prominent,
have become comfortably the largest bookmakers in the World- SBOBet & ibcbet EACH have
gross gaming revenue more than double that of the UK bookmaker William Hill
• they operate, legally, from Cagayan, a special economic zone of the Philippines, which is
somewhat lax in terms of regulation
SLIDE 11:
SLIDE 12: LEGAL BETTING IN CHINA
• the Sports Lottery is one of two national lottery operators licensed in China
• it offers sports betting in the largest market in the World
• but the product and the price will be unappealing to serious bettors
SLIDE 13: LEGAL BETTING IN CHINA
• in football, it offers no single match bets
• it offers only pari mutuel combination bets such as
(a) 6 matches, HT-FT
(b) 4 matches, correct scores
(c) 14 matches, 1X2
• the pay-back rate is only 65% and winnings are subject to income tax
• the Sports Lottery does permit single match betting on the NBA but it offers 1.75 (100 yuan
stake to win 75 yuan) compared with 1.95 on international markets
• foreign websites are often blocked but how to circumvent this is widely known
• given the unattractiveness of the legal product, it is unsurprising that most of the sports
betting business in China is captured by local underground operators and international
websites
SLIDE 14: LEGAL BETTING IN CHINA
• the only other Asian countries with legal sports betting are Japan & South Korea (where
betting, similar to China, is pari mutuel), Hong Kong (HK Jockey Club), Singapore (Singapore
Pools)
• in Singapore, odds on European soccer results (1X2) carry an over-round of about 11%- as in
China, serious money diverts to the international market
• the Philippines operators therefore hoover up money from all over Asia including the few
jurisdictions where there is limited legal provision of sports betting
SLIDE 15: DIFFERENCES BETWEEN EUROPEAN AND ASIAN BOOKMAKERS
• Andrew Grant from the University of Sydney compared the business models of Ladbrokes
and SBOBet (taking them as representative of the European & Asian industries)
• He characterises European bookmakers as position takers and Asian bookmakers as book
balancers
• This difference is associated with contrasts in a number of dimensions of their respective
operations
SLIDE 16: Ladbrokes v. SBOBet
Ladbrokes
SBOBet
high margin
low margin
low volume
high volume
actively seeks to exclude sophisticated
does not discriminate against sophisticated
traders
traders
low maximum stakes that are not announced
high maximum stakes that are posted on the
website
major product is 1x2
major product is Asian handicap (hang
cheng)
changes odds infrequently during the betting
changes odds frequently during the betting
period
period
SLIDE 17: all these features hang together…
• a position taker maximises profit by exploiting its superiority in evaluating probabilities over
a naive client base, hence necessity to bar sophisticated traders using low maximum stakes
and closure of accounts which win regularly (occasionally good value bets are offered to
draw out ‘professional’ bettors who can then be barred)
• a book balancer acts more like an exchange, collecting commissions, and maximises profit by
maximising turnover- hence no reason to exclude informed traders and every reason to
shade margins to attract business
• Asian handicaps provide binary outcomes, hence easier to balance the book
SLIDE 18: empirical support
• Grant and colleagues recorded odds on 2,132 matches in six major European soccer leagues
during 2012-3
• odds were recorded at eight fixed points in the betting process, from one day to one second
before kick-off
SLIDE 19: margins
• even in 1x2 betting, overround was lower at SBOBet (mean at 1 second: 6.4% versus 7.7%)
• this considerably understates the relative tightness of the Asian odds because SBOBet
volume is dominated by Asian handicap betting where the overround is close to 2%
• Ladbrokes offered a similar overround on Asian handicaps as on 1x2
SLIDE 20: frequency of odds changes
• mean number of price changes per match was 0.795 at Ladbrokes and 5.360 at SBOBet
• in a statistical model, price changes at SBOBet were a strong predictor of price changes at
Ladbrokes at the next data point (but not vice versa)
• the results of the model confirm that Asia is the leader and Europe the follower
• but Ladbrokes responds to movements in SBOBet prices only above a threshold
SLIDE 21: efficiency of the odds
• in a forecasting model, odds predict match outcomes more accurately as kick-off approaches
(both bookmakers)
• kick-off odds at SBOBet predict match outcomes significantly more accurately than kick-off
odds at Ladbrokes
• if SBOBet is book balancing, this implies that smart money in Asia drives the market towards
efficiency
SLIDE 22: Asia
• after considering how Asian markets operate, we must discuss next why their operations
provide a threat to European sport
• the threat arises from two features of Asian markets- their high liquidity and the weakness
of their regulatory framework
SLIDE 23: LIQUIDITY
• the volume of betting on European sports events in Asia dwarfs that in Europe itself
• liquidity is defined in finance texts by the ability to make a series of transactions without
driving price against the investor
• in betting, liquidity is the friend of the fixer because it permits large stakes at favourable
odds
• the availability of both in-play and pre-match markets facilitates larger stakes: fixers will
typically exploit both markets on an ‘arranged’ match
SLIDE 24: LIQUIDITY
• high liquidity in the betting market is the first attraction for fixers
• the second attraction for fixers is that the betting market they use should be unregulated
such that money flows cannot be traced back to source
• the supra-national bookmakers licensed in Cagayan are safe for bettors in that they honour
their liabilities; but they are not regulated at all in terms of being required to follow the
principle of “know your customer”
• they accept large aggregations of bets which are parcelled together by the structure of
agents acting in the illegal part of the pyramid
• KYC could not be applied by the Cagayan bookmakers because most of their customers are
betting illegally
• the structure is further conducive to fixing because agents have an incentive to accept bets
from those they suspect to be fixers (agents can add their own money to the bundle,
allowing them to profit from passive fixing)
• thus the high liquidity of the Asian market and the way in which it is organised together
promote corruption and this is the reason Asian betting markets are at the core of the crisis
of integrity and credibility faced by European sport
SLIDE 25: monitoring betting markets
• sports integrity is threatened by international organised crime but also compromised by
“petty” criminals within sport who might, for example, seek to fix to win money for
themselves or their families
• such petty criminals are likely to use domestic betting markets
• so long as the jurisdiction is well-regulated, with strong links maintained between operators,
regulators and sport, fixing is relatively straightforward to detect because quantity can be
observed directly
• for example, a French handball case was picked up because the volume of betting on a
particular match was highly elevated relative to what would be expected; moreover it was
concentrated in the home town of one of the teams
SLIDE 26: but….
• organised crime (whether Asian- or European-based) will always bet on Asian markets
because they offer high liquidity and ineffective or no regulation
• monitoring agencies therefore must observe Asian markets but they cannot observe
quantity, only price (odds)
• this adds complexity since movements of odds must be interpreted in terms of how much
money is flowing
• on high profile events, such as English Premier League soccer, liquidity is such that even
putting in several hundreds of thousands of euros might not shift odds perceptibly
• monitoring of Asian markets is essential but the task is a tough one
• supplementary to monitoring of Asian markets, observation of quantities wagered on
European markets is likely to be useful because there may be echoes of what is happening in
Asia- arbitrage and hedging activity in a global market
SLIDE 27: in defence of Cagayan (!)
• the Philippines-based operators are often represented as the biggest villains in the story of
industrial-scale manipulation of European sport
• but at least the way in which Asian illegal markets have evolved has thrown up a relatively
transparent legal tip to the traditional pyramid structure
• on their websites, the supra-national operators display odds and the maximum that may be
placed at these odds
• this is the raw material which enables agencies such as SportRadar to pick up just what is
going on in Asia
• this offers some scope for protecting soccer where the majority of volume originates in East
Asia
SLIDE 28: AMERICA
• of course, it’s not just soccer- other sports which are popular subjects for betting in Asia also
face a crisis- perhaps most pronounced in cricket and tennis
• in general, America does not appear to have experienced the same upsurge in corruption
seen in the rest of the World
• to be sure, the domestic fixes in college sport have not gone away
• but fixing in mainstream sports does not appear to have surged
SLIDE 29: AMERICA
• Declan Hill offers the interesting view that America is protected by the unpopularity of its
sports- for example, American football and baseball have extremely limited Global reach
compared with soccer and cricket
• this is reflected in lack of betting interest in Asia
• there is heavy domestic betting on American sports in an illegal market but its structure
deters fixing because bookmakers and bettors know each other almost personally
• things could change- American sports, particularly basketball, are actively seeking to
promote themselves in Asia
• And perhaps European sports will become discredited, as Asian sports did earlier, and Asian
bettors will move on to America in search of honest wagering
SLIDE 30: THE LONG-RUN
• large-scale fixing depends on high liquidity in betting markets which are unregulated and
non-transparent
• the more jurisdictions there are which provide legal, well-regulated markets offering odds
which attract the bettor, the less liquidity will be available in illegal and ‘grey’ markets
• starving illegal markets of liquidity is one of the few policy approaches capable of mitigating
threats to the integrity of sport and betting in the long-run
• other policies, such as from law enforcement, can secure short-term results- but the
problem is structural (high profits available from betting, low bribes necessary in sport) and
new criminals will eventually replace the old as long as this is true
SLIDE 31: thank-you for listening… david.forrest@Liverpool.ac.uk