Sportsbooks and politicians: Place your bet!
Abstract
Betting on sports is widespread. Book making can be profitable but the practice is illegal in the United States. The internet allows this activity to move to offshore locations like Costa Rica. The internet also lowers entry barriers and makes pricing more transparent which could lead to hyper competition. Using odds for four World Cup soccer games the case reader can calculate the expected profitability for several bookies (sportsbooks). Price dispersion does not disappear with the internet, even for gambling which entails no movement of merchandise. Strategy is important. Sportsbooks must decide on segments, product mix and geographic scope.
Introduction
On July 17, 2006, U.S. federal authorities arrest David Carruthers, CEO of BetonSports, at Dallas Fort Worth International Airport while he awaits a connecting flight back to Costa Rica, where his online gambling firm has its offshore headquarters. He faces charges of violation of the 1961 Wire Act, racketeering, conspiracy, and tax evasion. The U.S. Department of Justice also files civil and criminal charges against BetonSports founder, Gary Kaplan, and another nine executives of three online bookies.
As a result, the stock of BetonSports Plc on the Alternative Investment Market in the United Kingdom crashes, and the 2000 employees of the firm in Costa Rica worry about losing their jobs.
Just a few months earlier, David Carruthers participated in a Wall Street Journal debate with Republican Senator James Leach, the sponsor of a bill banning the use of credit cards and electronic money transfers for online gambling. During this discussion, Carruthers tried to convince Leach that any attempt at banning online betting would fail, and that the government should refocus its efforts on regulating the activity. Over two thirds of Americans have gambled at least once (Strumpf, 2003) and half of Super Bowl viewers place a bet on the game's outcome (Levitt, 2004).
The top priority of Carruthers at this time is his legal defense. BetonSports established itself in Costa Rica because of its attractive regulatory environment and the availability of bilingual low cost call center assistants. Would a WTO complaint by Costa Rica, a respected long standing democracy, be even more effective than the successful action of Antigua?
With time on his hands, Carruthers reflects about the competitive landscape of internet gambling and the strategic position of BetonSports. Does his firm attract the correct segments of bettors? Is being so dependent on sports gambling by U.S. residents a good idea?
