The Line on NBA Betting

The scandal involving referee Tim Donaghy underscores how pervasive gambling on sports has become in the U.S.

When former NBA referee Tim Donaghy turns himself into federal authorities this week, as is widely expected, he will face charges that he or his associates bet on games in which he may have made calls to affect whether teams covered the point spread. NBA Commissioner David Stern called the scandal "the most serious and worst situation" in his 40 years with the league.

Sports betting, both legal and illegal, is a huge industry, providing big payouts (and losses) for simply picking a winner or accurately handicapping a loser. To anyone who has been to Las Vegas, entered an NCAA tournament pool, or remembers that guy from college who couldn't master calculus but could work point spreads like a modern-day Sir Isaac Newton, there is nothing shocking about that.

What is surprising is just how massive the sports betting industry has become. From the sparkling casinos of the Vegas strip to shady bookies in street-corner Brooklyn bars, all those bets add up to a gigantic, multibillion-dollar business. Last year, the Nevada State Gaming Control Board reported $2.4 billion in legal sports wagers. While illegal bookies obviously don't report data on their operations, illegal sports gambling dwarfs legal betting, primarily because of geography: You have to be in Nevada to place legal wagers, but you can bet illegally just about anywhere.

Gridiron Is the Big Draw

In 1999, the National Gambling Impact Study Commission reported to Congress that up to $380 billion was illegally bet on sports in the U.S. each year. That makes the sports betting industry more than six times larger than the combined value of all 122 professional sports franchises in the NFL, NBA, MLB, and NHL.

Football is by far the largest component of legalized sports gambling, accounting for almost half of all sports betting in Nevada. Basketball wagers are the second most popular, representing a quarter of sports bets placed. An analysis by BusinessWeek of data included in Nevada State Revenue Gaming Control Board reports shows that $1.1 billion in football bets were placed in the state last year, up 32% over the past five years. Over that same period, basketball wagers grew 24%, from $513.5 million in 2002 to $635.4 million in 2006. Nevada state law requires all gaming licensees to provide data on their operations, including a breakdown of their books by sport, but does not differentiate between wagers on professional and college games. But in May, during the NBA playoffs and when there were no NCAA basketball games, more than $56 million in bets were placed on basketball games in the state.

R.J. Bell, a sports betting expert who runs the Web site, estimates that $70 billion is bet worldwide on NBA games each season. While conventional wisdom might suggest that intangibles like extensive travel and player motivation over an 82-game regular season might make it more difficult to handicap NBA games, Bell says that is not the case. Over the course of a six-month season, Bell says that bookmakers gain a wealth of information on each team and individual players, and are able to set point spreads that predict winners 70% of the time. "The market efficiency is higher in NBA sports betting than the NFL, making it harder for the average bettor to win money," he says.

Beholden to Underworld Friends

Ethics and legality aside, it is easy to understand how the chance at huge payouts provides a motive to try to cheat the system. What is less obvious is how someone who is not a player can surreptitiously affect the outcome of a game.

Bell says that an NBA referee has a greater opportunity to affect the outcome of a game simply because of the high number of fouls called in an NBA game, compared with an NFL game. By Bell's analysis, as few as four calls per game can determine whether a basketball team covers a six-point spread. By making just one call per quarter for or against a designated team, a referee can move the wagering winners/losers split from 50-50 to 75-25. How easy would that be to do without being discovered? "He can do that without thinking too hard," Bell says.

In a scenario reminiscent of Tony Soprano siphoning money from the sports store owned by his gambling-addicted and debt-ridden high school friend Davey Scatino, the New York Daily News has reported that low-level Mafia criminals Tim Donaghy knew from high school used his gambling debt to force him to share information and possibly fix NBA games.

Donaghy, 40, has been an NBA referee for 13 years. He earned $260,000 last season. His attorney, John Lauro, did not return a call for comment on this article.

An FBI investigation of Donaghy spans the 2005-06 and 2006-07 seasons. During that period, Donaghy officiated 139 regular-season games, eight playoff games, and four preseason games. The NBA has not yet reviewed games called by Donaghy to determine if there is evidence that he, in fact, influenced the outcome of any of those games.

NBA Commissioner Stern conceded that judgment would be difficult, but would be pursued later this year. "If you bet on a game, you lose the benefit of the doubt," he said. "So I'm not going to say it didn't happen, because that would impair the credibility I think the NBA deserves for its efforts."

NBA sponsors haven't expressed an inclination to pull back because of the alleged gambling. Nike (NKE), Anheuser-Busch (BUD), Sirius Satellite Radio (SIRI), and IBM (IBM) have been big league advertisers.

Bell says that based on his review of the past four seasons, Donaghy became much more active in making calls over the last two seasons and led the league in fouls called last year. But one thing jumped out from Bell's review. In 15 games Donaghy called last season, there was a disproportionate amount of money bet on one team, moving the betting lines by at least a point and a half in the other direction before tip-off. In general, a differential of $50,000 in bets will cause the lines to move a half-point away from the money. In all 15 games identified by Bell, the money-backed team produced payouts. Bell says, "The odds of that happening are over 32,000 to 1."