The recently announced FBI gambling probe resulting in 30-plus arrests across 11 states drew much attention to the prominent NBA figures implicated in illegal poker games and inside information sharing. But another aspect of the investigation—that it reportedly targets alleged point-shaving in college basketball—reprises the significance of a 2010-published study by Professor of Finance Steve Heston at the University of Maryland’s Robert H. Smith School of Business: “Point Shaving in College Basketball: A Cautionary Tale for Forensic Economics.”
The college basketball angle of the current probe echoes historical scandals like the 1978 Boston College point-shaving case and the broader concerns about legalized betting's risk to game integrity. This, to the extent that some economists “have mistakenly inferred widespread gambling-related corruption. Through rigorous analysis, we present compelling evidence that this conclusion is unfounded,” Heston co-wrote with Dan Bernhardt (University of Illinois).
This finding, says Heston, starts with the reality that researchers must “often resort to indirect methods and inference to uncover the level of illegal activity in the economy.” He says his paper shows that such indirect methods must be carefully designed to tell legal from illegal behavior—more specifically to distinguish whether patterns in winning margins are due to massive corruption, or to the basic way the game produces final scores.
Heston and Bernhardt analyzed point-spread changes to identify betting trends. This showed “the market is efficient”—that spread movements do reflect real information from bets, but the same information has no link to the odd scoring patterns. Specifically, the scoring anomalies appeared equally in games where the spread rises (more money on favorites) and where it shrinks. They further showed that the same scoring patterns manifest in games where there is no betting, indicating that the patterns are not related to information or betting activity.
Policy wise, our findings against point shaving remain important, Heston says, reiterating his paper’s conclusion: “Our analysis revealed that individual point shaving incidents do not reflect widespread corruption, and that costly significant changes in policy—fanned by past, current and likely future media alarm—would be unwarranted.”
Read Heston’s study (published by Economic Inquiry) via SSRN and his 2014 Terp Magazine Faculty Q&A, “Steve Heston Goes All in,” focused on his game theory-in-gambling expertise.