Money Smart Athlete Blog

The betting industry: A cost-benefit analysis

By Demetris Constantinou, Contributor

Over the past decades, we’ve seen old ideas being replaced by new visions and conventional taboos becoming part of our everyday lives. One such taboo, that’s currently prevalent across our lives is sports betting. Back in the day, sports betting was viewed as a shady act usually performed by people viewed as outcasts of society, regardless of whether people of all income levels actually engaged in it. In today’s society, with some natural exceptions, sports betting is totally acceptable and is certainly something that nobody should be ashamed of.

Such shift in the perception of sports betting laid the path for the formation of a gigantic industry, with an estimated market size of $203 billion generated by over 31,000 businesses that employ north of 190,000 employees[1]. An industry with such figures wouldn’t exist if it wasn’t for the underlying pillar, the sports themselves, which, over the years, experienced the best and worst of what the sports betting industry has to offer. In this article, we seek to examine the costs as well as the benefits associated with sports betting and whether the sports industry is in better position since the emergence of sports betting.

The most obvious benefit that sports leagues have enjoyed since the emergence of sports betting is the profound spike in their earnings. As discussed above, without sports there isn’t any sports betting and as such, sports clubs and leagues are amongst the biggest stakeholders in the sports betting industry.

In a study performed by the American Gaming Association in 2018, it was estimated that the four major sports leagues in the U.S, namely the NBA, NFL, NHL, and MLB, earned “a collective 4.2 billion U.S. dollars from widely available legal sports betting”[2]. While there is no single way by which sports leagues make money off of sports betting, such revenues are usually the result of ad spending by betting operators or even higher viewership of sports as a result of sports betting. Given that the sports betting market and its potential are highly untapped, such revenues could multiply, and become even more significant for sports leagues and clubs in the near future.

Furthermore, contrary to what was mentioned earlier, even though sports betting cannot exist without sports, it doesn’t mean that sports can’t actually grow as a result of sports betting. Specifically, it’s suggested that a large number of sports bettors don’t essentially bet to win, but rather to maximize their entertainment by adding an extra layer of “fun” to an already enjoyable activity[3]. Simply put, people who are not big sports followers might engage in watching a certain game or sport because of the fact that they’ve placed a wager, which all of a sudden spiked their interest in the specific sport. The bettor not only obtains the entertainment of viewing the game but also enjoys the idea of winning and the thrill of uncertainty and spontaneousness associated with betting.

While the above benefits are directly relevant to the sports leagues, there’s a third benefit which is broader, but reflects well on the sports industry. The macroeconomic benefits of the sports betting industry reflect well on sports clubs which depend on their localities to expand their fan base. Such benefits create win-win situations where the betting industry, the local economies and the sports clubs are all better off, due to the emergence of higher revenues, more jobs and greater prosperity overall. Having said that, the exact opposite argument can be made on the social, as well as economic impact of sports betting and as such, no sports club would ever want to be directly associated with the macroeconomic benefits or costs of the sports betting industry.

Undoubtedly, the above list of benefits creates a skewed idea of how positive the impact of the sports betting industry is on sports. To completely understand the actual impact of the sports betting industry on the sports themselves, we ought to look at the downsides that come with sports betting, and how such issues might negatively impact sports leagues and clubs.

The most dominant problem faced by sports leagues and clubs with regards to sports betting is the issue of match fixing. While match fixing is a separate chapter by itself, it’s amongst the greatest threats of modern sports and can jeopardize entire clubs, leagues or even sports, if not taken seriously. Sports’ popularity is built on the premise that nobody knows in advance what the outcome will be, and that everything is indeed possible and uncertain. If you take away the element of uncertainty, sports all of a sudden become boring and even pointless, causing people to seek entertainment in other industries. That’s why, match fixing is amongst the greatest threats to the sports industry and should be taken seriously if sports betting is to truly have a positive impact on the sports industry.

Another prevalent downside of sports betting is the association of negative feelings towards a sports club by the bettor, merely because of a lost wager. It’s not rare to hear someone blame certain teams or individuals for losing their money just because they didn’t perform as expected on the field and caused the individual to lose their bet. Such negative feelings create a bad association with both the clubs as well as the leagues and draw people away from sports. While this is certainly not the case on a larger scale, it’s an unavoidable collateral damage brought with the emergence of sports betting and should always be viewed with seriousness, to ensure that such feelings are contained to a very small minority of sports followers.

Both the benefits as well as the downsides mentioned above, don’t reflect the overall effects of sports betting to the wider society and fail to consider the societal and economic implications at a larger scale. Nevertheless, the purpose of this article is not to examine whether sports betting is a good or a bad phenomenon, but rather understand what the costs and benefits of sports betting are on the sports themselves and whether the sports industry has overall benefited from the emergence of sports betting. In monetary terms, sports betting has certainly benefited the sports industry in great lengths, and will continue to do so at a an even larger scale. Having said that, such success is strictly contingent on the close monitoring of dangerous behaviors, such as match fixing which can have dire effects if not acted upon swiftly and with seriousness.

For further discussion on the pros and cons of the betting industry for sports, you can contact us at [email protected].

[1] Key data on the global sports betting industry 2020 | Statista

[2] How Much Do Leagues Stand to Gain from Legal Sports Betting? – American Gaming Association

[3] The Advantages of Sports Betting – Why Should You Bet on Sports?