Sports gambling isn't exactly a financial market, but it rhymes with financial markets. What happens on Wall Street somehow eventually also happens in sports gambling. So in the 1980s, when computers and deep statistical analysis entered the markets, it also entered the sportsbooks and changed the world of sports gambling in ways we see every day now.On today's episode, we have a story from Michael Lewis' new season of his podcast Against The Rules. We hear from a bookie who was able to beat the odds using statistical analysis, and the other bookie who managed to beat those odds, using an even more subtle science: behavioral analysis. Plus, how it's harder than ever to win against the house, and why those offers of free bets in TV ads are maybe not such a good idea.This episode was hosted by Michael Lewis and Mary Childs. Our version of the podcast was produced by Emma Peaslee and edited by Martina Castro. It was fact checked by Sierra Juarez, and engineered by Cena Loffredo. Alex Goldmark is Planet Money's executive producer.Help support Planet Money and hear our bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy
Chapter 1: What changed the legality of sports gambling in the U.S.?
So now you can be sitting at the bar with your friends watching the Philadelphia Eagles, go birds, and pick up your phone, open an app like DraftKings, and bet all your money on the Eagles winning or losing. And this is really new. It's this huge sea change. And it's the subject of a recent episode of Michael Lewis's podcast, Against the Rules. Hi, Michael Lewis.
Hello, Mary.
Thank you for joining us. This is such a fascinating phenomenon that kind of didn't exist six years ago.
This is what drew me to the subject in the first place. It's like, what an incredible social experiment we're engaged in without anybody paying it much attention that sports gambling goes from being, I mean, not just illegal, it's a taboo. It's like Pete Rose can't be in the Hall of Fame because he gambled on sports. All the commissioners of the sports league say sports gambling is evil.
Anytime a player gets near it, they're tossed from the game.
And now, all of a sudden, 39 states have legalized sports gambling. And the sports leagues themselves are encouraging it.
They go from being, you know, really loudly hostile to sports gambling to this is the future.
Do you want to do the thing? Do you want to say it?
You mean introduce your show?
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Chapter 2: Who is Roxy and how did he revolutionize sports betting?
It does. What do they say? It's a hard way to make an easy living.
People said that. Roxy now knew it. So in 1982, he quits gambling. He creates a company called Las Vegas Sports Consultants. This new company will effectively replace the Stardust Casino in setting the odds for all major sports contests. Roxy's just better at it, and pretty soon he's selling his odds to all the sports bookies, including the Stardust. This makes sense to everybody in Las Vegas.
Hiring Roxy to set the odds in sports is like hiring the first card counter to guard the blackjack tables.
So I said, you know, I'm gonna try this for a couple of years, but I'm not sure if it's going to work because it wasn't a given that every hotel was gonna have a sports book. It was a rather limited business. But that was one of my better decisions because it turned out to be a massive business.
Sports gambling isn't exactly a financial market, but it rhymes with financial markets. What happens on Wall Street somehow eventually also happens in sports gambling. And Wall Street's about to undergo dramatic change. First computers and then the Internet will allow the markets to become a lot more complicated and the bets a lot more complex.
The world's about to speed up and a new kind of person with a different kind of education is going to enter it. Old school traders with high school degrees are about to be replaced by PhDs from MIT with computer models, who as kids thought they'd grow up to be professors, not traders. On Wall Street in the late 1980s, smart old school guys served as a kind of bridge between the two cultures.
In sports gambling, Roxy was that bridge, but it took a while for anyone to cross it. We're here to see Rufus Peabody. We're in the right place. We're still in Vegas, but far from the strip. The real action is no longer on the strip. The real action is basically invisible. But here, on the 17th floor, with a sweeping view of the distant casinos, Rufus Peabody lives and works.
Rufus Peabody is who crossed Roxy's bridge. I never was a bettor as a kid. I didn't know anything about sports betting. You didn't feel a little twinge of desire? None. None. Most people that got their start, they started losing and then they learned how to win. But I was never a bettor. I never grew up betting besides NCAA tournament pools. I was always good at those. But for me, it was a game.
Rufus grew up outside of Washington, D.C., Always loved sports. Thought he might like to be a sports journalist. But even when he was a kid, his mind took him places that journalism usually doesn't.
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Chapter 3: What insights did Roxy use to gain an edge in betting?
Rufus wanted to see if he could take things a step further than Roxy had ever gone and use people's own biases against them. That's after the break. We are about to hear what happened in the aftermath of the 2018 Supreme Court decision that opened the door to legalizing sports gambling. The world we live in now, where online sports betting companies like DraftKings and FanDuel are dominant.
They are the new house. But back before all of that, Rufus Peabody was going to take a step in that direction, using more powerful tools and better information to refine the odds. And he tells Michael Lewis about some new ideas he had about how to use all of that.
A bookmaker can make more money. Let's say if they know the public's bias, they can make more money setting a line somewhere between the true price and the price the public thinks. That's the way to maximize.
There's no reason you should understand what Rufus just said there. But let me try to explain it because it tells you a bit about how this old school sports gambling world works. The line is just the odds or the point spread. The true price is what the odds would be if you somehow knew every possible relevant bit of information about some upcoming game.
Of course, no one ever knows everything, so there is in reality never a perfect true price, just some number that the smartest and best-informed bettors agree on. Say they agree that the Packers should be eight-point favorites over the Cowboys, but most of the gamblers are Cowboys fans— And the Cowboys fans think the Cowboys are only three-point underdogs.
Rufus was asking if he can entice the public to make more stupid bets if he set the line not at the true price of eight points, but at, say, five points. Because Cowboys fans will think the Cowboys are better than they actually are and bet even more.
I said, theoretically, you can make more money setting a line somewhere between the true price and where the public thinks the price is.
Rufus Peabody, recently of Yale, is no one's idea of a hustler. He's too sweet-natured and even-tempered, and way too open to telling other people about the stuff he's learned. He finishes up at Yale and moves back to Vegas to work full-time at Las Vegas Sports Consultants. But now Rufus thinks he might have an edge, and people in and around Roxy's firm think that maybe he's right.
The Super Bowl was my first big break, Super Bowl 2009.
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Chapter 4: How did technology change sports gambling?
Until one day, he couldn't.
One week I lost $30,000. I got a phone call to tell me that they were cutting my limits on golf.
He'd lost $30,000, and DraftKings stopped taking his big bets. By the way, we've reached out to DraftKings, and so far they have declined to talk with us. Anyway, it was clear to Rufus back in 2020 that this was definitely no longer his old sports gambling world.
Because I had bet enough, it spurred them to actually go in and look at the stuff I'd been betting and how I'd been doing. Books are not limiting people just because they win. They're limiting them because they think they're going to win in the future.
Rufus used data to predict what athletes were going to do. DraftKings was using data to predict what Rufus would do. When they looked at the data, they saw that after Rufus placed his bets, the odds nearly always moved in his favor. These were the bets of someone who knew things before the market knew them. And the new bookies were not like the old bookies.
They only wanted to take certain kind of bets. Bets that were more like the bet you make when you press the buttons on a slot machine. Bets that if you made them often enough, you were sure to lose. The sort of bets a fan would make. The sort of bets Rufus Peabody never made.
Refusing a bet wasn't a thing. It never was a thing here. Huh. Like, if you got kicked out of a casino or if you couldn't bet there, it was because you did something wrong. Like, you violated the sacred bookmaker better covenant.
Being smarter than the market didn't used to get you kicked out of the market. But the market's changed.
The market has changed. It's harder and harder to find an edge to beat the house, especially if the house keeps changing the rules on you or otherwise finding ways to overwhelm and outsmart you. And Michael Lewis says these companies are now everywhere.
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