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Sports betting professor football totals systematic betting it all bloody fights

Sports betting professor football totals systematic

Risk Shifting and Hail Mary. Specialist and the Sportsbook. Ticket Scalping and Float. Football and Real Options. For many students, understanding the time value of money is one of the most difficult hurdles that they will encounter in an introductory finance class.

Failure to grasp this crucial topic causes many students to do poorly in class and, often, to drop finance for a different major. Part of the problem could be that few introductory finance students can relate to textbook examples on this subject matter. Typical present value examples center on bonds and mortgages, two financial instruments with which the vast majority of traditional undergraduate students have little interest or experience. An alternative to these examples can be found in the National Football League.

NFL player contracts make excellent time value of money examples because, much like bonds, player contracts generally have contractually defined cash flows. Typically, NFL players sign contracts that consist of a signing bonus and an annual salary. Both the signing bonus and annual salary are negotiable and, in the case of the salary, often change year to year over the life of the contract National Football League Players' Association, Before contracts can be used as an example, a few institutional details should be discussed.

First, the majority of NFL contracts are not guaranteed. That is, a player can be cut at any point, and the team does not need to pay him the remaining payments. The signing bonus, however, is usually guaranteed, and the player keeps it even in the event that he is cut from the team. The players, therefore, would like to see all of the money guaranteed and paid in the early years of the contract.

These details, which can be glossed over in introductory classes, also allow more advanced students to grasp the concept of expected value calculations. Present value calculations are based on the premise that money today can be invested to earn more in the future. The discount rate in this discussion would be set by market-wide factors. As Equation 1 below shows, for any positive required return, a dollar today is worth more than a dollar tomorrow.

Adding to student interest is the fact that many sports reporters seemingly do not understand the concept of time value of money. Table 2A shows the cash flows associated with select player contracts. When the time value of money is considered, the reported sums dramatically exceed the value actually received by the player.

This bias may be important given the widely held belief that professional athletes are overpaid. This relationship is shown in Table 2B. However, even this lower present value calculation is biased because many players will not remain with their team for the life of their contracts and, therefore, will never receive all of the payments originally provided for by the terms of the contract.

Moreover, this risk that the player will not stay with the team for the life of the contract can be used to demonstrate the concepts of both expected cash flows and the differences between systematic and unsystematic risk. Risky cash flows, whose risk is tied to unique risk factors, should not be handled by changing the required return which is based on market-wide factors. To adjust for unique risks in cash flows, an expected cash flow should be calculated.

The expectation is based on the probability of remaining with the team and under the same contract. It can be written as:. As would be expected, these values are significantly lower. This is useful for it shows not only that unique risk is accounted for by adjusting cash flows, but also because, unlike some text book examples, there is clearly little correlation between the player remaining under contract and the market-wide factors that influence the discount rate.

This later distinction should make it easier for students to grasp the difference between market risk and unique risk. Additionally, this example can be used to show why players should prefer to receive a guaranteed signing bonus, rather than a risky contract, how present values fluctuate with changes in interest rates, the importance of using the correct probabilities in calculating expected values, and even to show how longer term contracts are more sensitive to changes in interest rates.

TABLE 2. Player Contracts all numbers in s of dollars. Signing Bonus. Salary Year 1. Salary Year 2. Salary Year 3. Salary Year 4. Salary Year 5. Salary Year 6. Salary Year 7. Ronde Barber. Martin Gramatica. Mike Alsott.

Present Value all numbers in s of dollars. Reported Value. Present Value. Expected Present Values all numbers in s of dollars. This probability is assumed to remain constant over time. For consistency with the other two players we report the deal as the total of the undiscounted cash flows before any incentive bonuses. The concept of efficient markets is very important to the study of the stock market in finance. Understanding terms and their meanings can be perplexing to introductory finance students who have little experience with financial markets.

Fortunately, the point-spread market in football provides an example to which many students can relate. An efficient market adjusts rapidly to the arrival of new information. This means that current prices will reflect all available information. Fama divided the Efficient Markets Hypothesis EMH into three parts: the weak form, the semi-strong form, and the strong form.

The weak form states that prices reflect all past market-based information, the semi-strong form asserts that current prices reflect all new information, and the strong form states that prices include all information, including insider information.

These definitions of market efficiency can also be applied to the "betting markets" for professional football which in turn can be used to illustrate these conceptual definitions. The wagering market for football games offers specific advantages to studying the EMH that other financial markets do not.

First, gambling markets have the advantages of definitive start and end points for study and quick processing of returns or losses. While closed-end funds may offer the same, it is often difficult to select the natural start and end points for study Ippolito, On the other hand, football lines are released a week in advance and are closed at the beginning of the games on Sunday or Monday.

All information is assumed to be processed by the close of the line; therefore, the weak form of market efficiency can be studied very easily. Gandar, et al , and Sauer, et al , were the first to systematically study market efficiency using samples of NFL betting lines. They tested whether the betting line incorporated past publicly available information, such as scoring-per-game, yards-allowed-per-game, and records on grass and artificial turf. Their work showed that the line was an optimal and unbiased predictor of the outcome of games.

Therefore, reading through public information sources, such as magazines or televised football shows, will not help one win in the gambling market. This is similar to the idea in financial markets that looking at past financial reports and other publications will not allow an investor to beat the market since this past information is already incorporated into the price.

For this reason, we would say that both financial markets and the betting market for professional football are both largely weak and semi-strong form efficient. While both financial and betting markets appear to be efficient, efficiency is not the same as perfection and there is evidence in both markets of anomalies or areas where there are apparent inefficiencies. Another recognized anomaly in football betting markets involves betting on the total number of points scored in a game. These anomalies are similar to the January Effect stocks tend to go up in January , the Small Firm Effect small firms outperform large firms on a risk adjusted basis , and Market to Book Anomaly low market-to-book stocks outperform high market-to-book stocks.

Under the EMH, anomalies should not persist because, once they are known, arbitrageurs should eliminate any trading pattern. Interestingly, the reasons that these anomalies do continue to exist in both markets are remarkably similar. For example, explanations for persistent stock market anomalies center on errors in specifying the model such as ignoring liquidity or mis-measuring risk or because of structural impediments to the arbitrageurs eliminating the anomaly e.

Likewise, it has been suggested that profitability may exist due to binding betting limits placed on informed traders in this market. These restrictions prevent the informed bettor from making the large bets that would lead to a correctly adjusted betting line Paul and Weinbach, Coase , and later Jensen and Meckling , describe firms as a nexus of contracts between various stakeholders.

At times, the various stakeholders have conflicting incentives and desires. One of the most important of these conflicts arises around the risk preferences of shareholders and bondholders. Galai and Masulis and Myers discuss the widely acknowledged risk-shifting that can occur as a firm increases its leverage beyond some optimal point. The problem is particularly severe for a firm whose debt exceeds the market value of the its assets.

In such instances, shareholders may have the incentive to accept high-risk projects, even if a particular project has a negative expected value. The reason for this behavior is that shareholders will assuredly lose if conditions do not change. Since bondholders are paid before shareholders in the event of liquidation, the shareholders have little to lose in taking great risks.

The theory behind this behavior can be illustrated using the actions of a team that is behind in a football game. The extreme example of this is the "Hail Mary" pass that frequently accompanies the end of a football game. The success rate on this pass is very low, yet teams do it on a regular basis.

The rationale is that this high-risk play is the best chance of scoring quickly when compared to running the ball or throwing short-passes. Most students are familiar with the point spread on a football game. These point spreads, which are called "lines", can be seen each week in newspapers across the country, are frequently mentioned on sports sites on the internet, and are even stated by commentators on radio and television football programs.

What most students may not realize is that the formation of these lines, as well as how the lines change, can provide insight into a simple financial market. In addition, the role of the sportsbook or bookie in this market can illustrate the similar role of the NYSE specialist.

Many people think that a football game wager is itself a game between the bettor and some entity, such as the sportsbook of a casino or a local illegal bookie. When the betting market is run efficiently, this could not be further from the truth. The main goal of the sportsbook or bookie is to set a point spread that will balance the betting action on the favorite and the underdog.

To illustrate this, consider the following football line from Sportsbook. In this example, the Vikings are favored by five points over the Bills. If the Vikings win by more than five points, those who bet on the favorite the Vikings will win. If the Bills win or the Vikings win by four or fewer points, then the underdog bettors will win.

If the game ends in a Vikings win by five points exactly, the bet is considered a "push" and all wagers are returned. The indication of after each team and point spread notes the commission on the game. This indicates the "vigorish", or commission, which is charged by the sportsbook or bookie.

This commission is similar in nature to those charged by brokers, dealers, and specialists on trades in financial markets. The action of a sportsbook or bookie can be used to help explain market microstructure how markets function and the institutional details of various market participants , which is a topic in most investment books Reilly and Norton, Gambling is not about picking winners. The trick is to know your probabilities better than the bookies.

Before I reveal the secrets of my betting model, we need to take a step back and get some of the basics straight. To the uninitiated, the world of online betting can be somewhat overwhelming. But a single account is not a good idea. Unless you are a lot smarter than the bookmakers, your money will soon be gone. Each bookmaker offers slightly different odds. For some big matches it can be even lower. The second rule of gambling is to make sure you understand the relationship between odds and probabilities.

You need to do the odds-to-probability calculation every single time you place a bet. Before you part with your money, assign probabilities to each potential outcome and compare these with the odds. For many people this is a very difficult idea to get their head around.

Successful gamblers back just as many, if not more, losers than winners. The second model I tried was based on the Euro Club index , which assigns points based on the result of matches between teams. Every time a team wins a match it gains index points and when it loses, the team loses index points. This is similar to the Elo rating that is used in chess and other sports. The third model was based on a concept called expected goals.

In this model, each shot a team makes is assigned a value based on historical data of shots taken in similar situations. My model based on expected goals resulted in some spectacular gains early on in the season. It predicted the decline of Chelsea, but it overrated Arsenal and Liverpool. As the season progressed it became clear that a fourth and final model, which I called the odds bias model was the most reliable.

The bias can be explained by punters being attracted by the potential of big profits offered by large odds, and undervaluing the smaller gains to be had by betting on the favourite and bookmakers adjusting their odds accordingly. I found a long-shot bias in earlier Premier League seasons. For example, in , putting money on Chelsea, Arsenal and Manchester City against teams lower in the table would have given a small but reliable week-on-week pay-off.

Not only did some bookmakers initially offer Leicester at 5, to 1 to win the league, but they were also undervalued in almost every match they played. When Manchester United host Manchester City or Arsenal visit Liverpool, these matches see two very well matched teams play each other.

But punters like to see a win in one direction or the other and the bookmakers increase the odds for a draw. This is a consistent bias over a number of Premier League seasons, and the season was no exception. After that, my betting became more sporadic. I placed a few bets when I had time, but I often forgot. There is more to life than gambling. It is, however, possible for me to assess how I would have done if I had continued to bet. The website www.

It turns out that my model continued to hold its own throughout the season.

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For this reason, we would say that both financial markets and the betting market for professional football are both largely weak and semi-strong form efficient. While both financial and betting markets appear to be efficient, efficiency is not the same as perfection and there is evidence in both markets of anomalies or areas where there are apparent inefficiencies.

Another recognized anomaly in football betting markets involves betting on the total number of points scored in a game. These anomalies are similar to the January Effect stocks tend to go up in January , the Small Firm Effect small firms outperform large firms on a risk adjusted basis , and Market to Book Anomaly low market-to-book stocks outperform high market-to-book stocks. Under the EMH, anomalies should not persist because, once they are known, arbitrageurs should eliminate any trading pattern.

Interestingly, the reasons that these anomalies do continue to exist in both markets are remarkably similar. For example, explanations for persistent stock market anomalies center on errors in specifying the model such as ignoring liquidity or mis-measuring risk or because of structural impediments to the arbitrageurs eliminating the anomaly e. Likewise, it has been suggested that profitability may exist due to binding betting limits placed on informed traders in this market.

These restrictions prevent the informed bettor from making the large bets that would lead to a correctly adjusted betting line Paul and Weinbach, Coase , and later Jensen and Meckling , describe firms as a nexus of contracts between various stakeholders. At times, the various stakeholders have conflicting incentives and desires.

One of the most important of these conflicts arises around the risk preferences of shareholders and bondholders. Galai and Masulis and Myers discuss the widely acknowledged risk-shifting that can occur as a firm increases its leverage beyond some optimal point. The problem is particularly severe for a firm whose debt exceeds the market value of the its assets.

In such instances, shareholders may have the incentive to accept high-risk projects, even if a particular project has a negative expected value. The reason for this behavior is that shareholders will assuredly lose if conditions do not change. Since bondholders are paid before shareholders in the event of liquidation, the shareholders have little to lose in taking great risks.

The theory behind this behavior can be illustrated using the actions of a team that is behind in a football game. The extreme example of this is the "Hail Mary" pass that frequently accompanies the end of a football game. The success rate on this pass is very low, yet teams do it on a regular basis. The rationale is that this high-risk play is the best chance of scoring quickly when compared to running the ball or throwing short-passes.

Most students are familiar with the point spread on a football game. These point spreads, which are called "lines", can be seen each week in newspapers across the country, are frequently mentioned on sports sites on the internet, and are even stated by commentators on radio and television football programs.

What most students may not realize is that the formation of these lines, as well as how the lines change, can provide insight into a simple financial market. In addition, the role of the sportsbook or bookie in this market can illustrate the similar role of the NYSE specialist. Many people think that a football game wager is itself a game between the bettor and some entity, such as the sportsbook of a casino or a local illegal bookie.

When the betting market is run efficiently, this could not be further from the truth. The main goal of the sportsbook or bookie is to set a point spread that will balance the betting action on the favorite and the underdog. To illustrate this, consider the following football line from Sportsbook. In this example, the Vikings are favored by five points over the Bills. If the Vikings win by more than five points, those who bet on the favorite the Vikings will win.

If the Bills win or the Vikings win by four or fewer points, then the underdog bettors will win. If the game ends in a Vikings win by five points exactly, the bet is considered a "push" and all wagers are returned. The indication of after each team and point spread notes the commission on the game. This indicates the "vigorish", or commission, which is charged by the sportsbook or bookie. This commission is similar in nature to those charged by brokers, dealers, and specialists on trades in financial markets.

The action of a sportsbook or bookie can be used to help explain market microstructure how markets function and the institutional details of various market participants , which is a topic in most investment books Reilly and Norton, More specifically in this area, studying the actions of a sportsbook can help to explain the role of the NYSE specialist.

When the sportsbook has set the line correctly and there is the same amount of money bet on both the underdog and the favorite, the sportsbook is not an active participant in the wager. It does not matter which side wins the game, the sportsbook captures its commission as money is transferred from the losing party to the winning party minus the vigorish on the losing bets.

Thus, if the line is set correctly, and the market is in balance, the sportsbook will not be an active participant in the wager. Similarly, when the NYSE specialist has set the price correctly, trades occur without the specialist being involved. The specialist benefits from the volume of trades just like the sportsbook benefits from the volume of betting. The more trades that are placed or the more bets that are taken, the more the broker and sportsbook makes.

Like the sportsbook, the NYSE specialist is generally not involved in the trading, but will become involved when there is an imbalance. The similarities between a sportsbook and a specialist do not end there. Both will also temporarily stop trading when major information is about to be released. For example, a sportsbook will not publish a line when an injury to an important player leaves doubt as to whether or not that player will play.

In the same way, a specialist will request a temporary trading halt when a major takeover is about to be announced or a CEO steps down. Ross, Westerfield, and Jordan cite Ritter estimates of an average underpricing of This under pricing is quite volatile, ranging from —1. Internationally, there is the same pattern in under pricing.

Bradley and Jordan show that the under pricing of IPOs is partially due to share overhang. Share overhang occurs when only a portion of a corporation's outstanding shares are sold to the public. For firms that offer only a small percentage of their shares to the general public that is, a small float or large overhang , demand for these shares can be greater than the supply, which is relatively fixed during the lock-up period. When this demand exceeds supply, the stock price jumps. The reported market value of the firm, which is based on the number of shares outstanding multiplied by the share price, is thus higher than the initial valuation which is based on total shares outstanding, not merely float.

In such a situation, the current stock price is also higher than the price the firm would fetch if all the shares were sold. This under pricing can lead to some unusual occurrences. This seeming anomaly is, in part, due to the difference between "float" and "shares outstanding". Float is the measure of the number of shares held by the public, while outstanding shares includes float but also includes all shares held by insiders at the firm, or in this case those shares held by the parent corporation.

This difference can be compared to ticket scalping at football games. The ticket scalper standing outside the stadium with only a few tickets left may be able to sell a ticket for several times its face value due to the low supply. However, it is unlikely that all of the seats in the stadium could be sold for the same high price.

An additional similarity is that in each market, market imperfections can lead to overpricing. Jones and Lamont report that short sellers reduce share price volatility by eliminating some of the over valuations witnessed during the internet boom of the late s. In the stock market the lack of float can prevent short-sellers from lowering the valuation. Similar impediments exist in the ticket market as ticket scalping is illegal in many areas, which limits the number of scalpers and hence tickets available for resale.

Real option analysis is the application of financial option theory to real, rather than financial, assets. The coverage of real options in finance classes is growing. This growth can be shown by the large number of Real Option seminars at financial conferences that show how to teach this topic as well as coverage in most corporate finance textbooks.

Traditional textbook real option examples include the option to abandon a project before its useful life is over and the option to expand if things are going better than expected. Both of these uses of real option analysis can also be demonstrated with football examples. The phenomena of players being cut prior to the end of their contracts has recently become the norm in the NFL. There are many reasons why a player may be cut before the contract ends.

The two most common are poor performance and salary cap problems. This unilateral termination of a contract is an excellent example of the early abandonment option. Thus, a player may sign a long-term contract, but as soon as the player fails to be a positive investment, the team may cut him. Conversely, some player contracts have clauses that allow the team to extend the contract. This is much like the right to expand a capital budgeting project in the business world.

Brealey and Myers use real option analysis to show why it may be beneficial for firms to adopt higher cost alternatives if those alternatives have greater flexibility. The rationale for this is that when there is an uncertain future, the ability to adjust production is a valuable option. The traditional example of this is a flexible production facility.

This flexibility is particularly valuable in a rapidly changing environment. This too can be easily illustrated with a football example. A player is more valuable if he can play multiple positions. This ability to play multiple positions is especially important in the NFL, where injuries and changing game plans make the future uncertain. As a result, multi-positional players are more valuable than single-position players.

While specialization does dominate for most star players, for more marginal players the ability to play more than one position is often critical. For instance, a multiple-position player who may also play special teams may "make the team" while a player who can only play a single position would be "cut" during pre-season. Provided in this paper are several examples from football that can be used in a finance class to spark student interest and learning.

Additionally, football examples have the benefit of being interesting to many students. This may help fight the belief held by many undergraduate students that finance is a dry subject. It should be stressed, however, that these football examples are meand to suplement and not to replace the more traditional finance examples. Ardalan, Kavous. Bradley, Daniel J. Brealey, Richard A. Principles of Corporate Finance.

Coase, Ronald H. Fama, Eugene. Galai, Dan and Ronald W. Gandar, John, Richard A. Zuber, Thomas J. O'Brien, and Ben Russo. NYSE working paper Holyoak, Keith J. Ippolito, Richard A. Jensen, Michael C. Edited by Michael C. Jensen and Clifford W. I was determined to use maths to beat the bookies. I tested the models, refined them, and before too long I started to make money. Gambling is not about picking winners. The trick is to know your probabilities better than the bookies. Before I reveal the secrets of my betting model, we need to take a step back and get some of the basics straight.

To the uninitiated, the world of online betting can be somewhat overwhelming. But a single account is not a good idea. Unless you are a lot smarter than the bookmakers, your money will soon be gone. Each bookmaker offers slightly different odds. For some big matches it can be even lower. The second rule of gambling is to make sure you understand the relationship between odds and probabilities. You need to do the odds-to-probability calculation every single time you place a bet. Before you part with your money, assign probabilities to each potential outcome and compare these with the odds.

For many people this is a very difficult idea to get their head around. Successful gamblers back just as many, if not more, losers than winners. The second model I tried was based on the Euro Club index , which assigns points based on the result of matches between teams. Every time a team wins a match it gains index points and when it loses, the team loses index points. This is similar to the Elo rating that is used in chess and other sports.

The third model was based on a concept called expected goals. In this model, each shot a team makes is assigned a value based on historical data of shots taken in similar situations. My model based on expected goals resulted in some spectacular gains early on in the season. It predicted the decline of Chelsea, but it overrated Arsenal and Liverpool. As the season progressed it became clear that a fourth and final model, which I called the odds bias model was the most reliable.

The bias can be explained by punters being attracted by the potential of big profits offered by large odds, and undervaluing the smaller gains to be had by betting on the favourite and bookmakers adjusting their odds accordingly. I found a long-shot bias in earlier Premier League seasons. For example, in , putting money on Chelsea, Arsenal and Manchester City against teams lower in the table would have given a small but reliable week-on-week pay-off. Not only did some bookmakers initially offer Leicester at 5, to 1 to win the league, but they were also undervalued in almost every match they played.

When Manchester United host Manchester City or Arsenal visit Liverpool, these matches see two very well matched teams play each other. But punters like to see a win in one direction or the other and the bookmakers increase the odds for a draw. This is a consistent bias over a number of Premier League seasons, and the season was no exception.

After that, my betting became more sporadic. I placed a few bets when I had time, but I often forgot. There is more to life than gambling. It is, however, possible for me to assess how I would have done if I had continued to bet.

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He sees that the increased public awareness on the issue and the improvements in international communications technologies can explain that more and more cases are being revealed and that information on match-manipulation is more available. The criminal jurisprudence concerning the manipulation of the results of sporting events is relatively rare in the EU27 KEA European Affairs , like in Finland.

There are only few academic studies on the magnitude of match-manipulation. Gorse and Chadwick have evaluated the prevalence of corruption in international sport. Using a database of proven cases of corruption doping crimes were seen as one form of corruption in this study between the years and , they found 57 cases of match-manipulation.

Of these, 2. Over half of the cases took place in Europe and one-third in Asia. Seventy percent of the cases which occurred in Europe concerned football. In the FiFPro study, The liberalisation of betting markets, the establishment of new methods for betting, along with developments in betting technologies have created greater risks for the manipulation of sports results Brasseur According to Hill , the main problem is that the Asian-based OC groups bet on the Asian gambling market, Footnote 21 not with the European national lotteries.

McLaren sees the gambling through non-regulated bookies as the main source of the problem of betting-related match-manipulation. As a result of fierce competition among online betting sites, complex, but attractive betting modes have been invented. Live betting represents over two-thirds of current sports betting markets.

Live betting is difficult, or almost impossible, to control because of constantly changing odds. Tracking the manipulation is difficult. Furthermore, the matches may be directly influenced from the spectator stand by using different codes Boniface et al. For example, the regulation of licensed operators falls within the sole jurisdiction of the EU But the extensive availability of illegal gambling is a cross-border problem.

Footnote 23 The main problem is that betting is regulated at the national level, although today the bets are placed with online betting sites all over the world. Because of the Internet, the betting markets have become more difficult to regulate.

The illegal betting-site operators, as well as unregistered operators, are not subject to any surveillance Boniface et al. They are outlawed and potentially dangerous by undermining the integrity of sports as well as the legal betting industry. The risk of being caught for this betting-related match-manipulation is low because the money trail in betting-related match-manipulation crosses different jurisdictions Norwegian Action Plan against Match-Fixing Thus, international police co-operation at the pre-trial investigation phase, like establishment of the inter-state Joint Investigation Teams JITs , in uncovering match-manipulation cases is essential.

Although creating more opportunities for criminals, the technology helps in detecting them; for example, monitoring systems may be used to find abnormal changings in betting patterns. A defeat can be very profitable if the team loses by a substantial margin, because bets on greatly differing scores are lucrative Boniface et al. The OC groups may launder their illegal moneys or they seek profit-making opportunities Rawlinson Non-betting-related match-manipulation is seen as sports-motivated, because the aim of the manipulation is to achieve a direct advantage from the result, i.

The criminological theories can explain the motivations behind the betting-related match-manipulation. The strain theory, by Robert Merton , sees the criminal illegal behaviour to be a way to achieve the desired goals in society because achieving those goals is not possible by legitimate means for that individual. For example, betting-related match-manipulation by the TOC is one way for making good money to fuel its illegal businesses.

The field of betting-related match-manipulation is, at least currently, less regulated and subject to fewer controls than, for example, the trafficking of humans, drugs or weapons. Routine activity theory Cohen and Felson sees that a crime occurs when three factors are present: 1 motivated offenders; 2 availability of suitable targets or victims; and 3 the absence of capable guardians. Betting-related match-manipulation can be very lucrative, the money works as motivator.

By target hardening or by removing one of these three factors, the crime should be prevented. When it comes to betting-related match-manipulation, the occasions for criminals have never been greater than today. Sports betting on the Internet offers criminals various opportunities and large sums of money are involved.

When matches are manipulated in different countries and betting takes place on the Internet, the risks for criminals getting caught are not great. It should be emphasised that there is a clear need for a permanent intergovernmental structure for the surveillance and monitoring of sports betting being offered on the Internet Boniface et al. The betting-related match-manipulation, when involving OC groups, is at the focal point of three transnational crimes: OC, money laundering and corruption.

Recently, Asian-based TOC groups have been involved in match-manipulation in different parts of Europe, with the aim of manipulation matches and betting on them. These TOC groups have targeted clubs, players and matches at all levels, for example, in Europe. The criminal organisations are not vertically integrated, but TOC groups work like a network Grabosky There are, nowadays, many complex, transnational networks to facilitate criminal activity across jurisdictions Newburn According to Hill , the illegal Asian gambling industry is led by an influential businessman or politician who provides protection for OC groups and bookies from the government and the police.

The literature identifies different approaches used by TOC groups in match-manipulation: 1 a direct approach, i. This second type of an approach is demonstrated by Hill , as following: when bribing, match-manipulators often use intermediaries usually ex-players, agents or persons otherwise known in sports circles to approach players or the officials of the club s.

These intermediaries may select players who are in financial straits or at the end of their careers Boniface et al. After the intermediary has met the member of the club, this corrupt club member is contacted by the bookie. The bookie tells this particular member the amount of the bribe and the match concerned, as well as the other club members who this particular member should have as accomplices.

When the bribe and the outcome of the match have been agreed, the TOC group bet on the result of this match in international betting markets. Hill This type of betting-related match-manipulation has happened in Finland. A strong link has been detected between the football establishment and OC groups, especially in Eastern Europe and the Balkans.

The poor financial situation of Finnish football clubs has drawn the attention of the Finnish media several times in recent years. It is a global phenomenon that to acquire the best players the clubs are forced to offer high salaries and sometimes spend more money than they have, thus finding themselves in financial difficulty Boniface et al. Clubs in financial difficulty are a common target for match-manipulators. In recent years, at least one Asian OC group have been involved in match-manipulation in Finland.

The management of the Veikkausliiga, is delegated to an independent association, Jalkapalloliiga ry Football League. In the twenty-first century, there have been approximately 14 teams in the Veikkausliiga with some exceptions. Jokiranta The Veikkausliiga is played between April and the end of October, when most of the other series are on holiday.

This may attract bettors from all over the world Hill In Finland, the referees of the football matches are paid remuneration, possible daily allowance and kilometre allowance by Suomen Palloliitto ry the Finnish Football Association, hereafter: Palloliitto. Footnote 25 Palloliitto educates the referees. After each match, the observers of the referees give both oral and written feedback of the performance of the referees. Veikkaus is the Finnish state lottery and the betting operator.

It operates lotto games, pools, betting games, instant games and other draw games. It offers betting in the Veikkausliiga, as well as in lower divisions of football, even in the second division. However, betting on the lower division matches is subject to stricter regulations.

Betting operators may have their own monitoring systems to monitor trends in betting exchanges. The abnormal trend in the betting exchange may be a sign that exceptional inside information is used by bettor s. This is not, however, unequivocal evidence of match-manipulation because dramatic changes in line-ups can affect the betting exchange.

And an alert by a monitoring system does not constitute proof of match-manipulation. For example, if Veikkaus perceives some exceptional betting patterns, then it contacts Palloliitto or Jalkapalloliiga ry and searches for international information regarding the betting patterns on those particular matches. The table illustrates all the court cases of match-manipulation in football in Finland until the end of year In these court cases, the targets of bribery have been both the Finnish and the foreign players.

In all these cases, the bribes have been bribes of money. In none of the cases have there been bribed or attempted to bribe a referee, although referees have also been a common target of bribery in cases abroad like in the mentioned Bochum case. As Boniface et al. They also emphasise that the decisions by referees are subjective; for example, sending off the player can dramatically change the course of a match. Thus, more emphasis in Finland should be given to the possibility that referees can also be the target of bribery.

Only one form of match-manipulation, of the three different modus operandi illustrated by Boniface et al. In Finland, there have been no cases in which corruption can be seen to have institutionalised in the club or federation. In Finland there is only one court case on match-manipulation in football where Veikkaus has been deceived.

This falls with the category betting-related match-manipulation at the operational level, introduced by Boniface et al. The court concluded that N and L had obtained unlawful financial benefits for themselves. N was convicted for conditional imprisonment for a year and a month for aggravated fraud and two different offences of bribery in business. L was convicted for aggravated fraud and bribery in business for a conditional sentence of a year.

Nowadays, a match played in Finland can be subject to betting around the world. As an example: In , M, a Russian national, was the goalkeeper for the football team X, which belongs to the first division of football in Finland. M took EUR 1. In return, M assisted his team into losing its match with Q. The bets placed on this match in the English betting exchange were considerable: The Disciplinary committee of Palloliitto imposed a fixed-period ban of playing on M Urheiluoikeuden yhdistys Another case also illustrates this.

It was suspected that H, a Hungarian national, who offered a bribe, was an intermediary whose motive was to acquire monies from international betting markets. S did not accept the offer. The Disciplinary committee of Palloliitto did not handle this case. For cases of betting- and non-betting-related match-manipulation, provisions of the Finnish CC concerning bribery, more specifically bribery in business, and fraud, if Veikkaus is deceived, are applied.

Next, the kinds of problems that may arise when applying the essential elements of bribery in business to the cases of match-manipulation are illustrated. But, first, the actions and actors to counter match-manipulation in Finland are discussed. Although, in Finland, a systematic match-manipulation prevention programme partners to it are Veikkaus, Veikkausliiga and Palloliitto has been in use since , Footnote 33 match-manipulation is not mentioned in the current government platform, in any national anti-crime strategy or in any action plan.

This shows that placing the problem of match-manipulation on the political agenda has not been a priority in Finland, although there would be a need for it. Finland does neither have specific laws regarding match-manipulation nor any special anti-corruption organ. However, establishing a special independent organ to combat corruption in sports in Finland could be one option to deter and to detect match-manipulation.

This organ could handle ethical questions, raise awareness about the issue, organise training to deal with different aspects of corruption in sports, give advice about corruption-related questions in sports, and provide a hotline for corruption issues, Footnote 34 as well as to conduct surveys and research the issue. Veikkaus could also inform this organ whenever irregular behaviour in betting patterns is observed. On the other hand, if the anti-corruption agency were established in Finland, the prevention of match-manipulation would fall under its competence.

The High Court of Finland has not given any decision in the cases on match-manipulation, thus, High Court precedents are lacking. The Finnish CC sections on bribery in business date back to the beginning of the s, and the travaux preparatoires are silent on the application of the sections to the match-manipulation cases.

Next, the wording of the sections and their interpretation in courts are illustrated. As aggravating factors Footnote 36 are seen if:. The mere offer of a bribe materialises the essential elements of bribery in business. The coach of G did not accept the bribe. N also offered a goalkeeper of football club C EUR 3. The goalkeeper of C did not accept the bribe. Meanwhile, L, a friend of N, offered a considerable sum of money the amount unknown to the goalkeeper of football club V if the team would lose two matches.

This bribe was not accepted either. In Finland, the football clubs can be either limited companies or registered associations. The Court considered the income of football club X, a registered association, as consisting of sponsor contracts, tickets, the selling of refreshments and income from selling the players.

Expenses were the remuneration given to players, coaches and supporters, as well as insurance fees, the series fees, licenses and travelling expenses. It saw the actual activity of the football club as crucial, regardless of the financial gain. The crucial question is whether the players of football clubs are in service of a business , in particular, when they play as non-professionals. In Finland, the essential elements of the offence of bribery in business require the bribed person to hold the status of manager or employee.

Participants in competitions are sometimes employees of football clubs, but sometimes there is no employment or any other actual contractual relationship, and thus essential elements of the provisions of bribery are cannot be materialised. There is no court decisions whether self-employed persons with independent contracts are included among those who can be charged with bribery in business in Finland.

However, in the case, the CoA regarded the players as being in the service of a business. However, the Court regarded M as a professional player who had been under the control of the club and not able to play in any other club during that time.

For tax reasons, M was paid a subsistence allowance, not a salary, of EUR per month. Although CoAs have seen the football clubs in the Veikkausliiga and in the First Division as carrying on business, problems may arise when the actions of persons engaged in bribery in sports, e.

There may be situations in which a player or a referee has no employment or any actual contractual relationship with a club or any other organisation, and thus the act cannot be punishable as bribery in business under the Finnish CC. For example, regarding referees, in the Finnish court praxis, there are no examples of the application of the CC sections of bribery when the referee is bribed. The crucial question here is whether the referee can be held as being in service of a business.

Regarding match-manipulation, it has not been considered in Finnish jurisprudence whether the captain of the team should get harsher punishments for the same offence than the other players. In that case, the court did not even examine the possibility of giving the captain a harsher punishment.

Not only concerning Finland, but generally speaking, Kalb sees that a special offence targeted at betting-related match-manipulation could address the uncertainties posed by existing legislation and facilitate and encourage the prosecution of such offences. The aim of the provisions of bribery in business is to protect the relationship of loyalty between employers and employees.

This loyalty should not be violated. The bribery is commonly considered, above all, an offence against the employer of the bribed. Also, damages to the reputation of the clubs may come into question as harm. Reputation is an important asset of the clubs.

But if the corruption is institutionalised in the club, the manipulation cannot then be an offence against the club and thus the employer. But in this kind of a situation match-manipulation could be seen as an offence against the integrity of sport. This means that if a briber wants bribed players to score as many goals as possible, the club usually has the same interest.

Both players admitted that they had a conversation in a hotel room with two unknown persons before the Veikkausliiga match Y-D. These persons wanted these two players to secure that D would lose the match. However, the players, according their own words, disagreed. But they agreed when these two unknown men promised to pay the players EUR One of the players got a yellow card in the match and D lost the match by The players were paid EUR The District Court concluded that these two players did not play as well as they normally play.

It recognised these players as being involved in many of the critical mistakes made by the team D, although it admitted that it is very difficult to conclude what behaviour in football is intentional or not. The Disciplinary committee of Palloliitto imposed a two-year fixed-period ban of playing on both players Yle Urheilu Football club D dissolved their contracts.

As illustrated above, TOC groups, can use intermediaries into persuade persons to agree in match-manipulation. The Finnish CC provisions regarding bribery or fraud do not explicitly criminalise the use of intermediaries. However, explicit criminalisation of the use of intermediaries in either provisions concerning bribery or in the general part of the Finnish CC would be welcomed. Mr W bribed football players, the majority of whom were Zambians, and manipulated several football matches by football club Q.

The players were either bribed to insure that football club Q would lose the match or to assure a certain outcome, such as more than three goals. The bribes were paid either beforehand or afterwards. The amount of the bribes varied, from EUR 1.

Footnote 42 This case did not include betting by match-manipulators with Veikkaus. However, in chapters of the Finnish CC concerning the bribery offences, these are not aggravating factors. This section includes the criteria as to when a person can be seen as participating in the activity of a criminal organisation, for example,.

Footnote 43 This is a major improvement concerning both the general and the special deterrence on match-manipulation in Finland. Sweden and Norway have taken steps to prevent match-manipulation. In , Sweden criminalised match-manipulation by updating its CC concerning bribery offences. Whereas, Norway has not yet issued any specific criminalisations regarding match-manipulation, but it has, in , issued an action plan to target match-manipulation.

Next, both actions are briefly analysed, as well as the reasons behind these actions. Neither Cars , in his study, identifies any cases of bribery in sport in Sweden. In addition, the Swedish authorities did not provide any information of such cases to the report made by KEA European Affairs On the 1st of July , the new bribery provisions, criminalising match-manipulation, were introduced into the Swedish CC.

It was seen that because of the large amounts of money involved in sports and in sport betting, there is a risk that match-manipulation can become common in Sweden. Also, it was emphasised that the old bribery legislation did not cover the situation when the players do not have an employee status in the club. Furthermore, the non-criminal sanctions were not seen as adequate to tackle match-manipulation.

However, e. These new criminalisations cover the bribes given afterwards. The match-manipulation in Norway has been a little-known phenomenon until very recently. It was suspected that players in a Norwegian football club have been approached by organised criminals in an attempt to manipulate the matches for betting reasons. The case is currently under police investigation Parkkinen The plan establishes certain areas of importance in combating match-manipulation.

The objectives of the plan are: increasing the knowledge of match-manipulation to prevent, uncover and respond to match-manipulation in sports; to monitor and regulate the gaming industry; and to strengthen the laws and regulations as well as the participation in the international efforts against match-manipulation. Emphasis is put on establishing ethical guidelines, training and the educational programmes on match-manipulation.

Furthermore, the importance of international co-operation and information sharing is highlighted. As Council of EU remarks, because of the transnational nature of betting-related match-manipulation, cross-border co-operation of investigative and judicial authorities Europol, Eurojust and Interpol Footnote 44 as well as relevant ministries is vital.

It emphasis that is essential to ensure the coordination between different stakeholders, like sport movement, betting operators, gambling regulators, public authorities and law enforcement authorities. Betting-related match-manipulation by TOC groups needs international and regional instruments to combat it.

In this chapter, the actions taken by the international and regional actors to combat match-manipulation are discussed as well as the steps taken in Finland to tackle the problem are illustrated. The main and the only truly international instrument for tackling corruption is the UN Convention against Corruption UNCAC Footnote 45 , which requires its signatories to establish criminal and other offences to cover different acts of corruption.

Although Article 21 of UNCAC concerns private sector corruption, its active and passive forms the provision is not mandatory , it does not explicitly criminalise the match-manipulation. The other important actor in the anti-corruption field has been the Council of Europe. Its Criminal Law Convention on Corruption was entered into force in , aiming to coordinate the criminalisation e. However, these non-mandatory provisions do not explicitly deal with match-manipulation.

Currently, the negotiations concerning an international legal instrument on match-manipulation by the Council of Europe have started. This is a natural step because the Council of Europe has, in addition to corruption, regulated many types of transnational crime, such as money laundering and OC. The EU lacks its own special instrument concerning manipulation of sports results.

But it remains unclear as to what extent it applies to betting-motivated cases, in particular concerning non-professional sports KEA European Affairs However, the EU has tackled the match-manipulation in several different ways. In a , b , the EU Council Conclusions on combating match-fixing were adopted. The Conclusions observe that match-manipulation is one of the most significant threats to contemporary sport. It is seen to damage the image of sport by jeopardising the integrity and unpredictability of sporting competitions and, thus, contradicting the fundamental values of sport, such as integrity and fair play.

Furthermore, in , the Communication towards a comprehensive European framework for online gambling by the European Commission was issued. In , the Commission will announce the adoption of a Recommendation on best practices in the prevention and combating of betting-related match-manipulation. However, although the actions by the EU in preventing match-manipulation are essential, it is of utmost importance that any action against match-manipulation should go beyond the borders of the EU An international instrument with mandatory provisions covering different aspects of match-manipulation should be established.

This kind of an instrument would enable the avoidance of safe havens, i. This kind of action would remove the national law variables, close legislative loopholes concerning the criminalisations of match-manipulation and strengthen interstate co-operation, which is essential in preventing, detecting and investigating match-manipulation. This kind of an instrument would also include guidelines on how to facilitate international co-operation in the cross-border cases of match-manipulation.

When considering the involvement of TOC groups in match-manipulation, sport betting is a poorly monitored activity compared to other activities of TOC groups like drugs trafficking Boniface et al. More cooperation is needed between betting operators, sport bodies and competent authorities, such as gambling regulators at the national and international levels European Commission There is a need for a global regulatory system concerning betting-related match-manipulation.

One option is to establish a new global institution to control transnational match-manipulation, like the World Anti-Doping Agency WADA in the field of anti-doping with national sub-agencies. In Europe, some countries have introduced specific criminal law provisions to address certain types of match-manipulation. Footnote 48 The steps being taken in Finland to combat match-manipulation as well as what kinds of steps should be taken in near future are discussed next.

Currently, the criminalisation of match-manipulation in Finland is nowhere in sight. Based on the results of this research, some changes could be made in the Finnish CC to the provisions on bribery in business: the offence of bribery in business should be considered aggravated when 1 a crime has been committed by a person acting on behalf of an OC group or 2 the offence involves management.

Also, it should be taken account that referees may be potential targets of bribery, and it would be essential that they would be explicitly covered by the bribery provisions. These would be important steps because of the principle of legality. Footnote 49 It should also be taken into account that criminals may look for the weakest regulated jurisdictions or jurisdiction with low sanctions for match-manipulation. Thus, it should be ensured that, in Finland, the sanctions for match-manipulation are effective and dissuasive to have a future general and also special deterrence effect.

It is essential that for investigative authorities adequate tools are provided to detect match-manipulation. Thus, interception of telecommunications is not possible what comes to the offence of bribery in business. The forthcoming Coercive Measures Act in force from 1st of January does not bring any change to this problem. It appears that persons and sports federations are afraid or reluctant to reveal their suspicions or even their knowledge about bribery because they fear that it may have a negative effect on sponsors and audiences Brasseur In addition those involved may be reluctant to give testimony if an OC group is involved in a case.

In addition, because match-manipulation takes place in a multi-country-setting jurisdictional questions need to be made clearer e. In Finland, training and awareness-raising programmes should be established for young amateur and professional athletes, referees, support staff and other relevant persons to inform them on different forms of corruption in sports and the regulations on betting.

One way to influence the motivation of potential offenders is to raise their consciousness about the consequences of the act. The consciousness of the phenomenon of match-manipulation of potential victims and capable guardians should also be raised. Also, the training of young players from economically disadvantaged backgrounds and countries should especially be emphasized.

It is crucial that players and also other persons involved in sports are educated about the importance of the applicable reporting Footnote 51 requirements and the seriousness of the consequences that any failure to comply may cause. Smith In addition, the clubs should not live beyond their income but to be able to pay adequate salaries on time. As Council of EU suggests, to improve the protection of the integrity in sport, the attention should be paid also to good governance principles like sound financial management, risk management and transparency.

It also emphasis that there should by national legislation be limited access to illegal gambling offers especially in third countries through technological means. Furthermore, it sees that Member States should consider the establishment of a national contact point which would enable meetings of relevant actors involved in combating the match-manipulation.

In addition, Council of EU sees important that at the national level adequate protection of witnesses and whistle-blowers is considered. As one important way to prevent match-manipulation, Hill stresses that it should be ensured that each position in the league is rewarded with certain monetary value. He sees this as important because if the clubs do not care whether their ranking in the league is in the middle not facing relegation but neither at the top , the club may not care towards the end of the season whether it will lose some matches or not.

L wanted the goalkeeper to influence the match in a way that football club V would lose the match. When calling the goalkeeper, L tried to assure him that the rest of the matches in the season were meaningless, because the club could not either win the series or be relegated from the series.

To effectively tackle betting-related match-manipulation, some general actions, especially concerning the betting aspect, should be taken: Betting operators should not allow gamblers to place bets anonymously in any situation; Sports-betting operators should refrain from offering chances to place bets that are regarded as very risky, especially betting on competitions between the most vulnerable e.

The deregulated growth of sports betting in an environment where organised crime and corruption in general are extensive, is particularly deadly for sport Boniface et al. This research illustrates that match-manipulation can be both betting- and non-betting-related.

In the former way of manipulation, the match is intended to result in economic gain through betting. The Internet has created a new playground for betting, and this may attract criminals into manipulating matches and betting on them. In the latter, the aim can be to qualify for a higher level of competition. Betting-related match-manipulation can be used by criminals, e.

This means that match-manipulation can in some cases be closely connected to TOC groups and money laundering, thus, being at the focal point of three transnational crimes: corruption, OC and money laundering. The known cases and jurisprudence of match-manipulation are extremely rare in Finland; for example, there is no High Court jurisprudence on the matter. Also, awareness and knowledge on match-manipulation is in its infancy in Finland. For example, in Finland, there is neither any organ specialised in the prevention of match-manipulation nor any general anti-corruption organ.

Indeed, in Finland, no single actor is responsible for prevention of match-manipulation. Furthermore, no national operating plan has yet been developed to prevent match-manipulation. The Finnish CC does not explicitly criminalise match-manipulation: there are no separate provisions concerning match-manipulation, and Government Bills remain silent on the issue. The provisions on bribery in business as well as fraud are used in cases of match-manipulation.

However, the investigation authorities should be given appropriate and adequate tools to detect and to investigate the match-manipulation, e. Furthermore, in Finland, the example of the criminalisation of match-manipulation given by Sweden could be followed. In addition, target hardening, more social control and international co-operation are needed to tackle match-manipulation.

Interstate co-operation is of the utmost importance in detecting and investigating the cases. Finland needs a stronger political will to combat match-manipulation. In Finland, it remains to be seen whether after these court cases the table is now clean or whether these cases handled by courts are only the tip of the iceberg. Football is not the only discipline vulnerable to the manipulation, and more research is needed on different aspects on match-manipulation, also concerning other sport disciplines.

To deter and to detect match-manipulation the emphasis should be put on improving the monitoring of online betting, as well as on cooperation between law enforcement agencies, betting operators, players, ex-players and sports officials. These preventive actions are important because as a result of match-manipulation, sports can become unappealing, not only to spectators, but also to sponsors.

This can be a road to the destruction of sports. In this research, the term match-manipulation is used to refer to manipulations, where bribes are paid to some person s to manipulate different aspects of the match. This term is regarded as a wider term than match-fixing, which refers to the fixing of the result of the match. Transnational crimes refers to crimes committed across different jurisdictions Rawlinson In this case, the Finnish National Lottery, Veikkaus, was deceived.

There was no international dimension in either of the cases. The academic literature in the field of match-manipulation is scarce. Hill discusses match-manipulation in his book: Hill See also, Hill's scientific article about the roles of internal corruptors: Hill But there are manifold reports on match-manipulation made by regional and international actors, as referred later in this study.

Turku, Turun Yliopisto. Turku, Turun yliopisto. Market Efficiency and the Betting Market. Risk Shifting and Hail Mary. Specialist and the Sportsbook. Ticket Scalping and Float. Football and Real Options. For many students, understanding the time value of money is one of the most difficult hurdles that they will encounter in an introductory finance class. Failure to grasp this crucial topic causes many students to do poorly in class and, often, to drop finance for a different major.

Part of the problem could be that few introductory finance students can relate to textbook examples on this subject matter. Typical present value examples center on bonds and mortgages, two financial instruments with which the vast majority of traditional undergraduate students have little interest or experience. An alternative to these examples can be found in the National Football League.

NFL player contracts make excellent time value of money examples because, much like bonds, player contracts generally have contractually defined cash flows. Typically, NFL players sign contracts that consist of a signing bonus and an annual salary. Both the signing bonus and annual salary are negotiable and, in the case of the salary, often change year to year over the life of the contract National Football League Players' Association, Before contracts can be used as an example, a few institutional details should be discussed.

First, the majority of NFL contracts are not guaranteed. That is, a player can be cut at any point, and the team does not need to pay him the remaining payments. The signing bonus, however, is usually guaranteed, and the player keeps it even in the event that he is cut from the team. The players, therefore, would like to see all of the money guaranteed and paid in the early years of the contract. These details, which can be glossed over in introductory classes, also allow more advanced students to grasp the concept of expected value calculations.

Present value calculations are based on the premise that money today can be invested to earn more in the future. The discount rate in this discussion would be set by market-wide factors. As Equation 1 below shows, for any positive required return, a dollar today is worth more than a dollar tomorrow. Adding to student interest is the fact that many sports reporters seemingly do not understand the concept of time value of money.

Table 2A shows the cash flows associated with select player contracts. When the time value of money is considered, the reported sums dramatically exceed the value actually received by the player. This bias may be important given the widely held belief that professional athletes are overpaid. This relationship is shown in Table 2B. However, even this lower present value calculation is biased because many players will not remain with their team for the life of their contracts and, therefore, will never receive all of the payments originally provided for by the terms of the contract.

Moreover, this risk that the player will not stay with the team for the life of the contract can be used to demonstrate the concepts of both expected cash flows and the differences between systematic and unsystematic risk. Risky cash flows, whose risk is tied to unique risk factors, should not be handled by changing the required return which is based on market-wide factors. To adjust for unique risks in cash flows, an expected cash flow should be calculated.

The expectation is based on the probability of remaining with the team and under the same contract. It can be written as:. As would be expected, these values are significantly lower. This is useful for it shows not only that unique risk is accounted for by adjusting cash flows, but also because, unlike some text book examples, there is clearly little correlation between the player remaining under contract and the market-wide factors that influence the discount rate.

This later distinction should make it easier for students to grasp the difference between market risk and unique risk. Additionally, this example can be used to show why players should prefer to receive a guaranteed signing bonus, rather than a risky contract, how present values fluctuate with changes in interest rates, the importance of using the correct probabilities in calculating expected values, and even to show how longer term contracts are more sensitive to changes in interest rates.

TABLE 2. Player Contracts all numbers in s of dollars. Signing Bonus. Salary Year 1. Salary Year 2. Salary Year 3. Salary Year 4. Salary Year 5. Salary Year 6. Salary Year 7. Ronde Barber. Martin Gramatica. Mike Alsott. Present Value all numbers in s of dollars. Reported Value. Present Value. Expected Present Values all numbers in s of dollars. This probability is assumed to remain constant over time.

For consistency with the other two players we report the deal as the total of the undiscounted cash flows before any incentive bonuses. The concept of efficient markets is very important to the study of the stock market in finance. Understanding terms and their meanings can be perplexing to introductory finance students who have little experience with financial markets.

Fortunately, the point-spread market in football provides an example to which many students can relate. An efficient market adjusts rapidly to the arrival of new information. This means that current prices will reflect all available information. Fama divided the Efficient Markets Hypothesis EMH into three parts: the weak form, the semi-strong form, and the strong form. The weak form states that prices reflect all past market-based information, the semi-strong form asserts that current prices reflect all new information, and the strong form states that prices include all information, including insider information.

These definitions of market efficiency can also be applied to the "betting markets" for professional football which in turn can be used to illustrate these conceptual definitions. The wagering market for football games offers specific advantages to studying the EMH that other financial markets do not.

First, gambling markets have the advantages of definitive start and end points for study and quick processing of returns or losses. While closed-end funds may offer the same, it is often difficult to select the natural start and end points for study Ippolito, On the other hand, football lines are released a week in advance and are closed at the beginning of the games on Sunday or Monday. All information is assumed to be processed by the close of the line; therefore, the weak form of market efficiency can be studied very easily.

Gandar, et al , and Sauer, et al , were the first to systematically study market efficiency using samples of NFL betting lines. They tested whether the betting line incorporated past publicly available information, such as scoring-per-game, yards-allowed-per-game, and records on grass and artificial turf.

Their work showed that the line was an optimal and unbiased predictor of the outcome of games. Therefore, reading through public information sources, such as magazines or televised football shows, will not help one win in the gambling market.

This is similar to the idea in financial markets that looking at past financial reports and other publications will not allow an investor to beat the market since this past information is already incorporated into the price. For this reason, we would say that both financial markets and the betting market for professional football are both largely weak and semi-strong form efficient. While both financial and betting markets appear to be efficient, efficiency is not the same as perfection and there is evidence in both markets of anomalies or areas where there are apparent inefficiencies.

Another recognized anomaly in football betting markets involves betting on the total number of points scored in a game. These anomalies are similar to the January Effect stocks tend to go up in January , the Small Firm Effect small firms outperform large firms on a risk adjusted basis , and Market to Book Anomaly low market-to-book stocks outperform high market-to-book stocks. Under the EMH, anomalies should not persist because, once they are known, arbitrageurs should eliminate any trading pattern.

Interestingly, the reasons that these anomalies do continue to exist in both markets are remarkably similar. For example, explanations for persistent stock market anomalies center on errors in specifying the model such as ignoring liquidity or mis-measuring risk or because of structural impediments to the arbitrageurs eliminating the anomaly e.

Likewise, it has been suggested that profitability may exist due to binding betting limits placed on informed traders in this market. These restrictions prevent the informed bettor from making the large bets that would lead to a correctly adjusted betting line Paul and Weinbach, Coase , and later Jensen and Meckling , describe firms as a nexus of contracts between various stakeholders. At times, the various stakeholders have conflicting incentives and desires.

One of the most important of these conflicts arises around the risk preferences of shareholders and bondholders. Galai and Masulis and Myers discuss the widely acknowledged risk-shifting that can occur as a firm increases its leverage beyond some optimal point.

The problem is particularly severe for a firm whose debt exceeds the market value of the its assets. In such instances, shareholders may have the incentive to accept high-risk projects, even if a particular project has a negative expected value. The reason for this behavior is that shareholders will assuredly lose if conditions do not change.

Since bondholders are paid before shareholders in the event of liquidation, the shareholders have little to lose in taking great risks. The theory behind this behavior can be illustrated using the actions of a team that is behind in a football game. The extreme example of this is the "Hail Mary" pass that frequently accompanies the end of a football game. The success rate on this pass is very low, yet teams do it on a regular basis.

The rationale is that this high-risk play is the best chance of scoring quickly when compared to running the ball or throwing short-passes. Most students are familiar with the point spread on a football game. These point spreads, which are called "lines", can be seen each week in newspapers across the country, are frequently mentioned on sports sites on the internet, and are even stated by commentators on radio and television football programs.

What most students may not realize is that the formation of these lines, as well as how the lines change, can provide insight into a simple financial market. In addition, the role of the sportsbook or bookie in this market can illustrate the similar role of the NYSE specialist. Many people think that a football game wager is itself a game between the bettor and some entity, such as the sportsbook of a casino or a local illegal bookie.

When the betting market is run efficiently, this could not be further from the truth. The main goal of the sportsbook or bookie is to set a point spread that will balance the betting action on the favorite and the underdog. To illustrate this, consider the following football line from Sportsbook. In this example, the Vikings are favored by five points over the Bills.

If the Vikings win by more than five points, those who bet on the favorite the Vikings will win. If the Bills win or the Vikings win by four or fewer points, then the underdog bettors will win. If the game ends in a Vikings win by five points exactly, the bet is considered a "push" and all wagers are returned. The indication of after each team and point spread notes the commission on the game.

This indicates the "vigorish", or commission, which is charged by the sportsbook or bookie. This commission is similar in nature to those charged by brokers, dealers, and specialists on trades in financial markets.