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Jul 06

Gambling for the Cup

Asia might have no teams in the knockout stage of the World Cup, but they are still very much involved.

WHEN Totti slotted in the cruel penalty goal that sent Italy, Australia and a Chinese commentator by the name of Huang Jianxiang ballistic (all for different reasons), they weren’t alone. In that same instant around the world, millions of dollars changed hands among thousands upon thousands of people who were now either revelling in a sudden influx of pocket money or despairing the loss of several days’ worth of wages.

Backtrack to four years ago and the 2002 World Cup. Being the first Cup to be hosted in Asia, reasonable timezone differences meant that Australia was truly exposed to World Cup football for the first time. Only having a passing interest in football before that, I quickly gained an appreciation for the game watching the best players in the world strut their stuff.

I remember getting caught up in the event and placing a couple small bets on matches at the local TAB, just like people who have no idea about horse-racing do once a year at the Melbourne Cup. I was pretty proud with my winnings until I spoke to my friend Cheng about it, who scoffed at my paltry wagers. Cheng would have been an international student had he not obtained an Australian permanent residency visa through some vague family diplomatic connections. He was a fairly typical international student, his overseas study being funded by money sent from home. Not exactly poor by student standards, but not from an obscenely rich family either – you know the type, those who buy penthouse apartments for their children to live in while they study in a foreign land.

Cheng bet on nearly every match, each wager usually a triple digit number. Often he’d place a bet through his brother-in-law back in his home country, who would forward the bet onto a local bookie of some description using the cryptic quoting system of Asian odds (where giving or “eating” quarter-balls, half-balls and full-balls give a wider variety of betting choices rather than betting on a straight win or loss). When Cheng couldn’t get in contact with him, he’d resort to the TAB instead.

The 2002 World Cup was full of upsets, and a long string of bad bets saw him saddled with a deficit that was almost four digits long by the time Brazil held up the trophy. Nonetheless, I had been briefly exposed to the Asian culture of gambling that, in my naivety, I never knew existed.

Gambling is very much a cultural phenomenon in Asia. Just like going out for a drink at the pub at the end of the day is usual in some parts of the Western world, making a casual visit to the casino is a similar pastime in Asia. Similar to how we view drinking, gambling in Asia doesn’t attract the same sort of social stigma as it does here. Sure, gambling addicts can end up ruining their lives and the lives of those around them, but this is as large a social problem as alcohol addiction. The fact is that most casual gamblers don’t operate in the extreme, and it is just as easy to blow $100 on alcohol during a night as it is on the dai sai tables. (And with gambling there’s the advantage that you probably won’t end up in compromising positions on people’s mailboxes the next morning.)

When I was younger, I would often accompany mum to a relative’s or family friend’s house, and while I would muck around with the other kids, the grown-ups would always be busy at it on the raucous mahjong table. After the clattering of mahjong tiles had stopped, signalling the end of one hand, chips would be tossed across the table to the victor (along with mutters of disbelief or cries of joy). They always played for money. And I always remember responding with shock when people either lost or won a hundred or so dollars during the course of one night (which to a ten year-old was quite a lot of pocket money, especially for one who never got any pocket money!).

Interestingly, there were never any sour faces after those games, even from those who had lost the most. There were a few choice profanities tossed around by the losers, but it was always in good jest. I recall asking mum why they had to play for money and she explained that it was more fun that way, and the winner would always go off and buy everyone lunch the next day anyway, so in reality the money came back to you in the end. So really, even when the money never actually made a difference, they always still played with it.

Of course, in a casino, the money doesn’t always come back to you in the end, but I suspect it’s that culture of willing to take a loss and not see it as a loss but an expense incurred in exchange for a form of entertainment – a valid way of spending your money – that makes gambling so natural to many Asians.

It’s no coincidence that when you visit Star City at any given hour of the day, Asians will easily outnumber people of all other races on the casino floor. I was in Macau casino recently and was amazed to see that at 10.00am on a weekday, all the tables were at capacity, crammed with people two-rows deep, jostling to split their pair of aces, or place another hundred dollars on red.

The Asian gambling market is “officially” valued at about A$30 billion a year. That’s just the legal operations which operate under government license and pay their taxes. Underground betting organisations are estimated to comprise a massive 80% of the market, which means that the turnover of the whole market is well over $100 billion annually.

Clearly it’s a lucrative market. Centrebet, the Australian online bookmaker, is floating this week on the ASX, and in their prospectus they disclosed that they normally make about a 5% profit off their turnover. Who knows what unlicensed bookies make in their undeclared earnings?

Of course, the flow of wagers is not constant throughout the year, and it tends to spike heavily during large sporting events. And as far as large sporting events go, there is no larger one than the World Cup.

News articles abound of police cracking down on gambling for the World Cup. The Sydney Morning Herald recently ran a report of a police sting where a bunch of Hong Kongers and Malaysians were arrested. They had flown into Australia to run their sports betting operation and were nabbed in their hotel rooms with mobiles, computers, fax machines and tens of thousands of dollars in cash.

Illegal bookies often offer better odds (with odds changing in realtime and bets often being taken up until the final whistle), flexible betting systems (with exotic wagers on things such as how many corners there are in a game), and even personalised service, phoning up valued punters to ask if they’d like to place a bet on a match they’d probably be interested in.

Of course, it’s much harder tracking down gambling syndicates these days where electronic funds transfer makes everything so much less obvious. No longer do you have to lug a suitcase around to deliver on your wager. A bet is only a mouse click or phone call away.

I know someone who opened up an account with one of these underground online gambling operations. Unlike legitimate online operations, signing up only required a referral from a friend (since these operations don’t publicise themselves through traditional media channels), and a username. That’s it – no address, no contact details, not even money to fund his account with. The bookies extend all members an automatic line of credit, with normal accounts providing up to several thousand dollars of credit per day.

If an account goes into the red and hits a certain limit, the bookies will come around to collect. Without contact details, you might think that is a little difficult, but as all members come from referrals (with referrers effectively vouching for, and acting as guarantors for referees), a door knock from a debt collector with a penchant for dislodging kneecaps is only a few degrees of separation away. It’s a fairly insidious instant-credit facility which has shadiness written all over it, but nonetheless the odds they offer are quite competitive, and bets are taken and odds are recalculated all the way up to the final whistle. Conversely, I imagine that they would be reliable in paying up your winnings, since reputation is hugely important – and if the operators are shady, then surely some of their clients would be even shadier.

Meanwhile, during the World Cup a different group of punters hit the online bookies. Except that they aren’t really punters, but arbitrageurs. In traditional finance, an arbitrage is a transaction which exploits pricing mismatches in order to obtain a risk-free profit. For example, imagine you have two marketplaces in neighbouring towns that buy and sell widgets. The first town is selling widgets at $1.00, but in the next town, they are willing to buy widgets at $1.05. So you can buy a bunch of widgets in town A, drive over to town B and sell them for a 5% profit, which will be risk-free assuming the prices don’t change while you’re driving, or your car doesn’t break down on the way or something like that.

This principle works in the gambling world as well, since supply and demand is one factor which determines the odds bookies post. For example, in tonight’s Italy vs France World Cup Final, Italy might be odds on favourite to win the World Cup at $1.50, against France’s $2.00 to win (that is, if you give $1 to a bookie to bet on Italy to win, then you’ll get $1.50 back if Italy does win). However, if reports came out an hour before kickoff that Cannavaro and Buffon had eaten something dodgy at lunchtime and were out with diarrhoea, the sizeable influx of people betting on France to win would push France’s odds down and Italy’s odds up.

Because football betting occurs all over the world, this interaction of supply and demand tends to create pricing inefficiencies between different regions of the world. Casual gamblers often bet with their hearts. (Even Warren Buffet, for reasons of loyalty and sentiment, has been known to never bet against his favourite college football team, even if he knew they’d probably lose the game.) So in Italy, a stream of bets on the home side placed with Italian bookies would push France’s odds up. Likewise in France, patriotic French punters would cause the Italian odds to go up for French bookies. When that occurs you may get a situation where you can bet on Italy to win the Cup with a French bookie for $2.05, and then bet on France to win the Cup with an Italian bookie also for $2.05. Do the maths and you’ll see that if you place two $1000 with those two bookies, you’ll end up with a $50 profit no matter what the outcome of the match is. With the internet, you can place bets with bookies all over the world.

Because the World Cup is global, nationalism runs rampant, and the gambling turnover is mind-boggling, arbitrageurs have a bonanza during the whole competition. A friend has anecdotally estimated that the opportunities to place “sports arbs” (as they are known) have risen as much as fivefold during the last month.

In 2006, Cheng’s brother-in-law has since moved to America, but he still contacts him to place bets. He’s doing better this time around, being in the black. Unlike arbitraging – which is a mostly riskless, emotionless proposition when it comes to watching the match afterwards – Cheng said that knowing your money’s on the line makes matches that little bit more adrenaline pumping, that little bit more exciting and that little bit more sweet, when the team you’ve been cheering on thumps in a goal to win the match. That, and everyone else is doing it.

  11:51pm (GMT +10.00)  •  Culture  •   •  Tweet This  •  Comments (4)