Explosive allegations by an ex-referee rocked the NBA today in the midst of an NBA championship series designed to reinvigorate the league. Tim Donaghy claimed that the NBA routinely encouraged refs to call bogus fouls to manipulate results as well as asking them to withhold technical fouls on marquis players to increase ratings. Quite an interesting development given the league’s historical opposition to sports betting on the grounds that it is a corrupting influence on the sport. For example, the International Herald Tribune wrote recently about David Stern’s opposition to awarding Las Vegas an NBA franchise due to sports betting activity in that city:

David Stern, the NBA commissioner, has made “integrity of the game” his battle cry and says that local gambling on the league, though regulated, would violate that tenet. He maintains that casinos must take all NBA games off their oddsmakers’ books before Las Vegas could be a viable site.

This would seem extremely hypocritical should Donaghy’s allegations turn out to be truthful. Let’s hope that the true story eventually comes out. In the meanwhile, here is an interesting interview with Professional NBA sports bettor Haralabos Voulgaris on his thoughts regarding this brewing scandal. A key quote:

The Donaghy scandal basically made me question whether or not I wanted to continue betting the sport. For one, after the details emerged I have heard from several people who knew about the games while this was going on.

This could get ugly.

I found this interesting post by the author of the best-selling book Freakonomics. In it he discusses a recent editorial in the New York Times by noted economist Justin Wolfers in which he seems to suggest that one way to combat the problem of corrupt sports officials is to legalize sports gambling.

It seems that one of the reason that sports betting can easily be fixed is due to the lack of regulation. Increase regulation (presumably by legalizing it) and you reduce the ability of corrupt referees to alter the outcome of games. It seems to me that a determined ref could still alter the outcome of a game with a bad call or two, but I’ll defer to these two brilliant economists on this one.

Jeffers writes on the subject:

The competitive advantage conferred by regulation may also channel problem gamblers into the legal sector. If policymakers build in sufficient safeguards, we can direct victims of compulsive gambling into treatment. Instead, today’s problem gamblers are channeled by illegal bookmakers into ever-higher losses, and their mounting financial pressures sometimes lead to criminal conduct.

Point-shaving is a crime of opportunity, and the opportunity comes from the structure of sports betting markets. The commissioners of the major sports need to address these systemic issues. A transparent and well-regulated gambling sector could easily out-compete the unregulated offshore bookmakers and the illegal onshore ones. More important, it would reduce the number of betting scandals we’re likely to see in the future.

As noted in the Freakonomics blog, Jeffers also offers a link to a paper by a Stanford economist who makes the case that point shaving in the NBA is a regular occurrence.