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Monday, July 7, 2003 5:43AM EDT
Gambling a sure bet for professor
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By ANNE BLYTHE, Staff
Writer
CHAPEL HILL -- Koleman
Strumpf likes to spend the first week of March Madness holed up in a Las Vegas
casino making legal bets on NCAA basketball tournament games.
While others flock to slot machines or blackjack, roulette and poker tables,
Strumpf, an economics professor at UNC-Chapel Hill, cozies up with basketball
fans in front of several big-screen TVs and a couple dozen smaller sets, testing
the odds.
The business of sports gambling -- both legal and illegal -- fascinates the
35-year-old Philadelphia native. A national gambling study, he says, estimates
that people illegally wager between $80 billion and $380 billion a year in this
country on sports.
"That's big business," Strumpf said.
Nearly three years ago, with boxes of evidence collected by the Kings County
District Attorney's Office in Brooklyn, N.Y., Strumpf was able to get more than
a passing peek into how six bookies operated their illegal businesses between
1995 and 2000.
Through audiotapes made by the bookmakers, records with bettors, address
books, balance sheets, court records and conversations with undercover
detectives, Strumpf did an economic analysis of the betting businesses, testing
standard economic principles and theories on the data available.
The result is a 60-page paper that Strumpf hopes to publish in a
peer-reviewed journal.
"Koleman's very creative," said John Akin , chairman of the UNC-CH economics
department. "He does microeconomics, which is about behavior. His research is
his strength. Among the microeconomists, these topics are not that unusual, but
Koleman is out there on the edge."
Based on data from the baseball season, often considered the dog days of
gambling, the two largest operations had at least 250 bettors and $100 million
in annualized bet volume. The two moderate-sized operations had at least 100
bettors and $20 million in annualized bets. The two smaller operations did at
least $5 million in annualized bets.
The bookmakers Strumpf studied ran their businesses out of "wirerooms,"
typically low-rent apartments where banks of phones were set up for bet-taking.
Wireroom workers are called "clerks" or "writers," Strumpf says, and their
responsibilities include taking bets over the phone and doing basic tallying.
Their weekly wages ranged from $200 to $500, making their annual pay roughly
double that of a minimum-wage job. Collectors, bagmen and runners, the workers
who transfer money between bettors and bookmakers, make about the same pay,
according to Strumpf's analysis.
Sheetholders, the people who recruit loyal bettors for the bookmakers, took
in an average weekly salary of $1,500 at one of the operations that Strumpf
studied.
After running the numbers on the six different operations, Strumpf concluded
that:
* They are structured like standard firms, using incentive contracts to
induce employees to behave in certain ways.
* All operations take on substantial financial risk despite the availability
of inexpensive hedging instruments, implying that bookmakers must hold large
cash reserves.
* The illegal bookmakers, many big gamblers themselves, tended to have
smaller profit margins than if they had invested the money conservatively in
legitimate markets.
"What I was trying to look at in this paper was: Can you use kind of standard
Economics 101 principles for what these guys are doing?" Strumpf said.
"Economists like to make inferences about what people are doing without asking.
... It turns out that illegal sports bookmaking is not fantastically lucrative."
As federal lawmakers look at Internet gambling and the sports betting
industry as a whole, Strumpf hopes to enhance those discussions with legitimate
information.
"I hope this will be of interest to the policy-makers," Strumpf said.
"There's a lot of interest in Washington right now about regulating sports
gambling on the Internet. One of the things that I sort of find in this paper is
people really like sports gambling. You can try to ban it, but my suspicion is,
inevitably, that it's going to exist. ... I understand that people have a lot of
concerns about this, but legalizing and regulating it seems to make a lot more
sense to me."
Strumpf, who defies the stereotypical tweedy look of many professors, has
been at UNC-Chapel Hill since 1995. His father is a lawyer, and his mother is a
teacher.
When he was a child, an uncle would take him to the horse track, where
betting was legal. But his betting, he says, is pretty much limited to his
annual or biennial trips to Las Vegas as college basketball teams begin their
quest for the championship title.
Dressed in baggy khaki shorts, a T-shirt and Birkenstocks on a recent summer
afternoon, Strumpf blasted music in his cluttered office on the third floor of
Gardner Hall as he did research for one of his next analyses, "The Effect of
File Sharing on Record Sales: An Empirical Analysis." He plans to match
information about music downloaded from the Internet to sales of compact discs.
"Economics is the perfect kind of common ground for things that I like,"
Strumpf said. "One of the reasons I'm probably not in the private sector is I
like what I'm doing. I don't know of any other job where I could spend two years
studying illegal sports bookmaking."
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