As various states prepare to offer sports wagering in some form, foreign companies eager to gain a foothold in U.S. markets are routinely showing up on the short-list for major contracts – and some international operators have already reached lucrative, exclusive agreements. It makes sense that foreign entities would have an edge: legal sports betting has been occurring in Europe for years, which means those companies have the technology and experience necessary to quickly get up and running.
But it is becoming clear that getting into business with largely unknown international betting companies could be a dangerous gamble.
In Oregon, for example, controversy has ensnared a Malta-based company that is alleged to have operations in areas where sports betting is illegal. In Rhode Island, a multinational company with apparent ties to the governor managed to score a no-bid deal. And in Indiana, a company that is reported to be connected to the Italian mafia has become a key player.
The risk for states that fail to proceed with caution cannot be overstated. Recent history – personal to me – is rife with examples of how fast corruption can spread in the gaming industry when bad actors go unchecked.
My own family owes a lot to gambling, including our ascent into the middle class. My great-grandfather—who raised my father and whose name I was given—left penury when he started a pool hall in Peoria in the 1920s, replete with a poker game and slot machines operated by a branch of the Chicago mob and lubricated by beer and whiskey smuggled from Canada. The city had numerous establishments like the one my family ran; Richard Pryor grew up in his grandfather’s gambling joint three blocks away from the one my family operated.
Peoria was known at the time as a wide open town, which meant its police and government looked the other way on such peccadillos as gambling, prostitution, and illegal drinking. Incidentally, the phrase “will it play in Peoria” was originally uttered as a reflection of the town being a sophisticated community with a variety of entertainment options, some that went beyond these vices.
My great-grandfather died shortly after the end of World War II, and the government began cracking down on gambling shortly thereafter, as its citizenry became fed up with the endemic corruption and crime it engendered. However, it lasted long enough to afford my namesake the ability to pay for his grandson to attend college and law school, and he left him money to pay college tuition for my siblings and me.
In the 1980s gambling returned to Peoria when the state awarded a casino license to a central Illinois consortium. The leaders of the consortium invited my father to be an investor, in an acknowledgement of our family’s role in the city’s gambling history. However, he politely declined, telling me that the city got rid of gambling for a good reason—to root out corruption and the influence of organized crime in the community—and he feared these would return with if gambling came back. When my father sold our establishment after his grandfather’s passing he ended our family’s relationship with the mob on good terms, and he intended to keep it that way.
However, my father’s fears were not borne out: The Peoria Para-Dice Riverboat casino has thrived and organized crime has not reappeared.
Peoria still has illegal gambling that is ubiquitous enough for an infrequent, non-gambling visitor like myself to know how to put a sawbuck on the Bears next weekend, and I suspect that the bookie and the NFL pool in the West Peoria bar I frequent will survive when legalized bookmaking comes to Peoria’s casino as well. The games are run by one of the bar’s former bartenders and no one’s getting their thumbs broken for delinquent debt.
The economist Koleman Strumpf has pointed out that local bookies still have advantages over large bookmakers with voluminous data—such as the ability to exploit a bar full of diehard Chicago Bears fans by giving them a lousy point spread—that a casino book cannot replicate.
While my hometown bookie isn’t involved with organized crime, there’s a chance that the mob may end up having a finger in the sports book at our local casino. As various states prepare to offer sports wagering in some form, many have begun negotiating with foreign companies that have experience in running both an online and a casino/racetrack-based betting window.
For instance, a Switzerland-based sportbook conglomerate called Sportrader is seeking to expand its global operations into the United States. It is already working with the state of Indiana to expand its sports betting operations. While it may have a wealth of experience in operating a sports book, it also may have had some dealings with the Italian Mafia.
A recent report in Business Insider alleges that the company worked with Fabio Lanzafame, who was a big player in illegal gambling in Italy from 2015 to 2017. It alleges that he paid them in cash for these services.
The report also alleges that Sportrader gave permission to one of its partners, Anthony Ricci, to release quotas to illegal Italian bookies before they were made available to legitimate bookmakers. Ricci, the former CEO of Betaland, was arrested in Malta and extradited to Italy as a part of an illegal betting operation that generated over $5 billion in revenue and evaded as much as $1 billion in taxes.
Sportsradar has strongly denied the veracity of the Business Insider story.
Of course, states don’t have to go overseas to find potentially corrupt gaming partners; Washington DC gave its sports betting contract to a politically connected firm—whose prime subcontractor was a business without any employees operated by another politically connected individual—in a no-bid contract.
It would of course be regrettable if the advent of legalized sports betting in the country provided an avenue for unsavory interests to get involved in the industry.
State governments need to be aware in their rush to tap into the potential tax dollars available from legal sports gambling that they do not open up a new can of worms that took decades to eradicate.
Alan Erenhalt wrote in his book A Lost City about the salutary role that the local gambling played in the Chicago African-American neighborhood of Bronzeville. Erenhalt traces the collapse of the tight-knit community in part to the demise of its various locally owned businesses, most prominent of those being a ubiquitous and illegal lottery that nearly every family participated in. The local businesses eventually got squeezed out by white-run businesses and the police—at the behest of the city’s (white) leadership—shut down the local lottery, which was eventually replaced by a state-run lottery that created none of the camaraderie and bonhomie.
We did away with the neighborhood lotteries and mob-run card games, and the local bookies still in business may soon find it difficult to compete against legal online betting. However, if the decades of gradual legalization and state centralization of gambling ultimately reintroduces organized crime, proponents of legalized gambling will have achieved little more than a pyrrhic victory.
Ike Brannon is a former senior economist for the United States Treasury and U.S. Congress.