Thursday, March 7, 2019

MLB Welcomes Betting by Tweaking Ump Release Info

In the wake of legalized nation-wide sports gambling subject to state adoption, MLB will change the way umpire and team lineup information is released. Instead of allowing clubs to release starting lineups in an unregulated manner, the clubs will now submit all information to the Commissioner's Office, which will reportedly hold the "confidential information" for 15 minutes before making it public by releasing it on an official feed, which it will share with sports data partner Sportradar and betting partner MGM Resorts.

MLB also announced plans to release umpire information in a similar manner. The idea is to "reduce the risk of confidential information being 'tipped.'"

Realistically, that means the coveted "first game of the series" umpiring lineup will go through MLB's central office/system, rather than simply being released via the stats stringer's MLBAM publishing to Gameday (website) or At Bat (app) for those outside the stadium, or via the team's press box lineup monitor for those inside the venue.

Major League Baseball wrote that the changes are meant to reduce "integrity risks" related to sports betting in the wake of a 2018 Supreme Court decision that led Joe West to conclude, "It scares me to death."
Related PostGambling Ban Reversal Has Joe West Scared "to Death" (5/17/18).

A 2018 lawsuit accuses LA owners of fraud.
Don't think sports and money is a big deal? Consider a 2018 class action lawsuit filed against Dodgers ownership group Guggenheim Partners alleging that it defrauded annuity investors by, amongst other things, "siphoning cash for purposes including [Mark] Walter's purchase of the Los Angeles Dodgers baseball team."

Albert Ogles and a group of investors sued the Dodgers ownership group for breach of contract, federal RICO violations, and unjust enrichment.

The suit, named Ogles v. Security Benefit Life Insurance Company et al (Guggenheim owns Security Benefit), charges that Guggenheim, Walter, then-Guggenheim president Todd Boehly, and Robert Patton Jr—all of whom appear on the Dodgers website as executives—used their insurers and customers as a "cash machine" to fund their record-setting $2.15 billion purchase of the Dodgers in 2012.

No wonder they could afford to buy out Frank McCourt! Allegedly.

Reuters noted, "the complaint...has drawn little media attention."

In November 2018, Walter, Magic Johnson, and several other associates pledged $20 billion of their personal wealth to prop up insurers associated with Guggenheim's purchase of the Dodgers. A CNBC report omitted to mention the 2018 lawsuit, but did mention that two annuity holders sued Guggenheim in 2014 over the Dodgers purchase, and similarly mentioned a regulatory investigation into Guggenheim's conduct.

Joe West expressed his disproval at the law.
Gil's Call: Sports betting's expansion in the United States has prompted states and federal entities alike to write and rewrite policies, procedures, and regulations akin to another event in US history—the expansion of the stock market.

In February 2019, The Daily Dose ran the headline, "Insider Trading Laws Are Coming ... To Sports Betting," in which several states with legalized sports gambling, as well as pending US Senate legislation, set to criminalize the use of "material nonpublic information" in sports betting, similar to the way the Securities Exchange Act of 1934 established the Securities & Exchange Commission, instructing the SEC to crack down on insider trading.

Yet at a time when sports betting is set to turn into a financial powerhouse like the stock exchange, independent bettors—including those who aren't partners with MLB like MGM and Sportradar—are crying foul, claiming MLB's new process ensures that only those entities handpicked by the league, such as MGM, will get lineup information before everyone else, which would lead to an unfair betting advantage.

Will MLB and related entities find themselves having to go through the government, similar to how the NYSE is overseen by the SEC?

In April 2018, Sportradar Head of Esports James Watson separated from the company after an internal investigation into Watson breaking company policy by placing bets on esports contests. While the company claimed there was no evidence of privileged information misuse or manipulation, several outsiders charged Watson with doing just that.

Baseball is becoming bigger business.
On February 24, 2019, Forbes posited that sports bettors leaked the Academy Award's winner for Best Director with widespread discussion that someone had inside information regarding the category. As a result, betting firms largely closed the Best Director option to new bets, but not before a handful of accounts already wagered on longshot and rumored winner Yorgos Lanthimos. Lanthimos ultimately lost to Alfonso CuarĂ³n, leading to speculation as to potential manipulation, similar to price manipulation built on manufactured rumors in the stock market.

Watson, for instance, was found by Sportradar to have placed a series of low-value wagers, which doesn't sound like much, until the angle of manipulation comes into play.

To borrow from the SEC's case book, stock manipulation can be based on inside information, or with no actual information whatsoever (instead, the simple illusion of information can be enough to manipulate the market or even cause a panic [what is a fear-driven rush to sell?]). When it comes to low-price stocks, penny stock fraud commonly takes the form of "pump-and-dump" schemes wherein manipulators buy shares of penny stocks so as to create a public drive-to-buy. As soon as the manipulated penny stock/microcap reaches a certain price point, the fraudsters dump the shares, earning massive profits while leading duped consumers holding the bag with a largely worthless stock.

The ballpark formerly known as Enron Field.
This brand of manipulation sounds very similar to what occurred with the 2019 Academy Awards, and considering its ties to sports betting, there is a great risk it may try to make an appearance in a professional sports league, in some form.

And last but not least, it should come as no surprise that alleged manipulation plays a prominent role in Ogles' lawsuit against Dodgers ownership.

Sidebar Trivia: Just like 2017 World Series foe Los Angeles, the Houston Astros are forever connected to insider trading, as that club still plays at a stadium once known as Enron Field, named for the Texas company taken down by a massive fraud, money laundering, insider trading, and conspiracy scandal (though Enron never owned the Astros).

In other words, the 2017 World Series featured two clubs—the Dodgers and the Astros—with connections to fraud, though only the Dodgers' connection concerns a current lawsuit, and the club's actual ownership.

The Good: MLB's desire to control the release of this information is not an overreaction, just as Joe West's line—"it scares me to death"—is not an overreaction. Sports has become big business and betting has the potential to rival the stock market, one day in the distant future (remember, securities have a massive head start), and it behooves leagues to get smart about the way their game-day information is being used.

It's a good thing that MLB will address betting.
The Bad: Cries from non-MLB partners are valid as well. We have yet to see how MLB's new release-of-information system will function, but if Sportradar and MGM are favored over other entities with info-release, that itself could be deemed a manipulative act that places non-preferred gamblers at a disadvantage, which at some point down the road, depending on future state and federal legislative action, could be illegal and lead to lawsuits.

Sidebar: That means ejection statistics will now be sports betting fodder. Sports betting may be legal, but the Umpire Ejection Fantasy League remains free.

Conclusion: As West and MLBPA representatives alike said back in May 2018, the gambling ban reversal is not good for athlete and umpire safety. While it may prove financially beneficial for the league in the short run, it could provoke Tim Donaghy-level controversy and tarnish the league's reputation if a system safeguard were to fail, whether or not a bad actor exists inside or outside the league office.

That said, no private sports league is above the law, so MLB must do its best to adapt to it. That's largely what has happened here, with MLB seeking to create a central repository and controlled-release system for lineup information. The only issue is whether the league has gotten too greedy with its preferred partners in Sportradar and MGM, who I'm sure would pay top dollar for even a two-second advantage, or whether it will level the playing field by making an official feed available to everyone, at the same time.


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