How sports gambling blew up

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In 2018, there was a Supreme Court decision that completely, totally, wildly changed the way Americans engage with one of their favorite pastimes, sports. The decision removed the federal ban on betting on games.
So now you can be sitting at the bar with your friends watching the Philadelphia Eagles, go birds, and pick up your phone, open an app like DraftKings, and bet all your money on the Eagles winning or losing. And this is really new.
It's this huge sea change. And it's the subject of a recent episode of Michael Lewis's podcast, Against the Rules.
Hi, Michael Lewis.

Hello, Mary.

Thank you for joining us. This is such a fascinating phenomenon that kind of didn't

exist six years ago.

This is what drew me to the subject in the first place. It's like,

what an incredible social experiment we're engaged in without anybody paying it much

attention that sports gambling goes from being, I mean, not just illegal, it's a taboo. It's like Pete Rose can't be in the Hall of Fame because he gambled on sports.
All the commissioners of the sports league say sports gambling is evil. Anytime a player gets near it, they're tossed from the game.
And now all of a sudden, 39 states have legalized sports gambling And the sports leagues themselves are encouraging it. They go from being, you know, really loudly hostile to sports gambling to this is the future.
Do you want to do the thing? Do you want to say it? You mean introduce your show? Yeah. Okay.
Hello and welcome to Planet Money. You mean to do this now? Yeah, yeah, now.
Hello and welcome to Planet Money. I'm Michael Lewis.
And I'm Mary Childs. Today on the show, Michael Lewis' show about the power of being the house and beating the dealer, about how the world of sports betting got more and more complicated and how that changed who wins.
Michael, what will there be? There will be two characters, one from the distant past in Vegas and one from the current modern world of sports gambling, each of whom figured out how to get an edge in the game. And we will learn how this world has evolved to a place where I might lose my life savings taking advice from an ad on TV.
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Member FINRA and SIPC. Today, we are hearing from Michael Lewis all about the evolution of sports gambling.
The story starts in the old school world in the 1970s in Las Vegas, Nevada, the only state where people could legally gamble on sports. We're about to meet a person who will discover that he can outsmart the system and become one of the biggest players in sports gambling.
I always had an interest in sports. My father coached me in swimming, coached me in tennis.
That's Michael Roxborough.

Everyone just calls him Roxy now.

But my world changed when I found out you could gamble on it.

I became no longer a fan.

I became interested in gambling. He grew up in the 1950s in Canada in a nice upper-middle-class family.

He's now Zooming with me from a home in rural Thailand with the AC blasting in the background

and a straw fedora on his head and the emotional feel of a man in a witness protection program, a placeless man. I decided that if I'm going to look at sports betting, I need to look at it statistically driven, data driven, not by, not visual or instinct or just watching a lot of games.
Outcomes in sports were obviously far less regular and predictable than outcomes inside slot machines or even at blackjack tables. But that didn't mean you couldn't learn stuff about sports that would allow you to make better predictions.
Not perfect predictions, but better predictions than everyone else betting on games in the 1970s. Roxy had baseball in mind.
The guys who booked baseball, legally

in Nevada and illegally everywhere else,

offered gamblers the chance to

bet on not just who would win the game,

but how many runs both teams would score.

Roxy had an insight

that seems obvious now.

The number of runs scored in any

baseball game depended on factors like

the weather at game time and the size

of the fields.

San Diego's was a good example. You just could not hit the ball out of there.
And then the Padres went and spent like an outrageous contract to sign a guy like Oscar Gamble. All he had was hit fly balls.
And that park was a place where fly balls went to die. So you soon found out that general managers really didn't know anything about their own ballparks either.
The idea that the people who run sports teams don't know what they're doing has probably never been a new idea. Fans have always thought that they know better.
What was new is that someone in the stands was actually figuring something out. The effects of the wind and the humidity and the barometric pressure on a ball that was flying through the air.
We started to start getting weather reports from all the cities to parse out which ones helped scoring or hindered scoring. And dimensions, right? I mean, just the length of the left field fence.
Dimensions were important. And we found out a couple of the ballpark dimensional drawings were wrong.
They had the North Pole wrong.

What pointed north?

Because we went out and did them ourselves.

Roxy moves to Vegas full-time in 1975 to bet on sports.

And just by taking into account the weather

and the size of ballparks,

he's able to make a killing

while trying to avoid the people

who know a thing or two about actual killing. For the Nevada legal bookmakers effectively run by the mob? They would have had a hand in it until about...
Right. Until about the late 70s, probably, yeah.
In that environment, was it dangerous to win too much? No, because actually what they would do is they could find somebody else who could take your bet and they can move it for more money someplace else in the country. The old sports gambling market inside the United States was shady, but it had its unwritten rules.
And one was that they always took your bets. If you bet a lot, they eventually moved the lines.
These betting lines were all set in Vegas For a very long stretch

They were that they always took your bets. If you bet a lot, they eventually moved the lines.
These betting lines were all set in Vegas. For a very long stretch, they were actually set in a single Vegas casino, the Stardust.
The bookie at the Stardust set the odds, and everyone else just followed his lead. There was a bank of payphones outside the Stardust that were said to be the most profitable in the country for the phone company because sports gamblers used them to relay the odds to the illegal bookies and bettors across the country.
Communications back then was just a phone call. That was the only communications there were.
In the late 1970s, the Nevada Gaming Control Board tossed the mob out of Vegas and out of sports gambling. And pretty soon, Roxy became old news.
By the early 1980s, everyone knew that the weather and the size of ballparks had big effects on baseball scores. And Roxy never found another systematic edge.
His life became a bit of a mess. He'd been arrested for violating the Wire Act.
He'd taken crazy risks as an illegal bookmaker, and he'd run through two marriages. Is a gambling business hard on relationships? It's arrogant.
Why? It just sort of takes over your mood and your personality. I don't know anybody who's ever been in gambling thought they were a better person for it.
It's interesting, because when you think about why a person would drift into gambling in the first place, it would be because you think it might be an easy way to make money. Yes.
It ends up being a harder way to make money. It does.
What do they say? It's a hard way to make an easy living? People said that. Roxy now knew it.
So in 1982, he quits gambling. He creates a company called Las Vegas Sports Consultants.
This new company will effectively replace the Stardust Casino in setting the odds for all major sports contests. Roxy's just better at it.
And pretty soon, he's selling his odds to all the sports bookies, including the Stardust. This makes sense to everybody in Las Vegas.
Hiring Roxy to set the odds in sports is like hiring the first card counter to guard the blackjack tables. So I said, you know, I'm going to try this for a couple of years, but I'm not sure if it's going to work because it wasn't a given that every hotel was going to have a sports book.
It was a rather limited business. But that was one of my better decisions because it turned out to be a massive business.
Sports gambling isn't exactly a financial market, but it rhymes with financial markets. What happens on Wall Street somehow eventually also happens in sports gambling, and Wall Street's about to undergo dramatic change.
First computers and then the internet will allow the markets to become a lot more complicated and the bets a lot more complex. The world's about to speed up and a new kind of person with a different kind of education is going to enter it.
Old school traders with high school degrees are about to be replaced by PhDs from MIT with computer models who as kids thought they'd grow up to be professors, not traders. On Wall Street in the late 1980s, smart old-school guys served as a kind of bridge between the two cultures.
In sports gambling, Roxy was that bridge, but it took a while for anyone to cross it. We're here to see Rufus Peabody.
We're in the right place. We're still in Vegas, but far from the Strip.
The real action is no longer on the Strip. The real action is basically invisible.
But here, on the 17th floor, with a sweeping view of the distant casinos, Rufus Peabody lives and works. Rufus, we're here.
Rufus Peabody is who crossed Roxy's Bridge. I never was a better as a kid.
I didn't know anything about sports betting. You didn't feel a little twinge of desire? None.
None. Most people that got their start, they started losing and then they learned how to win.
But I was never better. I never grew up betting besides NCAA tournament pools.
I was always good at those. But for me, it was a game.
Rufus grew up outside of Washington, D.C. Always loved sports.
Thought he might like to be a sports journalist. But even when he was a kid, his mind took him places that journalism usually doesn't.
So it was this team won 82 to 64, but why did they win? Basically, I kind of wanted to report on the why it happened.

You wanted explanations.

I wanted explanations.

In 2004, Rufus graduated from high school and went to Yale.

He was still obsessed with figuring out why.

He studied statistics and built models that predicted the performance of athletes

and the outcomes of sporting events.

Not because he wanted to gamble on them.

Just because it was cool to figure out stuff that even people who run sports teams don't know. He wanders around Yale looking for someone to teach him more.
Rufus wants to do a thesis on, if I remember correctly, behavioral biases and the baseball betting market. He's who Rufus found.
His name is Cade Massey. He's a professor of organizational behavior.
Was it interesting? Oh yeah, absolutely. I mean, what's not interesting about trying to find psychological mistakes that people make with like, you know, hundreds of thousands of observations of real money being bet.
And he found mistakes. I mean, he was finding profitable strategies right off the bat.
Rufus just kept asking questions about the behavior of sports gamblers. He still wasn't placing bets himself.
He was just working with his professor to build a model to predict college football scores. They pitched it to the Wall Street Journal, and the journal agreed to publish their college football picks of the week.
It was just how they would bet were they to bet on college football. And he would then post our picks of the week.
We're just posting them because we were working with the Wall Street Journal. So post them on Tuesday or Wednesday, and then he would watch as the prices started moving on his screen.
Oh my God. Which is to say the sports gambling market would see their picks and move in response because the market figured out that their picks were that good.
Within a year or so, we quit posting college picks because it was getting too much in the way of what he was trying to do. Because he wanted to bet it himself.
Because he wanted to bet it. I mean, it was bound to eventually occur to Rufus that if he could predict the scores of college football games, then he should just bet on them himself.
But it's funny how he got there in his head. Roxy Roxborough had started as a gambler, who then set out to find some kind of edge to bet.
Rufus Peabody started by finding these edges and kind of stumbled into gambling. And then found Roxy.
During Rufus's junior year at Yale, he read an article in ESPN about Roxy's sports analytics company, Las Vegas Sports Consultants. Roxy's company wasn't used to getting resumes from Yale juniors.
But they gave him a summer internship anyway and showed him their world from their offices right next to the Las Vegas airport. They would bet on what plane was most likely to land next, right? And this is like sort of pre-internet days or pre-being able to see flight plans and stuff like that.
And so it was like, okay, American Airlines is like six to one, like, you know, Southwest is two to one, whatever. What people didn't realize, though, was Roxy actually had a contact in the control tower.
And so Roxy won. He made money off of these bets.
But he didn't make enough to draw suspicion. That was the key.
But he would occasionally hit the Japan Air at 301, right? Or whatever. Roxy's crew would bet on everything.

Rufus wasn't like that.

He didn't even think of what he wanted to do as gambling.

But he did want to understand this other world.

This world where people bet on anything that moved.

Rufus wanted to see if he could take things a step further than Roxy had ever gone and use people's own biases against them. That's after the break.
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We are about to hear what happened in the aftermath of the 2018 Supreme Court decision that opened the door to legalizing sports gambling, the world we live in now, where online sports betting companies like DraftKings and FanDuel are dominant. They are the new house.
But back before all of that, Rufus Peabody was going to take a step in that direction, using more powerful tools and better information to refine the odds. And he tells Michael Lewis about some new ideas he had,

about how to use all of that.

A bookmaker can make more money,

let's say, if they know the public's bias,

they can make more money setting a line somewhere between the true price

and the price the public thinks.

That's the way to maximize.

There's no reason you should understand

what Rufus just said there.

But let me try to explain it,

because it tells you a bit

about how this old-school sports gambling world works. The line is just the odds or the point spread.
The true price

is what the odds would be if you somehow knew every possible relevant bit of information about

some upcoming game. Of course, no one ever knows everything.
So there is in reality never a perfect

true price, just some number that the smartest and best-informed bettors agree on. Say they agree that the Packers should be eight-point favorites over the Cowboys, but most of the gamblers are Cowboys fans, and the Cowboys fans think the Cowboys are only three-point underdogs.
Rufus was asking if he could entice the public to make more stupid bets if he set the line not at the true price of eight points, but at, say, five points. Because Cowboys fans will think the Cowboys are better than they actually are and bet even more.
I said, theoretically, you can make more money setting a line somewhere between the true price and where the public thinks the price is. Rufus Peabody, recently of Yale, is no one's idea of a hustler.
He's too sweet-natured and even-tempered, and way too open to telling other people about the stuff he's learned. He finishes up at Yale and moves back to Vegas to work full-time at Las Vegas Sports Consultants.
But now Rufus thinks he might have an edge, and people in and around Roxy's firm think that maybe he's right.

The Super Bowl was my first big break, Super Bowl 2009. The Pittsburgh Steelers played the Arizona Cardinals.
I had made a friend with a professional sports bettor, a guy that bet baseball. And he loaned me $10,000 to bet.
I had my own $10,000 to $12,000. dollars.
My boss, Kenny, unbeknownst to everybody else, invested $40,000 in me and gave me a 20% free roll on it. Meaning that if it wins, you take 20% of the profits.
Uh-huh. But you've suffered another loss.
Correct. And so I ended up with close to $60,000 bet on the Super Bowl.
And so I basically was pretty leveraged. Yeah.
And I remember being like, this game doesn't work out. You know, I gave it a shot.
All right. And what is causing you to have such conviction about a game? Oh, nothing.
It wasn't conviction about the game. It was betting the props.
The props. Short for proposition bets.
Rufus wasn't betting the whole game, but pieces of the game.

His pro football model spits out odds for all this weird stuff that Vegas bookies are now offering bets on.

The odds that Steelers running back Gary Russell will score the game's first touchdown, for example.

Rufus has vast troves of data to mine.

He can do stuff with it that Roxy would never imagine.

He could do stuff that even the people who run the Pittsburgh Steelers would never imagine doing. I mean, even Gary Russell likely has no idea that you can calculate the odds that he will score the game's first touchdown.
But Rufus can. His model puts those odds much higher than the bookies' odds.
So in Rufus' mind, it's a great bet. He makes dozens of similar bets.
Bets where his model tells him that the bookies are giving him better odds than they should. I still remember going, it was like Harrah's, Caesars, the Rio.
I ended up getting down like $200 at a time, like $5,000 positions on a few things that were really good. And so I was diversified.
Within the game. Within the game.
I wasn't betting on the outcome of the game, but I still to this day have never watched that game. I was too nervous.
How did you experience the game if you didn't watch it? I went to this little par three course that's open at night, right south of the airport, and I played the par 3 course twice until I felt like the game would definitely be over. And then I went grocery shopping, and I didn't have a smart, this is pre-smart phone.
I went grocery shopping, and then I went home and cooked myself dinner. And then and only then did I open my computer and check and see how the game went.

And were you just going through your prop bets, seeing what happened?

First I looked at the box score, and I saw the first score was Gary Russell one-yard touchdown run.

I was like, ah!

Right. And it turned out, out of like $56,000 bet, I profited like $23,000 on it.
Rufus figures out how much he's won. Then he physically retraces his steps to the many casinos that had taken his many bets, still driving an old Honda Civic.
You had all these little tickets. You go cash them.
Each one individually. So you must have had 100 tickets.
Yeah, probably. He just drives around Las Vegas, and the money piles up.
And I remember having like $30,000 on that front seat and being like, oh my God, so much money. In cash.
In cash. After that, lots of people in Vegas wanted to lend money to Rufus and take a cut of his bets.
Rufus, for his part, was still sitting in his office in Las Vegas Sports Consultants. But pretty soon he was directing an army of people to lay bets in sportsbooks across the city.
Sportsbooks that got their odds from Las Vegas sports consultants. Rufus was in effect betting against the lines created by Roxy's firm.
Roxy himself had moved on at this point, but he watched what Rufus was doing, and he admired it. He came to Buquette once, and I met him.
Even after one lunch, I said, this guy's thinking at a higher level than other people. And I learned a lot from him, not because he was divulging his secrets,

but he was just thinking at a higher level. To get his edge, Roxy had used weather reports.

Rufus was using the spin rates on pitchers' curveballs. I try to drill things down to their

root cause. I try to figure out why things happen in a baseball game or a golf tournament.
What

makes a player good? It's or a golf tournament. What makes a

player good? It's not just their score. Like, what are the things that are driving their score?

Which of those are repeatable, which aren't? And right now, you have all this, like, computer

vision, that type of data available now. And with a lot of these sports, I mean, we're now talking

about bat speed, measuring bat speed, and looking at, like, aging curves for bat speed.

Rufus had become the card counter at the blackjack table, only it was richer than that. He was generating new insight about why things happened in sports.
A blackjack dealer knows where the card counter gets his edge. The sportsbook, he couldn't really tell where Rufus was getting his, which made Rufus and what he was doing even more unsettling.
And did the M at any point say, we're not taking your bets? The M Casino was one of Rufus's favorite sports books. No, they had, their whole thing was, we're going to take all comers.
We want to be, we want a lot of volume. We think we're better than people.
Then comes the Supreme Court decision of 2018.

23 states soon legalized sports gambling.

Rufus now has the M Casino and a lot of others right in his pocket.

FanDuel and the PGA Tour have teamed up.

Now you can get more action out of every stop on the tour.

And Rufus, of course, stands to make a killing.

The bigger the markets, the more he can bet.

Bet the PGA Tour and make every moment more with FanDuel Sportsbook. But as it turns out, that's not how it's going to go down.
This ecosystem is going to change in ways Rufus didn't predict. And he began to sense it in late 2020.
So I would drive up to New Hampshire to bet at these kiosks initially, and then once there was mobile betting, I had an account on DraftKings. Rufus had a girlfriend in Massachusetts.

Massachusetts hadn't yet legalized sports betting, so he needed to cross state lines to use the

betting app on his phone. The drive took him like 45 minutes, but it was actually easier than running

all over Vegas trying to get cash down. He and his process were built for this new type of casino.
He could bet on golf basically all day long. Until one day, he couldn't.
One week I lost $30,000. I got a phone call to tell me that they were cutting my limits on golf.
He'd lost $30,000, and DraftKings stopped taking his big bets. By the way, we've reached out to DraftKings, and so far they have declined to talk with us.
Anyway, it was clear to Rufus back in 2020 that this was definitely no longer his old sports gambling world. Because I had bet enough, it spurred them to actually go in and look at the stuff I'd been betting and how I'd been doing.

Books are not limiting people just because they win.

They're limiting them because they think they're going to win in the future.

Rufus used data to predict what athletes were going to do.

DraftKings was using data to predict what Rufus would do.

When they looked at the data, they saw that after Rufus placed his bets,

the odds nearly always moved in his favor. These were the bets of someone who knew things before the market knew them.
And the new bookies were not like the old bookies. They only wanted to take certain kind of bets.
Bets that were more like the bet you make when you press the buttons on a slot machine. Bets that if you made them often enough, you were sure to lose.
The sort of bets a fan would make. The sort of bets Rufus Peabody never made.
Refusing a bet wasn't a thing. It never was a thing here.
Huh. Like, if you got kicked out of a casino or if you couldn't bet there, it was because you did something wrong.
Like, you violated the sacred bookmaker better covenant. Being smarter than the market didn't used to get you kicked out of the market.
But the market's changed. The market has changed.
It's harder and harder to find an edge to beat the house. Especially if the house keeps changing the rules on you, or otherwise finding ways to overwhelm and outsmart you.
And Michael Lewis says these companies are now everywhere. Anybody who watches sports knows you can't turn on your TV without being bombarded by ads from, you know, DraftKings and FanDuel.
Every ad is like some celebrity. It's like back when crypto was like Matt Damon.
It was, I was about to say say, it's crypto. It's like, it's all over again.
Some of the same people. And it's just so in your face.
And when I see those advertisements on my television from FanDuel, et cetera, it does seem like I should do it, right? Like they are offering me this kind of free bet. They're offering me free money basically, right? Shouldn't I just do it? No, you shouldn't just do it.
No, you shouldn't just do it. And if you do it, you shouldn't do it the way they're trying to encourage you to do it.
I mean, so if you listen to the bets, they're essentially trying to coach you into making the kind of bets that make them the most money, which is the kind of bets you're most likely to lose. And it's long shot parlay bets is what they're selling you on.
It isn't like you're going to bet the Chiefs against the Raiders. It's no, you're going to bet the Chiefs and Patrick Mahomes throwing for 300 yards and Travis Kelsey catching two touchdowns.
And all of that has to come right or you don't win. And what they're doing is sort of nudging you into a land where your mind is not very good at judging probabilities and getting you to do the probabilistically stupid thing.
And effectively, Americans are making stupider and stupider sports bets. And we've yet to hit the limit, like how much worse Americans will get at sports betting.
Oh, that's interesting. I wonder how far they can push that.
Well, we're about to see, right? It's like what will come with this is lots of social problems. You know, there are already these kind of natural experiments that are going on because some states have not legalized it.
So, you know, you have Alabama next to Mississippi and one's legalized sports gambling and one hasn't. You can kind of study the effects.
And they're respectable, you know, papers that have shown that bankruptcies rise and

savings rates plummet, you know, where sports gambling has been legalized.

So there will be these social problems going on, bubbling along while this industry booms.

And at the same time, they'll be pushing the social problems because they'll be nudging

Americans into doing dumber and dumber things with their money. So I guess you asked me,

should you do this? Of course, if you can do it in moderation, I mean, I guess, you know.

As famously, we are good as humans.

As famously, we are good as humans.

A huge thank you to Michael Lewis and to Pushkin Industries for sharing this episode with us.

Michael Lewis's podcast is called Against the Rules. This season is all about the sports fan,