Insider Trading Laws and Sports Investing

By John Todora February 21, 2020

In our ongoing series of special reports on the sports betting market in the US, the ScoreMetrics Lab investigates current topics that are relevant to investors. This time we’re taking a peek into the legislative side of things in the form of insider trading laws in sports betting. 

Insider trading is a familiar topic for investors who are active in the stock market. In that context, insider trading means that a person with access to non-public information utilizes his or her inside knowledge in buying or selling stocks in a direct or indirect manner. 

This could mean, for example, that an executive of a company informs his or her friends of the company’s financial performance before that information goes public, and the friends in question then use that information to buy or sell the company’s stock. Insider trading is illegal and is supervised by the Securities and Exchange Commission (SEC).

Similarly, in sports, an insider such as a team employee or an official could utilize inside information to gain an unfair advantage in the sports betting market. And this is what legislators are looking to tackle.

The states are acting

As we wrote in our special report on the current status of legalized sports gambling in the US, 14 states already have legalized sports betting markets in operation and 7 more states have passed a bill for legal sports betting.

And with most of the remaining states at least exploring the possibility of having legalized sports betting, there has been a lot of talk about the type of regulation that’s needed to have a healthy and reputable market in place. 

This has led many states to act in combating insider information being utilized in sports betting with legislation and regulations. New Jersey, New York, Massachusetts, Tennessee, Indiana and West Virginia have legislation in place that prohibits the use of “confidential”, “nonpublic” or “insider information” when placing sports bets. Federal level legislation in similar tone has also been introduced, but not passed, at least for now. All states that will legalize sports betting in the future will surely be looking for ways to regulate insider trading.

This is obviously good news for sports books and for investors. Insider information that bookmakers and the public are not aware of generate unfair advantages and distort the market. 

It’s also something that sports leagues should advocate for. Now that legalized sports wagering options are easily available for a much larger audience than before, the opportunities for utilizing insider information are also more conveniently there for tempted individuals.

The biggest fear with legalized sports gambling that the leagues face is related to this: What if referees, team employees, or even players will try to manipulate parts of the game to gain profits with bets? The Tim Donaghy case is a fairly recent example of this actually happening in the NBA. Donaghy (left), an NBA referee, was bribed by underground bet broker James Battista to manipulate the spread of the games he officiated in. And this happened during a time when legal gambling options were very limited in the US. Scandals like this impact the integrity and the reputation of the game, and of course the sports betting market.

The states that have legalized or are planning to legalize sports betting are also very much in on this as well. It would be a big hit for the overall reputation of sports wagering if it would turn out to be an unregulated market where bad actors get rewarded for unfair plays.

In short, having insider trading laws in place for sports betting is a win for all involved parties.

Sports betting as an investment

The fact that legislation has been passed and the topic of insider trading laws in sports betting are widely discussed is another sign of the market being seen as a legit investment opportunity. 

As investors in the sports betting market, we here at ScoreMetrics are obviously happy about this type of regulation. It enables the market to stay healthy and keep on pumping profits into our pockets. 

For a full overview of sports betting as an investment and the legal landscape of the market, make sure to read John Todora’s new book – “Zero Correlation Investing – The Score Metrics Secret”, which is now on sale for a limited time. 

And don’t forget to check out all of the reports and analysis from the ScoreMetrics Labs. We’ve got you covered with new pieces on sports investing multiple times per week.

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