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The Dubious Crime of Referee Tim Donaghy

By Jeffrey Standen

Although details remain sketchy, we are now learning how NBA referee Tim Donaghy went afoul of the league's prohibition on gambling. One of Donaghy's sins was to alert his cronies as to the composition of the refereeing crew for each game. Each referee tends to call fouls a little differently, with some more whistle-happy than others. So knowing in advance the identity of game referees could assist gamblers, who would bet the "over" side in a game officiated by referees who call tight games, or could wager a "side" (pick the victor) on the team with better free-throw shooters. Donaghy apparently also passed on player injury information and details about how certain players interacted. Not sure who would care much about the latter, but clearly injury information can matter a lot in basketball, where only a few players actually see much court time and even fewer take most of the team's shots. Finally, although I'm not sure about this, I've read that Donaghy may have made some bets on his own account. Donaghy got paid by his co-conspirators for successful bets, at about $5,000 per game.

So as this scandal begins its slow passage into history, the NBA will undoubtedly "learn" from its mistakes. Undoubtedly the league will tighten up its oversight of referees, players and other league employees. Hiring and retention criteria will be reviewed and augmented; policies will be rewritten; financial disclosure and review obligations will be enhanced, all in an effort to prevent this tragedy from ever again happening.

But has the NBA learned the correct lesson? Does the NBA need to impose more regulation to eliminate game fixing? How about deregulation instead?

1. In effect, Donaghy was betting on his own account. Regardless of whether or not he put his own money on the line, the fact that he was paid only for successful bets gave him an interest in the outcome of a game equivalent to a wager. I don't think there's a lot a referee can do, in the average game, to influence the ultimate outcome in terms of victory. But he may systematically put the game into the "over" category. What Donaghy could do was call games tight (which it seemed he did), hide the fact that he was to referee a game (the NBA took care of this for him, but not revealing the identity of game referees until the last minute), bet the over, and then profit from the tendency of games he worked to go over the total. Given the preference that the NBA league officers seem to have for tightly called games (I read about it in the last issue of ESPN the Magazine, which I assume is subcription-only, unless I'm the only one paying for it), Donaghy's habit of calling games tightly, instead of raising suspicion, actually put him in good stead. Ironically, Donaghy's gambling interests helped him earn a high league rating.

2. Donaghy's betting was made possible by the NBA's decision to hide certain information. Hiding information makes it valuable, and allowed Donaghy to profit from it. What if that decision were reversed? What if the information had been publicly disclosed? Donaghy would have had nothing to trade. With available information, gamblers and other people interested in game outcomes would study referee tendencies. Point spreads and total scoring lines would be adjusted accordingly, much as they are for (known) player injuries, player talent, home-court advantage, and so forth. Making information public renders it comparatively worthless.

3. Why did the NBA feel it necessary to shield the identity of game referees? Maybe there are competitive reasons (perhaps discouraging teams from preparing game plans to play to the particularities of certain referees), but they seem slight. On the other hand, clearly this practice infuses the seemingly innocuous "game referee" information with value, making this inside information a target for those who stand to profit from even slight betting edges. Think of all the people who had to know referee assignments well in advance of games: besides the referees themselves, there are referee and league supervisors, travel agents, family members, close friends, traveling companions, and perhaps others. A determined gambler would have a multiplicity of targets. But these people are targets only because the NBA made referee assignments a secret in the first place. Let the public know ahead of time and that information, already factored into the over/under total line, would have value to nobody.

4. Much the same can be said with respect to injury information and the like. The NFL (a betting league if there ever was one) is diligent in requiring teams to disclose player injuries, even going so far as to mandate that teams classify the severity of the injury. Remarkably, this classification must be made not according to the actual severity of the injury. Instead, teams are obliged to describe player injuries along the dimension of the player's likelihood of appearing in the forthcoming game. This practice can only be designed to assist bookmakers in setting the gambling line precisely right. (Fans with game tickets aren't going to not attend because the tight end is injured.) Why should the NFL care about the integrity and accuracy of the betting line? Why should it be so concerned about teams disclosing even minor injury information? Because the NFL is well aware that gambling permeates its game and wants to make sure that no valuable "inside" information exists: if all is disclosed, all temptations for insiders to profit from information is gone. Disclosing this information publicly takes away the opportunity and incentive for players, trainers or others to conspire with gamblers.

5. Imagine a world in which information about referees and player injuries were disclosed. Without any inside information to sell to gamblers, Donaghy's only option, were he determined to make money from wagering, would be to officiate a game in a manner at odds with his normal performance, hoping by excessive foul calls to push the game into the "over." (It is unlikely that Donaghy would risk much on a side bet on the victor: it would seem too hard for a lone referee to dictate the winner; players making or missing shots would be beyond his control.) Even if this strategy were successful, the referee had better place a large bet, for his officiating in this abnormal manner would draw attention to him and signal his interest in the point total. No way a referee would risk forfeiting a $200,000 per year job for a $5000 payoff. The risk of salary loss would provide for a substantial and automatic check on any incentives to profit from game fixing.

6. Instead of relying on disclosure and risk of salary forfeiture to prevent game fixing, the NBA imbued their referees with valuable gambling information and then told them not to use it. The league was playing with fire. It will be lucky if the scandal stops here.

7. By the way, Donaghy did violate some laws, but for the federal prosecutor to charge him with fraud (to which he pleaded guilty) is just stretching the law in a bad way. Donaghy didn't trick anybody out of anything (unless we're to worry about his counterparties on the illegal bets). The government's theory was that Donaghy tricked the NBA out of the loyal and honest services he owed. In other words, the government's fraud allegation basically says that anytime an employee acts disloyally or dishonestly toward his employer, or breaks some company rule, that employee is not just in trouble with his employer, but he's also committed a federal crime. Nice way to criminalize the fiduciary obligations of employees. This theory of law has been around for a while but still makes no sense to me.

Full post as published by The Sports Law Professor on August 17, 2007 (boomark / email).