An Empirical Examination of the Parimutuel Sports Lottery Market versus the Bookmaker Market

Abstract

A sports lottery in Korea presents a unique opportunity for comparing a parimutuel-type sports lottery market against a bookmaker market outside the realm of horse racing. Using two- and three-game soccer final-score betting in the sports lottery market in Korea, which features matches in the English Premier League, we compare winning payoffs in this parimutuel-type sports lottery against corresponding payoffs from an established bookmaker market in the United Kingdom. We find that for outcomes with relatively high payouts (that is, lower-probability events), winning bets placed in the sports lottery market have greater payoffs than corresponding bets placed in the bookmaker-based market. However, the opposite is true for outcomes with relatively low payouts (that is, higher-probability events). Results suggest that participants in the sports lottery market tend to bet more toward high-probability events than the amount implied by the bookmaker's odds. Results also suggest that the favorite-longshot bias is still present in the bookmaker market, even when there is less threat of privately informed bettors than in horse racing.