Pete Rose and Investment Markets

Hopefully readers will indulge me in a bit of a tangent for this post, which is about Pete Rose and his gambling, which often seems to be just another word for investing, particularly when investing in tokens that have no underlying fundamentals.

Rose, the all-time baseball hit leader and one of the most fun players to watch, was famously banned from the Baseball Hall of Fame for gambling on baseball, including on games in which he played or managed. There's now a push to posthumously rehabilitate him, with the President of the United States serving as one of his chief advocates. The President's argument is that Rose didn't do anything so bad because he never bet against his team. 

That's just incorrect. Rose claimed that he never bet against his team. We don't know if he did; he wasn’t the most credible character, given that he initially denied gambling on baseball at all. But let’s assume that he told the truth. Even if Rose never placed a bet directly against his team, he was absolutely betting against them because he wasn't placing one-off bets. He was a serial gambler with repeat relationships with a number of bookies. In that situation, gambling only on the Reds to win on certain days translates into gambling on the Reds to lose on other days.

Here's how. Suppose that Rose bet for the Reds to win on Monday, but didn’t bet on Tuesday.  The signal that would send to the bookie is that Rose thought the Reds would lose on Tuesday.  That’s valuable information for a bookie, who could adjust his odds for Tuesday's game accordingly: the bookie will offer better odds that the Reds will win on Tuesday (say plus +225 rather than +200) to attract more bets that won't pay off. The bookie will thus make more money when the Reds lose. Rose not betting on Tuesday is a win for the bookie.

The bookie wants to keep that information coming, which means he needs to keep Rose’s business; Rose could bet with any number of bookies. So what’s the bookie going to do to keep Rose's bets? He’s going to offer Rose better odds on Mondays, say +250, rather than the proper moneyline of +200, kicking back some of the gains from Rose’s tip about the Reds on Tuesday.  

This is a good deal for Rose—he can claim that he is only betting for the Reds to win and he's able to get better odds than a regular punter like Nathan Detroit. It's a deal that Rose would want to keep going, but for it to work, Rose generally needs to be right about the Reds losing on Tuesday. And that’s something Rose has some control over as manager-player: he can field a lousy lineup, make bad calls (say an intentional walk or bringing the infield in), or just boot a play himself. Any which way, Rose is betting against his team. He’s just doing it in a more subtle way by getting paid extra on his bets for the team in exchange for making sure the Reds lose when he doesn’t bet for them.

So what does this have to do with credit and debt? Well, in the first instance, we haven't even talked about whether Rose had a line from a bookie—basically was he betting on margin? If so, that would give the bookie even more influence over what happened on Tuesdays:  "Hey Pete, I can roll over your debt, but you really need to have Larkin and Griffey sit out the game tomorrow. I'm sure they could use a rest...." Debt gives creditors substantial ability to dictate debtor's behavior. Especially when non-payment can cost the debtor a kneecap.

And more generally, the Rose case illustrates that markets with repeat relationships can involve more complex arrangements, such that facial economic arrangements aren't always the same as the real economic arrangement.

None of this is to say whether Rose should be in the Hall of Fame. He was unquestionably one of the greatest baseball players ever. And sports betting has, for better or worse, become normalized in the United States in recent years. But let's not pretend that Rose was gambling only for the Reds to win. If he was only betting when he thought they would win, he was necessarily also betting against them.