What can sports teach us about compliance?
They say that sports can teach people many lessons about life, and perhaps that’s true; but lately it’s been giving compliance officers unexpected lessons about how to run compliance programs.
This fall we saw two high-profile examples of misconduct in the sports world – one in professional basketball, one in professional baseball – that offer all sorts of lessons about risk assessment, data analytics, investigations, employee training and more.
First, in late October, federal prosecutors indicted dozens of people for illegal betting on NBA games, including Portland Trail Blazers coach Chauncey Billups, Miami Heat guard Terry Rozier, and former Cleveland Cavaliers player and assistant coach Damon Jones. All three are suspected of sharing inside information about players’ performance and health to bettors in exchange for a slice of the proceeds when those bets paid off.
Two weeks later, the same prosecution team indicted two pitchers for the Cleveland Guardians, Emmanuel Clase and Luis Ortiz, for essentially the same offenses: sharing inside information with bettors in exchange for a portion of the winnings when the bets paid off. Clase, for example, is accused of calling one of his bettor associates during a game to place a $10,000 bet on the speed of Clase’s next pitch.
Both incidents are embarrassing to the teams and leagues involved. Fans are seething that players might not have been performing at high standards of integrity. State and federal lawmakers have vowed investigations and, if necessary, stronger laws to address sports betting.
At a practical, nuts-and-bolts level, compliance officers have a lot to learn from these scandals, too.
Lesson 1: The importance of good risk assessments
When most people hear “corruption in sports”, they imagine players throwing games for a loss or shaving points off the total score. These scandals, however, were about something quite different: “prop bets,” where people wager on something that happens within the game but isn’t important to the outcome of the game – say, whether a player throws a pitch at a certain speed or drops out of the game in the third quarter rather than the fourth.
Prop bets have always existed, but they’ve surged in popularity in the last few years for two reasons. First, the U.S. Supreme Court paved the way for legalized sports betting with a landmark ruling in 2018. Second, modern technology raced forward with betting apps that allow people to bet on just about anything, which is precisely what prop bets are.
Simply put, market conditions and technology evolved in a way that made betting far easier – which in turn has made the risk of players engaging in improper betting far greater. That is a challenge of risk assessment.
Organizations (including sports leagues) need to understand when the business environment is changing around them, and how those changes might lead to new or heightened types of risk.
So how can your organization perform risk assessments with that big-picture view in mind? How can compliance officers work with risk management teams, technology teams, operations leaders and even the board to understand what’s changing in our industry?
And how might those changes affect our employees, business partners and others in ways that might alter the risks we have?
Lesson 2: The importance of data analytics
The improper betting came to light when sportsbooks (the businesses that take bets from bettors) noticed unusual activity around the players now accused of misconduct: a high number of bets suddenly made on certain players, or bets for unusually large amounts, or a surprisingly high number of bets paying off for certain wagers.
In other words, good data analytics uncovered the misconduct. If the sportsbooks didn’t have all that historical data on what normal betting patterns were, and the ability to analyze all those transactions so that outlier patterns would stick out like a sore thumb, perhaps none of this would have come to light.
An important corollary here for compliance officers is that you need to construct your business processes so that they generate data that’s useful for analysis. For example, can you easily identify a “normal” price for your contracts with key vendors, or the average time it takes to source a contract? If you don’t collect that data, you might not be able to identify contracts with unusual prices or that came together unusually quickly, two red flags for potential corruption.
The good news for the NBA and Major League Baseball (and for prosecutors) is that sports betting is awash in data; they had huge troves of information ready for analysis, and the right IT capabilities to detect suspicious betting. Compliance teams at other organizations might not be so lucky.
Compliance officers must work with first and second-line teams and your IT department to be sure that the business processes tied to your most critical risks generate the right data to help you isolate and identify suspicious activity.
Lesson 3: The importance of ethics, training and discipline
We can’t ignore the human element to this misconduct, either. Any players, coaches, or staff who are guilty of improper betting – of using their insider knowledge to line their own pockets rather than to play a good game – have betrayed their teams and fans as a whole. That’s a breach of trust and a gut-punch to the integrity of their sports.
So, cliché as it may be, the last lesson here is about the importance of clear ethical standards, training so that employees know those expectations, and discipline when those standards are violated. That’s the only way to move from detecting misconduct after it happens to preventing misconduct from happening in the first place.
Tie it all together
Thoughtful risk assessments; robust compliance reporting data; strong ethics, training and discipline – compliance officers need all three working together in a seamless manner if a compliance program is going to succeed. And what does “success” mean in this context? Guiding employees toward high standards of integrity, so they’ll avoid misconduct that brings harm to the organization.
Sometimes that harm can be expensive investigations and litigation – and sometimes it’s deep and long-lasting resentment from important stakeholders (like, say, fans of a professional sports team). Many times, the harm takes both forms at once.
A strong ethics and compliance program can help your organization avoid that fate. That’s the most important lesson of all.
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