Click! Drag! Swipe! Bet Your Bottom Dollar
By Gerard WrightJuly 12, 2012
Legal, illegal, in the casino, online — or from the couch. Hi-tech betting is blowing up the age-old pursuit of gambling on everything … right down to the next shot on the basketball court. Billions of wagered dollars are flying around the world, with big business buying in and US regulators struggling to keep up.
The Feds came for Calvin Ayre on February 27, but Calvin was not to be found.
Ayre is a Canadian wide-boy self-promoter, also the billionaire former owner of an online gaming and betting site known as Bodog.com or, sometimes, Bovada.
In the flukey, fast-forward way of the Internet, Bovada and the uncertain fate of its owner demonstrate not just the murky status of sports betting in America, but also the lengths to which digital-age bookies will go to in order to service this lucrative market.
In the case of Bodog, payments from punters were processed in London, Switzerland and Malta and its servers were in Canada, while the business was run from Costa Rica.
You can map just about any sphere of interest according to Internet activity. If you want the big picture of online questing, for example, the lobby of Google's headquarters in Silicon Valley gives a sparkling overview. A real-time global display of Google searches shows a point of light indicating each time a search command is typed and entered. Searches take place day and night, simultaneously, across the globe. The exception is a broad dark zone engulfing Central Africa.
In the world of online sports betting, America is that dark zone. A 50-year-old federal statute called the Wire Act forbids businesses and individuals from using a wire communication facility — which originally referred to telegrams as much as telephones, but is now also taken to mean computer-to-computer communication — as a means of placing bets "on any sporting event or contest".
There's no illumination either of just how much is spent in the US on sports betting in all venues and media, partly because of the tangle of laws governing this popular form of gambling.
Sports betting is legal at casinos and racecourses — and only on horseracing, in the latter case. Interstate horse-race betting is also allowed, although the laws governing this are murky.
Four US states, Nevada, Oregon, Delaware and Montana, allow intra-state sports betting. Others, like California and New Jersey, are now trying to legalise all in-state sports betting, which would allow licensed racecourses to operate as de-facto casinos.
Most estimates of the size of the American betting market take as their starting point an independent report by the National Gambling Impact Study Commission, published in 1999. It was the first and only one of its kind, and suggested illegal sports betting in the US was worth USD380 billion a year. That might now be as much as USD500 billion annually, according to RJ Bell, the chief executive of the sports-betting site pregame.com. A 2011 study by the University of Nevada, Las Vegas, put the take from legal sports betting the previous year at around USD15.5 billion.
Last December, the US Justice Department offered a new interpretation of the Wire Act, announcing that online betting within a US state was legal. That is, when you're in Minnesota, you can place an online bet on a football match in Minnesota, but not across the border. Nor can you place a bet from within the US on a contest in another country. You can't bet from inside America to outside sports-betting sites, such as those based in Costa Rica, the Caribbean and Canada.
So you can see that Ayre was playing with fire. In late February, the US Justice Department charged Ayre, a Canadian citizen, now resident in Costa Rica, and three of his partners, with money laundering through Bodog, the online poker and sports betting site he founded in 1994.
In Ayre's absence, the site formerly known as Bodog was sold and rebranded as Bovada, and it now has an LV appended to its address. This suggests it's now based in Latvia, although job ads on its site offer employment opportunities in the Philippines.
Entrepreneurs of Ayre's stripe have learned that they set foot on American soil at their peril. In 2006, David Carruthers, whose BetOnSports operation was based in Costa Rica, was arrested as he changed planes at an airport outside Dallas.
FORTY-TWO MILLION dollars of marketing made Bodog the brand of choice for Americans who wanted to play poker online, or place a bet on a favoured sports team.
That part worked. Bodog probably turned over tens of billions of dollars during the 17 years of its existence. Forbes magazine reported that the company took USD7.3 billion in bets during 2005 alone.
But the marketing played off the lifestyle of Ayre himself. Now 51-years-old, he lives the jet-setting mogul's life, like a Hugh Hefner for the digital age, except his casino is made of mouse clicks and server farms and betting propositions on the turn of the next card, or the destination of the next pass — on any field of play.
Bodog demonstrated — as have other attempts at social engineering in American history, such as Prohibition — that outlawing an accepted social or cultural practice does not end it, but rather drives it underground and into the hands of those who can see a way of flouting that law.
Ayre's situation says much about why the country that gave the world the Internet is unable to follow suit when it comes to one of the Internet's many evolutionary strands: that it can be a place to bet on the passage of golf balls, darts, bikes, footballs and Presidential candidates. His indictment, and the vaporisation of his American domain names, was meant to serve as an example of how any attempt to skirt the current law of the land would be dealt with.
Yet Americans bet anyway.
And most estimates of the breadth of illegal gambling, made since the 1999 report by the National Gambling Impact Study Commission, have come from groups with an interest in exaggerating the likely size of the illegal market. Even so, these estimates generally concur that the growth of illegal gambling has plateaued in recent years, as the global, and especially the American recession, have taken their toll on discretionary spending.
The most popular sport in America is professional football, run by the National Football League. The next most popular is the ostensibly amateur college football. Both owe their status to the fact that people love to bet on them. In the case of the Super Bowl, the NFL's grand final and "world championship", which arguably attracts more betting than any other sporting event, only 1.5 per cent of those wagers were made legally, according to the American Gaming Association.
Heavyweight publications such as Forbes have leaned on the 2009 assertion by the sportsbetting blog pregame.com that the Super Bowl attracts 200 million bettors from around the world, who collectively wager USD10 billion each year. Pregame's RJ Bell says his numbers came from an extrapolation of Nevada betting numbers, and his understanding of the worldwide "handle" or total amount bet, compared to Nevada. Of course, it's difficult to know how betting interest in the Super Bowl compares with that in other sporting mega events such as soccer's World Cup. So getting a handle on the whole US betting pool is a losing battle.
But you could say that these American sports, built on the bedrock of patriotism, militarism and tradition, with their multi-billion-dollar TV contracts, owe their status to circumstances that do not bear especially close examination.
Sports betting is a guilty pleasure in the US, for both the punters and for the politicians who govern them. Your average Joe or Josie lays down their money to enhance their utter absorption in the game — very little else in the world exists while you're waiting to see what happens to your dollars. The politician, an upstanding and morally inflexible civic leader on one hand, is also an administrator trying to perform financial sleight of hand. So state governors, senators and assembly members find themselves trying to preserve government services and satisfy competing interests with a diminishing revenue stream. And betting? Well, it generates this wide river of cash, just flowing past, and politicians can't help but think about how to dip into it.
Sixteen American states are currently running billion-dollar budget deficits, at the cost of everything from providing decent education to running maximum-security prisons. Just as the operations of SP bookies were once regarded as a victimless crime, so skimming a mandatory share of all gambling revenue has come to be regarded as a victimless tax. And it's all the more enticing when no politician of any persuasion would dare suggest a tax increase as a means of dealing with those ten-figure deficits.
As the 1999 National Gambling Impact Study Commission report suggested, any decision to legalise sports betting, making it openly accessible online, would have less to do with "an abstract debate of public welfare. One of the most powerful motivations is the pursuit of revenue." That is even more true now, given the shortfalls of many state financial coffers.
In January 2011, Ed Rendell, the former governor of Pennsylvania, spoke for all of his ilk in an occasionally heated interview with 60 Minutes. "It is a decent way to raise revenue, where the upside that's produced is significantly better than any downside that comes from it," said Rendell, a leading figure in the national Democratic Party.
Pennsylvania opened 10 casinos on Rendell's watch, to compete with those in neighbouring Delaware and New Jersey. They pay USD1.3 billion a year in taxes.
"The biggest downside is that some people lose their paychecks," Rendell continued. "But understand, they're not losing their paychecks because Pennsylvania instituted gaming. People have been gambling since organised society was formed on the banks of the Tigris and Euphrates. They were gambling. And they will gamble as long as there's life on this planet. And that's a fact.
"Anyone who has that bent would be doing it in other places had Pennsylvania not legalised gambling. You're not getting it. Those people would lose that money anyway.
"Don't you understand?"
But the American political and moral diffidence toward betting in general, and, legalised sports gambling in particular, was captured in this observation by the National Gambling Impact Study Commission, which tried to look beyond the various columns of numbers, to weigh economic benefits against assumed, but still unknown, public costs:
"Many of the key variables are difficult to quantify: Can the dollar costs of divorce or bankruptcy adequately capture the human suffering caused by problem gambling? The more difficult the measurement; the more the weighing of competing claims retreats from science to art or, with even greater uncertainty, to politics.
"But overall, all agree that the country has gone very far very fast regarding an activity the consequences of which, frankly, no one really knows much about.
"The Commissioners believe it is time to consider a pause in the expansion of gambling."
This may be the reason why the last time such a body met and exhaustively considered the whole issue of gambling —including a chapter on the impact of the internet — was 1999.
It leaves everyone free to argue using their own sets of facts.
Bill Eadington, a professor of economics at the University of Nevada, Reno, who has studied the casino industry for decades, believes that size and value of the American betting market has been misread, and that therefore the public revenue aspect of the debate has been overstated.
"My suspicion is it's a market not nearly as robust as people estimate, and it's dominated by substantial bettors," Professor Eadington says. "They're very price sensitive and will shop for deeper discounts."
He also notes the thin margins on single-event betting. The Nevada Gaming Control Board says that of USD81.2 million wagered on the 2011 Super Bowl at sports books under its control, the betting shops earned just USD700,000.
As states like California and New Jersey debate the introduction of in-state online sports betting — and others like Utah vote to ban it entirely, Federal mandate or not — Eadington believes its larger introduction remains a long shot for as long as the Federal government chooses to resist.
But while the law is on one side of the argument, he says public opinion is on the other, and that this may prove decisive.
"Virtually all forms of gambling are being legalised," Eadington says. "So to say it's criminal and dangerous when all others are being legalised is hypocritical.
"So you'll have the betting public saying 'Why not?' The credibility of the law becomes the issue, as was the case with Prohibition."
Moral, political and even financial arguments aside, what must be most enticing for proponents of online betting, is that the infrastructure is already in place.
Cantor Fitzgerald was once famous as the Wall Street trading firm that took the worst of the impact of the terrorist attacks of September 11, 2001. The company lost 658 of its employees in the World Trade Center.
The company's recovery and re-invention included the application of its patented trading-data software to the task of setting odds for sporting events. This re-purposing began in 2006. Cantor Gaming now runs the sports-betting operations for seven Las Vegas casinos.
In American casinos, this area is known as the sports book. Apart from offering a wider range of bets, including in-game or "spot" betting, the company has also created a virtual sports book, taking advantage of the fact that sports betting is legal in the state of Nevada, as is intra-state online betting throughout the US, although only four states have formally introduced it.
Initially, this updated sports betting was made available through a piece of hardware or "mobile gaming system" called the eDeck, which provided casino games and betting on a handheld touchscreen. The next generation is an application for Android smart phones and tablet computers.
With a wireless connection, these allow games to be played and bets to be made anywhere in a casino and, technically, anywhere in the state.
The software powering Cantor Gaming's bets and pricing is a modified version of that driving Cantor Fitzgerald's stock trades, a blur of transactions which the company claims runs to USD140 trillion per year.
In this case, the company says, the software enables the rapid-fire calculation of odds and acceptance of wagers — essential for in-game betting. So, Cantor Gaming's betting app can offer — almost instantaneously — the odds of a player striking out in baseball, a football team making a touchdown drive when it regains possession, or a hockey team scoring on the so-called power play, when its opponent plays a man short for a minute after incurring a penalty.
An example quoted in Businessweek from a televised National Basketball Association game, had the virtual betting site offering odds of $2.20 against ($220 bet for a $100 win) that a Boston Celtics player would make both of the free throws he was about to attempt.
The bet could be made by swiping a finger across the touch screen; a single, but highly meaningful transaction in a larger bet — so far Cantor has spent USD160 million on getting into this game.
That is, within Nevada, where Cantor finds itself head-to-head with William Hill, the London betting giant which spent USD55 million in 2011, buying three Nevada sports books, one of which had developed its own smart-phone-betting app.
William Hill appears to see the US as an emerging market. Its CEO, Ralph Topping, described the US in anything but diplomatic terms after the company was formally granted its Nevada gaming licence. He said, "It's no exaggeration, I think you're 50 years behind."
Cantor Fitzgerald is also trying to establish its gambling arm the old-fashioned way, reportedly taking a pair of USD2 million bets on the National Football League Super Bowl, in February.
Both companies are looking over the horizon. Cantor Fitzgerald says it plans to expand operations to the UK, Europe, Asia and Australia. In addition to William Hill and its annual comparative wagers on the likelihood of a Brit winning Wimbledon or some other unforeseen event (this year, Andy Murray hoisting the winner's cup was 6/1, at the start of the fortnight, or the same price as Italy being the first country to leave the Eurozone), Sky, the British satellite broadcaster, also has a sports-betting arm which utilises an app developed by a Swedish company to lure punters to 4,000 events per week.
It doesn't take a great leap of imagination or technology to see what's around the corner, as University of Nevada, Reno's Professor Bill Eadington, explains.
In broad terms, the transition from illegal to legal increases the potential betting market 20-fold, Eadington says. This may also be true for sports betting, which now relies on big bettors for the majority of its turnover. Smaller bettors, discovering that they don't have to go out of their way to make a wager, are the ones most likely to power this forecast increase in the market's size.
But, he adds, and this is where Cantor Fitzgerald and its new competitors re-enter the discussion, "if you could do it [place a bet] on your couch, watching the TV — that would be a game changer."
Lee Amaitis, the CEO of Cantor Gaming, agrees. With in-game betting, the idea is to attract an increased volume of wagers around any televised event, which in turn increases the sports book's income because of the commission it takes from each bet, win or lose. This means that the company's fortunes are not driven by the usual bookie's calculus of gain or loss, but by the sheer number of bets it attracts — the same principle that applies to Wall Street trading floors.
Recent events in Australia and the United States highlight the different directions that online sports betting is taking in each country.
An interim review of the Australian Interactive Gambling Act released in late May recommended the introduction of some in-game betting by both phone and internet, providing the type of betting has the approval of the governing body of that sport. But, as a report by the law firm Addisons points out, this would give a small sporting body like Basketball Australia control over Australian betting on NBA games.
The deadline for comments on the recommendations was June 25. Stephen Conroy, the Broadband, Communications and the Digital Economy Minister, has yet to respond to the recommendations.
In the US, election-year politics dictate that this will be a discussion for another time.
There is another factor at play as well, according to Eadington.
"Australians pride themselves on thumbing their noses at old British values, and gambling plays a part in that," he says. "In the United States, we're more ambivalent."
Historically, betting in England was the province of the leisured upper class. The lower echelons of society, which contributed convicts to the early settlement of Australia had neither the time nor the money to risk anything on games of chance, or sporting contests. These outcasts who became Australians could make up their own games of chance, like two-up, and the SP bookie became a fixture in many communities. Because such betting was deemed illegal by the Crown, it was embraced.
America, born of revolution, out of a desire for freedom of government and religion, was less concerned with such cultural rebellions. Its earliest immigrants, who came from all over Europe, were similarly unburdened by such baggage.
Eadington offers a set of numbers to support his case for this national ambivalence. He says, in the US, 80 per cent of gambling revenue comes from 20 per cent of the population; in casinos, the ratio is 80-10. "In sports betting, it's [even] more concentrated than that." So the victimless tax revenue is supplied by a percentage of the population so small, the rest of the nation hardly cares about them.
Both the biggest punters and the biggest sports books such as that run by Cantor Gaming, rely on algorithms — software that acquires and processes information, divining mathematical patterns and correlations — to either set or target a price, in an instant.
There is also, on both sides, an overlay of instinct and observation and guesswork, the single thread that connects this brave new world of legal-but-not-legal sports betting in Las Vegas with its origins: the four-legged lottery, two guys fighting in a ring, two flies crawling up a wall.
As for Calvin Ayre, he remains at large, in every sense of the expression. If found guilty, he faces prison sentences of up to five years for illegal gambling, and 20 years for money laundering (the processing of bets through the various Bodog sites).
His eponymous website offers no hint of apology. Instead, it continues to promise, "Gamblin', drinkin', and carryin' on".
You might also think that he knows something we don't (hasn't that always been the province of the bookie?); that when a Wall Street trading powerhouse, Cantor Fitzgerald, and the biggest legal bookmaker in the world, William Hill, both set up on the Vegas Strip, there is something more in play than just betting in Nevada.