Leveraging Historical Information to Create Value in the Sports Wagering Business
by Charlie Newton
Industry Overview
Sports gambling is a highly profitable yet highly fragmented business both domestically and internationally. Last year alone over $2 billion in wagers were placed with legal sports book in the United States generating revenues of nearly $150 million. Unfortunately for most young entrepreneurs, sports bookmaking is illegal throughout most of the United States. Rather than be shut out from the potential profits to be realized by "making a book," many of these entrepreneurs have chosen to open businesses outside of the United States to service the enormous United States sports wagering marketplace. Interestingly, the Justice Department has not ruled such activity illegal, and magazines are beginning to see advertisements promoting "legal off-shore sports wagering."
Numerous offshore companies have been formed over the past two years to make a market in sports wagering. These competitors can be stratified into three levels based on the services offered. The first level of competitors are only willing to accept bets over the telephone and advertise primarily in newspapers, magazines, and in some cases on other companies’ web sites. The second tier of competitors have chosen to expand the competitive battle field and have developed Internet sites as a method of advertising their services. Finally, the third tier of competitors have gone one step further and have created web sites that will actually allow customers to place wagers from the privacy of their own personal computer.
The least technologically advanced of these companies have chosen to simply advertise on other web sites for their services. For instance http://www.sports-casino.com/ is a web page listing 33 off-shore sports books with telephone numbers should one wish to place a wager. Interestingly, only one of these 33 companies maintains their own Internet site. The second level of competitors consists of companies such as Paradise Sports (http://www.paradisesports.com) and Carib Sports Book Inc. (http://www.interpublish.com/cgibin/var/fpublish/caribsportsbook/index.html) who use the Internet as a method through which to advertise their service offerings by developing their own web pages. Typically these web sites describe the services offered by the company, provide information on how to set up an account and how to place wagers, and often they will contain links to current sports new and lines. However, these sites are used solely as an advertising medium and are not dynamic with the viewer. Finally, the most technologically advanced companies such as InterTops (http://www.intertops.co.at/inter/engl/index.html), Sports International (http://www.gamblenet.com/sports/), and Real Casino (http://realcasino.com/) have created web sites that enable web users to open an account, make deposits or withdrawals, check current lines, and place real and simulated wagers all over the Internet.
Each of these companies hopes to attract new clients. Once a client decides to open a wagering account with one of these firms, the client sends a deposit to the firm (usually a $1,000-$2,000 minimum initial deposit is required to open an account). The firm then holds the deposit in a bank account off shore and grants the client permission to place bets in an amount up to, but not exceeding, the current balance in the account. Typically the firms require a $50 minimum per wager. When the account drops below $50, the client must wire more funds to the off-shore company before any more wagers are allowed. The books are compensated by charging a 10% fee for each wager placed (i.e. the client bets $110 to win $100 in a straight wager). Additionally, the books earn interest income on the cash held in the bank accounts. This said, it is in each book’s best interest to maximize both the size and number of bets placed, as well as the amount of dollars on deposit.