Sports betting is a $4bn annual business in Nevada, but a change in state law has opened up a whole new range of opportunities for sportsbooks to increase their business by allowing wagers from out of state investors.
Call it mutual funds for sports bettors.
Legal “entity wagering” funds in Nevada work by allowing state registered businesses to accept money for bets from investors living outside the state. But like a 401(k) plan, the investor does not actually make the bets. The company in Nevada does.
Nevada race and sports books can refuse to accept these funds’ bets, just as they are free to turn down wagers from individuals, according to an executive with CG Technology.
CG Technology, which operates eight sportsbooks in Las Vegas, was one of the authors of Senate Bill 443 and helped guide the bill through the 2015 Nevada legislature.
Quinton Singleton, vice president and general counsel at CG Technology, expects entity wagering to have a noticeable impact on the race and sports book business.
The popularity of sports betting reached record levels in 2015, with Nevada sportsbooks taking in an all-time high of $4.23bn in wagers.
The Nevada Gaming Control Board said bookmakers won almost $231.8m last year on that record handle.
Singleton said that entity betting is simply an opportunity to grow liquidity and expand the marketplace by bringing in new people to the gaming industry, many of whom are setting up businesses in Nevada.
“They are bringing business to Nevada … that’s important to notice,” Singleton told GamblingCompliance.
He said these funds will also employ different investment strategies, similar to any mutual fund or hedge fund. Singleton noted that some funds might offer a minimum investment of $50 in an effort to get 1,000 people, while others might limit their pool of potential investors with a $50,000 initial investment.
So far, CG Technology, formerly known as Cantor Gaming, is the only Nevada gaming company to allow entity betting. The company has been getting requests and has published a guide to establishing an entity account on its website.
One of those entities that have placed bets with CG Technology is Reno-based Bettor Investments LLC. After attracting interest from more than a dozen initial investors, Bettor Investments placed its first bet on March 29.
“I lost my first bet, but won the second bet,” Matt Stuart, founder of Bettor Investments, told GamblingCompliance.
“It’s a brand new part of the business. I expect a deluge of people wanting to participate in our legal sports-betting investor fund.”
Since April 1, Bettor Investments has posted 11 wins; six loses and pushed two bets, according to a tally on the company’s website. Stuart said the fund has wagered on baseball, hockey, basketball and soccer games.
As of Tuesday, Stuart said there were more than 20 potential investors in the pipeline who are ready to deposit between $500 and $2,500 with Bettor Investments.
The maximum investment limit will be raised on an individual basis on July 1. Stuart said he developed “internal controls” at the start so he did not put “investor money at risk on a massive scale.”
Stuart declined to say how much money he has raised, or how much money he has wagered on his company’s first 19 bets.
“I’m excited that we were able to get this completed in time for the start of the 2016 Major League Baseball season.” said Stuart.
“It’s been a long nine months, but Nevada continues to show leadership when it comes to helping promote options for people outside the state to participate.”
Stuart said he has received interest from people all over the world, including Spain, Austria and Switzerland.
“I’ve even had one potential investor interested in a five [figure] investment with us, but I’ve asked him to hold off until July 1,” Stuart said.
Bettor Investments expects to launch additional funds later this year, especially an NFL betting fund in July. The idea is to collect money from investors who are only interested in professional football “right before week one before cashing out after the Super Bowl,” Stuart said.
In Las Vegas, Blue Chips Sports Advisors is an entity wagering firm that is still in the development stages, according to Rajeev Sharma, who founded the company with his partner, Maxwell Phillips.
Blue Chip Advisors fund will mirror that of a mutual fund, according to the company’s marketing materials. Fidelity defines a mutual fund as an investment program funded by shareholders that trades in diversified holdings and is professionally managed.
“Our goal is to begin operations by baseball season 2017,” Sharma said.
SB 443 was set up to be transparent, Singleton said. According to the law, each sports-betting entity must register with Nevada’s secretary of state, and the entity must disclose what is being wagered on to its investors.
Stuart told GamblingCompliance that he sends out a text to each investor after each wager on an event begins.
Each investor must submit their name, address, proof of identity with a government issued ID, and tax information to the betting entity. The entity is then required to disclose that information to Nevada regulators.
Investors must be 21 or older, and bettors have no say about what is being bet on.
The information will allow the race and sports book to do a background check to make sure the businesses and identities of those involved are suitable.
The sportsbooks are responsible for collecting the information, but Nevada gaming regulators have the option of reviewing a business entity’s members and investors.
Furthermore, an investment group’s funds must be deposited in a Nevada bank. Stuart said those funds will then be transferred electronically to CG Technology for the purpose of placing a wager.
Any profits will then be transferred back into the entity’s bank account to be either used to place additional bets or paid out to investors, according to Stuart. He said that he expects investors will be paid quarterly.
Singleton said entity-wagering is “square with all state and federal laws.”
He said the law does not violate the U.S. Wire Act, which specifically bans the use of telephones and the Internet to transmit across state lines any wagers and information regarding bets on sporting events.
“Casinos wire funds in and out all the time,” Singleton said. “They’ve been doing that for more than 20 years now.”
Daniel Wallach, a gaming lawyer with Becker and Poliakoff in Fort Lauderdale, Florida, was a bit more cautious in his assessment of entity wagering. Wallach said Nevada’s expansion of sports betting “is precisely what PASPA was passed to avoid.”
The Professional and Amateur Sports Protection Act (PASPA) is a 1992 federal law that restricts legalized sports betting to a handful of states, including Nevada, Delaware, Montana and Oregon.
“It can be seen as violating the spirit of PASPA, if not the law itself,” Wallach told GamblingCompliance.
“In all likelihood Nevada’s law will largely escape scrutiny from PASPA and the Wire Act. Without a willing plaintiff it is ruled … academic at this point.”