Senate Bill 443 was passed in 2015 which permits a person or persons to set up shop in Nevada and offer sports betting as an investment opportunity. The entity or fund manager can take investors from anywhere in the United States and can charge scheduled fees or commissions in exchange for their managing of the fund. This includes placing all the bets and all the decision making that goes into choosing those bets. It’s been most often compared to a private hedge fund for sports betting, but many similarities to the “sports advisory” business (selling picks) are there and they’re undeniable. With football season less than two months away, the entities are all looking for clients right now so here’s some things to consider if you’re looking into investing.
The Entity
From the entity side, the application process is the initial step and it’s reportedly far from a rubber stamp. Many have submitted applications but only a few have been approved, with less than 10% of those applying so far having been given the green light. Nevada currently has nine authorized betting entities but that count will almost certainly rise by the start of football. The application process is somewhat invasive but if an entity gets approved then the hunt is on for investors. The entire Bill 443 lays out what’s required to become an entity along with the dos and don’ts once in operation. Some of the don’ts carry significant penalties, many geared toward keeping the investors from having any input on what the entity invests in.
Once you’re a state sanctioned entity, it’s then on to the task of raising funds through investors. A number of the entities have their own websites and there are also sites that will help you find an entity if you’re a prospective investor. At least one site will walk you through that process and submit your information to the state and the sports book. Then there are those who’s objective is to provide details on the entities so that investors can make an informed choice. Sites like WagerTraders, run by Las Vegan Todd Hendricks, aim to be an information portal for the entity business. It’s a good place to start your research if you’re looking at investing in entity betting. Affiliate deals are most likely in place, so it’s recommended that you follow up with your own research before finalizing selections.
The Investor
There’s an approval process from the investor side as well. Aside from choosing an entity to subscribe to, there’s an investor vetting procedure, which may include a background check, a verification of where the applicant’s funds originate, and possibly other details. This information is submitted to not only the state, but the sports books that are involved as well. There are KYC (Know Your Customer) regulations that must be adhered to and much of that is supplied to the sports books. The books want to know who’s investing and where the money being used to bet is coming from.
Investment requirements vary. Minimum deposits start as low as $500 at the entity BettorInvestments and top out at $25,000 at NSIG so there’s an entity out there priced to fit every bankroll.
If prospective investors aren’t already turned off by the application process then here are a few issues they may want to consider.
Issue #1:
CGTechnologies is the only book currently available to entity groups. Perhaps other books will participate down the road, but for 2016 it looks like it’s just CGT. The obvious problem with this is that you have one line and one line only to bet into. It’s the elephant in the room when it comes to entity betting and it’s a really big elephant.
There’s not a professional sports bettor I know, or have ever heard of, who has just one out. This isn’t a minor detail, it’s a huge negative component in the equation that cannot be dismissed. Beating sports requires resources, meaning you need to be well-funded and with as many outs as possible. Of those two, the number of outs should be the first priority. With just one place to bet, you’d better hope the house is as weak as the corner bookie using the local newspaper spreads, which CGT certainly is not.
There are 20 different sets of lines in Nevada. Entities and their investors get access to just one, so they’re able to wager their bankroll vertically (bet high) but are blocked from spreading their bets horizontally (line shopping) due to the current conditions of having access to just one out. Right now, entities must take it or leave it as far as the lines they bet into.
From time to time I get approached by sports bettors looking for advice on making the jump from serious recreational bettor to professional. The first thing that’s always recommended is to get as many good outs as possible. So the #1 thing on the to-do list for a successful advantage bettor is the one thing that an entity is incapable of doing. Not a good start.
Issue #2:
Fees. How much does it cost to take part in an entity? They all have different rates, time frames, minimum deposits, and collection schedules. All fees are non-refundable and while some of the fee set-ups are predicated on showing a profit, it’s still a total freeroll for the entity, especially when you factor in what could be unfavorable settle increments. In the “we only charge a fee when we win” claim, it may appear that if the entity wins, the investors win too — but that’s not necessarily the case. If they win, you MAY win — or you may not.
At a 30% commission rate settled monthly, a two-month stretch of +40,000 and -40,000 would cost the investors $12,000 in commissions, even though the fund breaks even on the bets. Are you beginning to see the hill that an investor must climb to make money? A winning record isn’t really an indicator of profitability for the client. You have to determine if the entity can win enough so that there’s some profit left for the investors. A six-settle-period run of +30,000, +20,000, +80,000, -50,000, +20,000, and -60,000 is an overall win of +40,000. But after the commissions of 30% per winning period, the investors are paying $45,000 in commissions. So what many would consider a pretty successful overall result merely gets the investor close to breakeven. The entity collects $45,000 in commissions on the four winning segments and sends nothing back on the two segments that lost. Your settle points matter and making up losses is not part of any entity settle details that I’ve examined yet.
Period | Result | Commission | Net For Investor |
---|---|---|---|
Period 1 | +$30,000 | -$9,000 | +$21,000 |
Period 2 | +$20,000 | -$6,000 | +$35,000 |
Period 3 | +$80,000 | -$24,000 | +$91,000 |
Period 4 | -60,000 | zero | +$31,000 |
Period 5 | +20,000 | -$6,000 | +$45,000 |
Period 6 | -50,000 | zero | -$5,000 |
Totals | +40,000 | -$45,000 | -$5,000 |
These are just a couple examples used to illustrate the effect commissions can have on an investors end result. There’s a little more to it than that and not every entity uses that commission format, but the advantage that the entity holds is obvious. The settle timeframes and sample sizes within those timeframes will dictate how big an advantage they actually have more than any other component. A bad commission structure makes it virtually impossible for an investor to realize a long-term profit.
In addition to the commission, some entities also have deposit and withdrawal fees and others may restrict your withdrawals to specific parts of the calendar. At least one entity I looked at limits withdrawals to just twice per year, so you may be locked in for as long as six months. It’s all in the details when investing with an entity, so doing your homework and understanding what the fees and terms of those fees mean is critical to making an informed decision on whether or not to get involved.
Issue #3:
It’s the perfect tout vehicle. The similarities between the entity business and the tout business are numerous. Both allow for unverified claims of expertise at a level that the customer should be willing to pay for. Both get paid largely on volume and do not necessarily have to win for the client to turn a profit for themselves. Also, the advertising aspect is currently unregulated. Claims are being made on the basis of “projected growth rate” and previous records that are difficult to document. Some advertise records based on simulations and not actual results. Once again, it’s up to investors to navigate through all of this and decide what matters and what doesn’t when selecting where to invest.
The whole topic of documentation and full transparency regarding past results is a real problem for the entities. A big determining factor in their success or failure will be the ability to compete with the others for investors. If only verified entity records are allowed to be touted, then it reduces the situation to a survival-of-the-fittest scenario. The ones who compile the best records early will naturally have a leg up on the ones with inferior records as well as any start-up entities with no records at all. As the law stands right now, no requirements are in force regarding how they fish for investors. According to the entities, you’re no longer gambling, though — you’re investing, which is a distinction without a difference some would say, and the type of come-on touts like to use if they can sell it. The ability to use terms like “state-sanctioned” and “gaming approved” adds a perceived air of legitimacy to these groups. Seeing those terms thrown around while searching for info on an entity may lead you to make certain assumptions as to the results and projections being cited.
The vast majority of touts run from accurate record-keeping and reporting like a vampire fleeing sunshine. Will the entities adopt the same MO as the touts and, more important, will the state have any say on how an entity presents itself? It’s a topic that regulators probably didn’t give much thought to when drafting the law, but may have to look at if things start getting out of hand. When thought fully through, it’s something of a Catch-22 for the state. Allowing only verified records accumulated as an entity will most likely be a death sentence to a group that starts out on a bad run. Just like in the tout business, full transparency will almost certainly not be good for business.
In all fairness, you can understand the entities predicament when it comes to records. A good short-term record doesn’t actually prove much, but neither does a poor record. The reality is there’s not a whole lot to go on if the entities aren’t willing to divulge details on their methodology. Stating that their selection process is based on proprietary algorithms and computer modeling is in the same ballpark as the touts saying they have a team of top handicappers and inside industry sources. Both sound good — one just sounds more technical. Neither really tells you anything, though, and in the end it’s the seller telling the buyer “just trust me”.
Which direction the advertising aspect heads will probably be the most interesting thing to watch as entity betting moves forward. How tout-like will this all get and how involved will the state eventually be in governing an area that will be very tough to control?
Senate Bill 443 was passed with the same general intent as other Gaming regulations. To provide the state of Nevada with tax revenue while establishing guidelines for the casinos to operate games that are deemed fair to the public and at the same time allowing the house to turn a profit. Nowhere in there is the intended result for the players to win. After all, it’s still gambling and it’s still a zero sum game. If someone wins then someone has to lose. There are four participants in the profit equation — state, entity, sports book, and investor. They’re listed in that order for a good reason. Put another way, all four can’t win.
In Part Two I’ll look at the actual commissions, fees, and timetables the various entities are using and build a comparison chart. Then I’ll discuss what it takes to churn a profit betting sports and exactly how well the entities will have to perform to accomplish that for their investors.
(Editor’s Note: Part Two of this report was never published. The whole idea of entity betting fizzled out quickly and there was no reason to investigate further.)
Related Items True Cost Of A Tout Or Runner
These are all valid and important reasons why this makes no sense. The single-out reality alone pretty much precludes any of the entities being able to win consistently and significantly, but the settlement scenario is insane. There has to be a make-up provision of some type or you can’t even consider it.
Thank you for the mention, this whole idea of entity wagering is new uncharted territory from a legal viewpoint, as a handicapper looking at it has been this way for years. The states idea is to tax as much money as possible with the resources it has, it stops some of the money flowing out of the country and hopefully creates a market similar to the NYSE once the brokers and investors in New York see consistent positive returns sky’s the limit.
Another bill passed along with SB 443, that states back of house sportsbook operations can be run from Nevada in permissible jurisdictions, SB 445. You will see storefronts in every state and country that has legalized sports gambling, but you would have to go through a broker connected to an entity in Nevada.
If you are already linked into a pool this gives law abiding citizens a way to get sports action without breaking any laws. Not all of the funds will be public. I can’t find any information on at least 3 of the funds and I’ve only listed 3 funds on my site because they are sharing information publically and I’ve able to verify with the state and CG they are legit businesses.
The other books in town already have entity wagering staff watching what happens with CG. I found in MGM’s terms and conditions
(http://www.mgmresorts.com/playmgm/files/Terms-and-Conditions.pdf) updated May 17th, 2016 3.3(d)
3.3. You may deposit funds into your Account by any of the following methods: (a) an in-
person cash deposit made at the race and sports book at one of the registration locations
identified in Section 3.1 hereof; (b) an MGM-branded reloadable prepaid debit card, which has
been verified as being issued to you and is non-transferable; (c) winnings from the use of the MGMApp.; and (d) through a business entity wagering account as permitted by SB 443 passed by the 2015 Nevada legislature and the regulations pursuant thereto.
The fee structures will be refined as competition between the public entities becomes an issue. Realistically fees are a part of investing, Wallstreet brokers collect huge fees whether the market does well or not, if your broker isn’t making money most people will find one that will.
Most public funds will have to use their own money and lay the groundwork to prove themselves to stand a chance. That’s how you start a hedge fund of your own.
I will have a 4th fund listed soon and the become an investor/ become a fund manager sections of the site up as soon I as I am certain I have the complete picture
Great article. CGT has good lines, but not always the best in LV. Can’t withdraw your $$ – Huh? You & I can walk into any casino 24/7 and cash our tickets, I am sure the entity people will also. Have you and Anthony started your entity application process yet? Let me know when you’re approved – I will be your runner to place the bets.
When this was first announced quite some time ago, and I heard the initial details of what the particulars would be, my initial thought was, who would be so foolish as to partake in this? Now that Frank’s detailed article has pinpointed so many obstacles, red flags, and improprieties, my usually logical and pragmatic mind can’t fathom how a sane person would get involved in this venture. Really? One has to go through all of those processes just to be approved to invest to make bets? As for the sharing of the pot, if there is to be any sharing, it is like raking too much at a poker game. The few fish that are there can never have a shot and all the money gets swallowed up by the rake too quickly, this killing your customers and game (in this case killing the investors).
No one has even mentioned yet that Cantor is notorious for cutting off winning players. Since they are the only out you have, what happens if one of these charlatans gets lucky, starts winning, and CGT cuts them off, or lowers their limits to $5 max bet?
Anyone who invests in this nonsense is insane.
That’s another big question mark with this. Do know that these are dedicated accounts the entities will be using. Find it hard to imagine that the deck is that stacked in CGTs favor that they’d have the option of cutting off (in essence shutting down) an entity.
Hello,
It is refreshing to read some realistic comments on entity betting from the experienced sports-betting community. Both Frank’s article and the string of comments above highlight a number of issues. When this re-surfaced last year, I never thought the bill would pass. When it did, I sought advice on possible sound business models that might prosper under terms of the Act. All your comments are valid, but the entity betting still could prosper..
Very nice article. Your issue #1 is spot on and raises red flags for me. No professional bettor would ever limit himself (or herself) to one out. That’s a losing proposition.
I don’t think CG will want this action for very long unless the entities lose money. I struggle to see the win-win-win in this scenario for all the parties involved.
If the entities win, investors may win if there’s a high watermark and the money isn’t eaten away in fees, etc. CG’s profit margin suffers.
If the entities lose, investors lose unless they can use it as a tax write-off (which they can’t). CG wins in the short term but the flow of new money from the entity stops.
Unless CG is planning to charge the entities a fee for participating, it doesn’t seem to make sense from a financial standpoint.
Perhaps if there are hundreds of entities, then it would make more business sense as you could have more balanced action. That and additional sportsbooks will have to get involved to increase the liquidity.
Why would a sportsbook take bets from a fund that supposedly is a winning client?
I would understand it if we would be taking of an exchange (eg. Betfair), but this is not the case.
This is just a surprised comment from someone from the other side of the Atlantic. Am I missing something???
The whole thing makes no sense.
Not sure if this vehicle to “invest” in is still going on in the US, but having just read this most interesting article, there can be only two guaranteed winners to come out of the whole situation, 1. The State and 2. The Entity, period, as the whole system is based on the touts “Pay as you win” scenario, where the “investor” takes all the risk and the tout, makes all the profits with zero risks.
That said, it would appear that US citizens seem to love to lose at gambling given the last stats available in 2014 where they pushed their all-time record of $119 Billion set the year before, to a staggering $143 Billion, wow!