Sports gambling has been an increasingly hot topic among many lawmakers over the last decade or so. Many states view sports wagering as a big opportunity to tax and profit off of sports on a state level, similar to that of how marijuana has recently exploded and helped a number of states recoup large tax profits from their sale.
For as long as laws have been around, criminals have refused to follow them, and it’s that fallacy that has allowed these criminal enterprises to profit off of people betting on sports, instead of the state and local governments bringing in the revenue.
On June 30th of 2016, Brooklyn District Attorney Ken Thompson uncovered one of the best examples of how governments are losing out on large sums of money by not allowing sports gambling was uncovered. An underground sportsbook operation that had roots throughout the entire United States was discovered and the number of bettors and money that these operations are accumulating are absurd. This particular operation had over $927 million wagered on NFL games alone during the last regular season. Just think of what local and state governments could do with even a small fraction of that money, which they would make through taxes if they were to ever allow legalized sports betting in casino sportsbooks.
The base for operations of this large scale, illegal sportsbook was no other than the rain forests and sandy beaches of Costa Rica.
One of these common, everyday bettors caught up in the allure of the easy money of sportsbooks was Dave Johnson of San Jose who was working with an agent, or bookie, in their Costa Rica office. See, not only was the illegal book taking people’s wagers, but they were also selling picks and charging a pay-per-head fee for each bettor.
In an interview with the only sports betting forum and website, Covers.com, Ken Thompson explained, “I kind of stumbled upon this. I had an agent that had a credit book out of Florida that called me up and he said, ‘Hey, I want to put my customers into you’. I said let’s work out a traditional credit sheet for you, and he said, Well, I’m looking for something different. Can you just charge me a flat fee every week for each one of my customers?”
After years of being in and around the industry, Dave Johnson started his own online sportsbook, and was met with a tough challenge to keep pace with the established sportsbooks of the region. After doing extensive research on this tactic and technique known as pay-per-head in the sports gambling and sportsbooks world, it wasn’t long before Dave Johnson was a successful sportsbook owner in his own right and taking wears from hundreds of clients. His first successful pay-per-head sportsbook was known as BookOffshore.com, and quickly grew into a major contender and was buying ad space all over the sports gaming platform.
Pay-per-head operations offer amateur sports bookies their own personal interface and website to take people’s wagers, give them access to customer support, representatives that take wagers over the phone, and custom websites to appear as a professional sportsbook. For those amateur bookies that take bets over the phone from friends and mainly keep records by pencil and paper, this pay-per-head operation was revolutionary. It allowed them to open their doors to a whole new landscape of bettors, as well as add to the overall professionalism of their own service, and potentially charge higher juice or big to place wagers due to the reputable appearance of their operation.
One of the biggest differences between these pay-per-head operations that function in the shadows of the black market and the legal sports casinos in places like Las Vegas is that in legit sportsbooks you need the money you’d like to wager upfront. However, in pay-per-head operations you can get up to $500 of credit for wagers, depending on your relationship with the bookmaker. Of course this is where the shady part of the industry comes into play when people who made wagers on credit and lost and didn’t pay. Most of these pay-per-head bookies had their own muscle to enforce this credit service and keep people honest in paying for their wagers.
Many bettors will spread out their action between both legal and legit sportsbooks as well as some black market ones, as the lines sometimes vary greatly from one to the other, so playing them from multiple angles can help you be more strategical in your own wagers.
These pay-per-head operations are growing in popularity very quickly, and as evident by the large scale operation that District Attorney Ken Thompson helped dismantle, they’re making lots and lots of money off sports betting remaining illegal.
Imagine what states, as well as the federal government could do with the billions of dollars in new tax revenue, instead of the money going to criminal operations. Similar to the war against drugs, and particularly marijuana, by keeping it illegal you’re simply rewarding the criminal enterprises that profit from its distribution.
The PPH industry has went through a major overhaul in recent years, whereas the majority of their operations used to be handled by in-house phone reps who took wagers all day, to now being more sustained remotely and most of the illegal business being taking care of online through offshore servers that function outside of the jurisdiction of US government agencies.
Dave Johnson sold his original PPH operation in 2009 and immediately started a new one called Thebestperhead.com. This operation currently caters to about 10,000 bookies, some of whom take wagers as large as $100,000. With that kind of money being thrown around, it’s easy to understand how one of these large scale PPH operations amassed over $900 million in profits.
No matter what regulations are put in place, or however hard the federal government tries to crackdown on illegal sports betting, they’re fighting an uphill battle, and trying to stop a flood of increasing popularity. Due to the connections of some of these PPH operations to actual organized crime syndicates, the federal government has vested interest in ensuring that these operations are regulated and safe.
The only obvious answer is to legalize sports betting on a federal level and leave it up to the states to decide what they want to do. This is the only way to rob the criminal organizations of their control over the dark industry of black market sportsbooks, and to also help the states benefit directly from offering their own versions of legalized sports gaming.
One of the most well known sports gaming lawyers in the country, Dan Wallach, sat down with Covers.com and shared some of his insight into the realm of illegal sportsbooks.
“I know the U.S. has been quite active in trying to shut down these sites. (Pay-Per-Head) does operate in a legal grey area in that they’re not handling money, but it’s undeniable that they’re inextricably intertwined with illegal gambling activity, otherwise they wouldn’t exist,” Dan explained.
He later went on to touch on the recent political push for sports gaming legalization saying, “If you look at the volume of wagering activity that’s taking place in the underground market, no amount of arrests has proven successful in stopping the spread of illegal gambling activity. And that’s why it’s going to become legal within the next five to seven years, because the realization is that the best way to protect professional sports and protect the integrity of the game, and benefit governments, is to monitor and regulate it.”
It seems inevitable that the federal government would continue to shun the logic of legalizing sports gaming, but as more criminal operations come uncovered by the crackdown, it’s going to be harder and harder to convince the voting public that the rewards of legalizing sports gaming far outweigh the cons.