Dear Browsers, Lurkers, and Posters,
A few months ago I spent a day out at Aqueduct with Freddie talking about the offshore industry and about the possibility of writing a column for this site. We thought it would be a good idea to try to give site visitors a sense of who they might be doing business with should they open an account with a MajorWager endorsed book. The plan was for me to make some visits, develop some contacts, and write some profiles and articles aimed at introducing the readers to the guys in charge as well as providing some general sense of each book.s distinct history and personality.
At the time I wasn.t at all worried about misleading readers. The site offered free insurance to anyone who it funneled to a book, and that impressed me. I figured it was a high growth business and I knew that the site was at least somewhat selective as to who got on "the list," so I happily planned to visit the sponsors, talk to them, and write up the results.
My view of my responsibilities isn.t quite that simple anymore. I am now of the view that when MajorWager canceled its commitment to insure accounts it quit being in the business of vouching for books, and it therefore quit being in the business of watching over them. When the site was standing behind its recommendations by guaranteeing accounts, I had no hesitation about putting a good face on any advertiser I happened to spend some time with. Now, though, when ad revenue is coming in with no concrete guarantee that the ad-placers will pay, I.ve begun to think of my job as a more delicate one.
Considering the site.s inability to offer monetary guarantees to those who act on its information, I no longer want to go out and tell a book.s story just because they happen to be paying ad fees. I would feel crummy if I did that, and based on my account, a reader deposited funds to a book that went under.
Given the new climate in the offshore world, then, I want to explain how I.m thinking of this job now. One of my goals is still to tell stories and to provide as much background information as discretion allows about people in the business you can get on the phone. Our hope is that by knowing a little something about someone up the ladder at a book you can feel more comfortable in getting information from them. But I now want to say explicitly that although I want to make you comfortable, I also want to admit freely that all I can give you concerning these books are impressions, hints, seeds, pieces of information to put together provisional judgments. As you will see in the second half of this column, I myself have not always made good judgments about sportsbooks despite having information to do so.
So not only have I been proven fallible, but there is also the fact that no one I visit or talk to on the phone is going to show me their balance sheet or tip their hands if they.ve been hacked, vultured, ghost-bearded, or if they gamble rather than book. So I.ll do my best to ask the right questions and give my best opinions, but protect yourselves at all times.
Put plainly, this is not a "watchdog" site. The site owners don.t want you to think it is, and no one with any sense should see it that way. This is a site on which information about offshore betting is brought forward, thought about, weighed, sifted, and considered. It.s all partial information that needs to be viewed in as many lights as possible, and perhaps the most important of these are the biases of the posters. All that said it.s my opinion.and my bias.that this site has more smart bettors and informative bookies posting on it than any other. The give and take I see here has taught me a ton, and it seems to me that collectively MajorWager posters have more information, share it more generously, and deliberate on it more carefully than the posters in any comparable forum.
As a column writer for such an information site, then, what can and can.t I offer to those who come to these pages? First off I.m not a journalist, so I.m not going to be breaking any big scandalous stories. I.m just a guy who is always trying to develop his good opinions and who happens to know a few folks in the offshore industry. I like talking to bookies and bettors, and look forward to meeting more of them in the years to come. Like most of them I.m fascinated by the industry and am always learning stuff about it. So in this column I.m going to tell you about what I.m learning as I.m learning it.
Sometimes I.ll visit bookies and report back on some part of the bookmaking process. Occasionally I.ll tell a story about a book, or do a profile of or report a conversation with an owner or operations guy. I might tell you what I.m thinking about some handicapping issue that comes up, or write about some new published material on the economics of the gambling industry or the arts of handicapping and wagering. I.m also going to keep my eye on the emerging possibilities for electronic funds transfers, as well as the new bet-matching technology that might lead to new wagering forms with reduced transaction costs for bettors.
I.m planning to write this column once a month until I run out of gas, and I hope that.s not for a long time. This month I.m going to be remembering and thinking on paper about why I did such a poor job of evaluating Aces Gold, even though in hindsight the information to make me wary of it was right under my nose.
About three years ago the great contrarian NFL handicapper Count Zero sent me an e-mail detailing how Aces Gold let you buy off three for a dime.
To anyone with a slightly mathematical mind this meant Aces Gold was giving away money. Discovering that this was a decently regarded book and not a start-up and that the promotion had been maintained for several years, we asked ourselves the same question over and over: How they could afford to do this at such high limits?
The vig-free promotion didn.t bother me because I figured by Friday they probably got close enough to two-way action to write off a good part of their NFL handle in order to generate account activity in college football and NFL-totals, but there seemed no explanation for the buying-off-three-for-a-dime policy. Yet it had to be explained. Thinking about it drove me crazy. I wanted to borrow every penny I could get my hands on and pour it into drawing money from those middles, but something wasn.t right.
I finally settled on the theory that the internet lowered the cost of business so much that they could afford the leak, and I rationalized that they had discovered economies of scale other books were too stuck in their ways to figure out. As we shall see, I got stuck in this rationalization. I decided not to mortgage the house to hit middles, but it was more a comfort level than an insightful decision.
At the beginning of last football season I was having dinner with an investor in a large book. The subject of Aces Gold came up, and he mentioned how upset the bookmaking community was at the threes practice. This was the first I had heard of other books being angry at Aces, but I could see why. In the great contest between all the bettors and all the bookmakers any non-standard line gives the bettors more value, and consequently, the bookmaker.s less hold. Readers of Reno.s posts will remember his argument that line variance may decrease the book.s margins, but it will increase volume and their net hold. Maybe, but I.ve never met a bookmaker who thinks that.
The backer got hot on the topic, and he told me this story. Once upon a time the Rockefellers and the Goulds both owned railroads and were cutting prices on shipping cattle in an effort to drive each other out of business. Though they both had negative earnings per cow shipped, they planned on making up their losses by raising their rates after the other had folded. The price cutting war raged on and on until Rockefeller started making a profit by buying and shipping cows on Gould.s railroad and ran him to broke that way.
Late last football season I was talking with someone at CRIS who said, "Sports Market-Aces Gold is going to go bankrupt." I said, "What.s your evidence?" He said, "I do our books. I know our handle, and can get guess theirs. I know our margin and can guess theirs. They will go under." Because another mainstream bookie had told me the exact same thing the year before, it didn.t occur to me to take the warning seriously even though I took the man warning me absolutely seriously.
Now we.re at the heart of the matter. All established offshore books (I don.t consider Australia offshore), with the exception of Pinnacle, are absolutely committed to the necessity of eleven to ten. Privately they will tell you that they can.t make money on less, and if they have no shot of making money with their established customer bases, then newer books in the present saturated market offering less than eleven to ten have less than no shot.
It is worth repeating the CRIS position posted on these boards: It was not bad bookmaking that led to Charlie.s fall, it was bonuses (and the threes policy was a form of bonus) that led him into bad bookmaking.
You have to respect that argument, not least because it led to a dead-on evaluation in the case of Aces Gold. One has to accept, I do, that the risk of doing business with discount books is greater than that of doing it with the high volume mainstream eleven to ten operations. But the difference between betting into a dime and twenty-cent line can be the difference between having a serious hobby and making a serious living. So I am going to keep an open mind on the possibility of a discount book making it and forcing everyone in the industry to reduce the juice.
The main reason I think this could happen sometime in the next ten years is because of the way that technology has reduced the commission costs of trading stocks over the past decade. Believing in that analogy got me burned regarding Aces Gold, but I still see bookies as in a brokerage business. If there are now potentials for making that kind of business more efficient, then there is the possibility of lowering fees. Also we all recognize that different books book to different faces, and that low-limit books salt favorites and toss anybody who takes too many nickels off them from buybacks. Such retail books too, then, might reasonably offer less than eleven to ten for a time.
I also have to wonder if the Rams had covered and Aces had recovered and Charlie had switched to the business model he told Freddie he was considering (dropping to $1000 limits) if the vig-free promotion could have been sustained. Too bad we.ll never know. To this day I wonder what percentage of Ace.s NFL side handle came in during the no-vig hours.
Anyway, depending on account acquisition expenses, a strictly internet book could have lower costs per million handle than one committed to individualized customer service and answering by the second ring. So such books may be able to offer a discounted line and prosper. But then again, the other kinds of costs associated with marketing and customer service may be such that eleven to ten is a reality to be accepted in return for dealing with the shops best able to stand shocks to their solvency. As your columnist the price of vig is my question of questions. I won.t write about it every month, but please know I.ll keep it in mind and return to it often. I also want to say again I appreciate and learn from the discussion on this topic on the MW boards. In fact it.s so good that I don.t find myself with a lot to add to it, and I suspect I.ll find myself a lot in these columns referring to, reviewing, and synthesizing what has been said in the Mess Hall.
Back to Aces Gold. A coupe of weeks ago I was thumbing through Buzz Daly.s indispensable Player.s Guide to Offshore Betting and happened across his interview with Charlie. Buzz has a real gift as an interviewer. He asks the hard questions in ways that make them seem easy, and so he gets remarkably straight answers. The answer he got from Charlie regarding why he took such high limit internet action was jaw-dropping. I.m amazed that I could have read this interview last summer and not have had it frame my view of this operation. Here are some excerpts from Buzz.s interview with Charlie:
Buzz: Aren.t internet limits generally lower than phone limits?
Charlie: At Aces Gold, we have very high limits on the Internet. The reason is we feel we can put up as good or better numbers as anybody in the world. If we can.t, we.re going to get our ass blistered.
Buzz: How do you know what the best number is? That sounds kind of subjective?
Charlie: There is nothing subjective about the best number. The best number is the number versus the final score. My number being closest to the final score is the best number..Let.s say you have four accounts at four books. If Aces Gold, out of those four books, has the best number you.re gong to lose more money to us, and some of the losses that come to us are going to come from other sportsbooks.
What Charlie was telling Buzz, pretty straightforwardly, was that he didn.t believe he could make a profit off the vig. He did not consider himself in the brokerage business. He considered himself a player in a zero sum market. He was going to eat his competitor.s lunch, or not eat.
After reading Buzz.s interview, the mystery of the threes policy flashed clear to me. I now think that Charlie was trying to middle the middlers. He was offering a bet with negative expectations knowing (perhaps only in the back of his mind) that if things went too far south he could bail. It was all about increasing volume for him, and I.m sure nothing brought him deposits like the threes policy. As long as his volume increased and his positions at least washed he would get bigger and stay solvent. His profit, he said, would come if at all from selling better numbers than his competitors.and for a couple of years he was apparently able to do that. But he had to know if he wasn.t able to set those numbers.or if the threes landed like raindrops.he would find no chair when the music stopped. Many of you know a lot of threes did land last season, and Aces had to close the threes leak mid-season. I.m sure this must have resulted in the first wave of withdrawals, which made the book more dependent than ever on creating positions. The more I think about it the more I think I should have at least tracked those positions.damnit!
As angry as I am at this man for blowing up his own business and shaking the confidence in the offshore industry, I revile myself even more for not figuring out what he was doing three years ago when Count Zero and I discussed his threes policy. I now see, though, that I couldn.t put it together because my thinking didn.t include the worst case scenario. The possibility of what Jay Cohen has called an "airport bet".or the attempt to middle the middlers made possible by airport-bet thinking.never crossed my mind because it had never crossed my experience. Now it has, though, and it.s up to me to use my own stupidity to be smarter in the future. Part of my attempt to do that will be thinking in this monthly column.with the help of this group of exceptional posters.about what happens next.