Sports betting is an interesting proposition. The casual bettors often bet with their hearts, not their heads, but the professional player labors over statistics and trends for hours on end before making a wager. Therefore, the operators of a sports book need to be even more diligent in order to shave a small profit from what is inherently a risky business.
Sports betting is not unlike stock trading, which was the “a-ha” moment in the early 1990s for Cantor Entertainment Technology President Lee Amaitis. Like sports bettors, investors pore over tables and charts, examining trends and evaluating market conditions before making a purchase. And even after making the purchase, investors keep close tabs on how their investments are performing, adjusting the level and risk at various intervals during the time.
So, Amaitis realized that the principles behind the process used by Cantor Fitzgerald, the parent company of Cantor Entertainment Technology and Cantor Gaming, could be applied to sports betting applications—to allow bettors to adjust their “investment” in any game while the game was under way.
“We had a product that priced and delivered data information on the relevant spread between 10-year bonds that benchmarked the U.S. markets and mortgage-backed securities,” he explains. “The average life of a mortgage in the United States is around 10 years. So you get a 30-year mortgage on a house, but it never goes 30 years. The house is sold or somebody refinances or something, so the average life is always 10. So, everything was sort of priced to the 10-year. So if you had the best 10-year price—which Cantor did—then they priced everything off of that.”
Amaitis realized that by utilizing similar methods, he could build algorithms to input information on sporting events and adjust the price accordingly as the game progressed. This “in-game wagering” capability of Cantor led to a business opportunity. Amaitis resigned as the No. 2 executive at Cantor Fitzgerald to follow his dream of transforming the sports wagering industry.
Big Games, Small Margins
But we’re getting ahead of ourselves. Sports betting for years has been a marginal business for Las Vegas casinos. Although sports betting is a huge business nationally—more than 10 years ago, the National Gambling Impact Study Commission estimated that almost $400 billion was wagered illegally each year—Nevada casinos posted gross revenues of $151.1 million on wagers totaling $2.76 billion, making it one of the best bets for players in the entire casino.
But like horse racing, sports bettors had to wait until the conclusion of a game to collect or lose their bet. Once a game or race started, no further bets were allowed. This is where Cantor comes in.
At first, Amaitis’ brainstorm didn’t sit well with his Cantor colleagues.
“Nevada was doing $2 billion in handle,” he says. “The market share was less than 1 percent of the illegal market. So I’m saying to myself, Nevada has a monopoly; there’s got to be something wrong with this. I started looking into it and it turns out it’s all about risk management. Nobody wanted to take a risk, pricing was a problem because you had old-style pricing, you couldn’t price on the fly, you couldn’t do something in-game. Europe had already gone way past that. Europe was giving you prices on a soccer match; you could bet the soccer match all the way through the extra time. Why couldn’t we do that for U.S. sports? And all my guys are telling me it’s too complicated. But how complicated can it be? It’s just a math problem. So, we came up with ‘In-Running,’ creating markets while a game is on.”
Amaitis says that volume is the key to Cantor’s success, and the only way volume can be generated is to increase the number of operations and betting opportunities. Starting with the sports book at M Resort, Cantor has purchased the sports book operations at six other Las Vegas casinos: the Hard Rock Hotel & Casino, the Tropicana, the Cosmopolitan, the Venetian, Lagasse Stadium at the Palazzo, and most recently the Palms (which includes, for the first time, the casino’s poker operation as well).
Convincing the casinos that his concept would work at sports books, and that turning their operations over to Cantor would make sense, was a hard sell.
“Nevada became Missouri—the Show Me State,” he laughs. “Everything I talked about they said, ‘Show it to me.’ Well, there was no place you could show it, so I knew we had to build a laboratory. I figured we’ll pick a place that we could be furthest away from competition, that nobody will get angry with us to compete with.”
Amaitis chose M Resort, as far south on Las Vegas Boulevard as you could get. And although times were bad, the idea was good.
“We did a deal with them in the worst possible time,” he says. “March of ’09 is when they opened—the world was coming to an end, everybody was coming to an end, we spent a fair amount of money building a sports book, and we built all these algorithms based on risk models, and we started taking significant-sized bets. And we showed them it would work.”
A key element of a Cantor operation is the willingness to take very large bets that an individual casino might not take, or might lay off to other bookmakers in Nevada. Cantor welcomes the big bets, says Amaitis.
“People asked me if I would take $100,000 on a game,” he explains. “Of course we will. My answer was ‘Why not?’ At the end of the day they asked me if we had enough capital to go through. I said it’s got nothing to do with capital. I said look, mathematically, laying 11 to 10, you have to win 53 percent of your bets to break even. That gives me an edge as a bookmaker right away. So if I have a good number, I should take as many bets as I possibly can, because at the end of the day I have that edge. So I’m going to win some and I’m going to lose some; I’m not going be paired off in every game, but I’m going to have enough of volume. It’s all about volume.”
And volume is what Cantor drives. By the end of 2010, M Resort was doing $400 million in handle in a $2 billion market.
“It’s just not a fluke; you can’t have that fluke because the next year it went up again,” he says. “So, the point is, we are developers of significant depth of market platforms for people to wager. And there’s no limit to how far this could be built; now we’re doing free throws, make or miss; at bats, will the guy get a base hit? We price the fact that the guy’s on second and third, will there be a run scored? I mean everything is priced, and it’s all real-time. So sports wagering to me, for Cantor, is huge. In the sense that the model is already built here and has proven the fact that we are significant. We are the leaders of the market.”
Being a sports book operator was the original business model. But because casinos demanded to see results, the M Resort operation opened everyone’s eyes.
“Instead of becoming a technology provider, we also had to become an operator, but the danger was that we’d be seen as a competitor. That’s when we started investing in casinos. So we said instead of doing it the way we had first planned, we’ll do it the other way; we’ll just go buy the sports book.”
The success of the Cantor sports book operations has led to a massive investment for the company. Each Cantor book has a signature look—sleek cubicles with multiple screens, vast HD TV screens extending across the front of the room; red leather seats trimmed with glossy black wood. Players must open a Cantor account to sit in book. Reservations are taken for high-profile events like football games and March Madness basketball. Each operation involves an investment of several million dollars. Amaitis is confident it will pay off.
“The concept for us is bigger, better and broader, because it’s a platform,” he says. “The more bets you take, the less risk you have. So people say you never close the window. Yeah, because in theory I can’t afford to close the window, because I want the risk, because more volume mitigates the risk. The more you get, the more you have. So I think our target has never been to market past that 3 percent natural hold that we think we had because people lay 11 to 10. We shoot for less, we shoot to do 2 percent or, 2.5 percent of the total market.
“In order for me to make a factor, I’ve got to take $1 billion worth of bets, because I want to make $25 million or $30 million off of that. So, I think we can earn 2.5 percent to 3 percent of every dollar that we turn based on the fact that we have a fixed cost base, and then the rest is technology-driven, which lowers your cost factor to customer, dramatically.”
Amaitis looks at Europe as an inspiration for his business model.
“In Europe,” he says, “in-game wagering is more than 60 percent of all wagers. In the United States it’s 10 percent. One, because not too many people are offering it; we’re the only ones, and two, the menu is vast. In Europe there’s only soccer, so everybody knows how to bet in-game soccer; it’s the only game. But here you have baseball, football, basketball, so many games that you can do. You got proposition bets. It will grow, but I don’t know if it will ever get to 60 percent because the menu’s too big.
As for betting opportunities, the Cantor In-Running product fits that bill. Via Android devices, including patrons’ own devices, which operate throughout the hotel via Wi-Fi and throughout Nevada via geo-fenced cellular technology, or through terminals at every sports book seat, the In-Running system allows players to make hundreds of bets for every game. Players can wager on run/no run in each half inning in baseball, first downs in football, free throws in basketball and many other options. The odds on point spreads, money lines and total points change constantly during the game, allowing players to press or hedge their bets as they watch the game.
“We really created the first tablet,” he says. “We had to come up with a device that would run our system and a tablet was the logical choice. This was years before the iPad and its competitors came out, so we went through all those technology choices long before the big companies did it.
“We’ve also developed a mobile app that you can download to your personal Android phones or tablets.”
Cantor’s app for the Apple iPhone and iPad has been developed and is awaiting approval by Apple. It has already been approved by the Nevada regulators.
Cantor has developed some unique betting opportunities, as well, that won’t be found at any other sports book. The Cantor 5 bet takes advantage of the fantasy craze that has gripped U.S.—and international—sports fans.
“We built a suite of fantasy products based on our algorithms,” he says. “With the Cantor 5, John picks five basketball players and Cantor puts up five basketball players, so Cantor fields two teams of five a night. And then you pick, as the consumer, five players. You can have one shared player if you want, and then it goes into the model, and you put your team up and we price it. So, we always put up middle-tier players because we don’t want to take the top guys. So here’s the beauty of what we built. We take five middle-tier guys and you pick the five best players. You’re going to be a 10, 15-point favorite probably. So, if you don’t really want to the lay the 15, you can take the plus 15. You can take our team; we let you have the choice.”
It started with basketball, but the Cantor 5 is spreading to all the sports.
“It is going to be launched for baseball and football,” he explains, “but it’s different numbers. It’s six and seven, so we pick differently, but it’s all fantasy based on a line. So you don’t have to bet the 49ers anymore or the Bengals anymore. You can bet your own seven picks out of the NFL against ours.
“It’s a huge, huge move forward, and dynamic pricing is the key to it. And because we have all the intellectual property on the dynamic pricing of this, it can’t be duplicated. It’s not easy to do, specifically when you’re thinking about money. So, the concept is managing the risk of real money players, but for us, the real money is going to be very good.
Amaitis is careful to point out, however, that he’s not going to compete with his customers. On the mobile devices, Cantor offers the full range of sports bets.
“Our entire sports book is on our mobile platform,” he says. “We do not segment anything; you get the exact same experience. It’s not like you piece it out; everything is there.”
Even in the online poker arena, where Cantor has applied for a Nevada license, Amaitis says the client will come first.
“We want to have a partner that’s a casino operator that would want to do this,” he says. “It’s not in our interest to launch it on our own to be competitive. We’re not going to circumvent our customers. We don’t think that’s a good idea. We think there’s an element out there that will circumvent the industry because they want to get a piece of this big online pie, and I think that’s going to be ineffective for them. I think that’s going to cause a big challenge, because I think the industry wants to be in the business, and they’re going to look to technology providers to be a partner as opposed to someone that’s going to circumvent them.”
The Big Picture
Cantor’s Nevada operations are big and growing larger. But it’s that pot at the end of the rainbow—legalized sports betting across the U.S.—that Amaitis awaits. He predicted weeks ahead of time New Jersey Governor Chris Christie’s challenge to the Professional and Amateur Sports Protection Act (PASPA).
“It’s a matter of time before the cards start to fall,” he told Global Gaming Business in April. “The federal ban on sports wagering could stay in place, but states will say, ‘I want to do it in my state; why can’t I?’ So, PASPA, which was sort of the grandfather law, is going to get challenged. Somebody’s going to win, because at the end of the day, the stakes are too high. People are going to gamble and the states are going gamble. They will say PASPA should be banned, because it’s not constitutional.
“States want to operate sports betting. Just because they weren’t ready 20 years ago doesn’t mean they can’t do it now. So, that’s when New Jersey will stand in the path and say, ‘Who are you to tell us we can’t do what we want in our own state?’ Particularly when the people have spoken so clearly about it in a referendum.”
In the context of Nevada, the competitive market is expanding. William Hill was recently approved to purchase three sports books across the state. Using 2011 numbers, the purchases give William Hill 10 percent of the market, versus 14 percent for Cantor. Amaitis says he’s not concerned about increased competition.
“We already shoot for a lower margin,” he says, “so at the end of the day we don’t particularly worry about more competition. To me, the more in the pool, the better for us, because if there are people that are willing to underwrite risk, that means there’s going to be other people that will come here to play. So at the end of the day, I think that it makes the pot bigger. Do I think they’re competitive to us? They’re a different type of bookmaker; they’re not the same as us, they’re not a technology company. They’re a bookmaker; they rent most of their technology, they don’t own it. I don’t see them as inventors; I see them as operators. We’re a little bit of both.”
Cantor recently withdrew its plans for a $100 million initial public offering, citing an intention to submit a new registration confidentially under the JOBS Act, according to a filing with the U.S. Securities and Exchange Commission.
Cantor is the first company to publicly disclose intent to pursue an offering as a confidential filer as reason for withdrawal. The company announced on December 24 it would seek to raise up to $100 million in an initial public offering of its Class A common stock.
Cantor officials did not comment on the decision. In the original prospectus for the IPO, the company said it had lost $96 million since 2004 and would use some of the capital raised to pay off those debts.
Amaitis is confident, however, in the Cantor model, which now has four revenue streams for the business known as Cantor Entertainment Technology: sports wagering and operations; mobile gaming and operations; data sales to worldwide clients; and a Nevada slot route.
But Amaitis is enamored with the sports book operations.
“You’re building a model of people coming to a resort to have a good time, and enjoy the fact that there’s gaming at that resort as well,” he says. “So we’re now, as operators in Nevada, as close to the casino industry as anybody because we put significant capital into the ‘bricks and sticks.’ We will dominate the Nevada sports book market.”