Wall Street bond broker turned Las Vegas race and sports book operator In 2010, Lee Amaitis, former executive of Cantor Fitzgerald and then CEO of BCG Partners, looked at Las Vegas sports books and asked a simple question: Why do Wall Street and Las Vegas behave so differently? “When Wall Street first opens, everybody starts trading. In this town, when a game gets going, everybody stops betting," he told Wired Magazine. “That’s the dumbest thing I ever heard. The game is the market. Why not let people bet the market?" That sentiment has fueled Amaitis’ quest to liberalize sports gaming, a process that has relied on the proliferation of technology, increased market transparency and a more open-minded approach by regulators. Long before daily fantasy sites FanDuel and Draft Kings—two platforms that require the mass adoption of technology and algorithms—launched, Amaitis had a vision of allowing any Nevada visitors to trade in-game during live sports events. It’s Wall Street meets Las Vegas Boulevard, a revolution that has fueled strong growth in the Nevada sports gaming sector and Amaitis’ firm CG Technology, which manages several prominent Nevada sports books and provides technology and risk management solutions for casinos around the globe. CG Technology is just getting started. Following the passage of two recent laws in Nevada, the firm could accelerate a process to reform and commoditize sports gaming as a traditional investment vehicle, a process that can move the industry out of the shadows and attract the interest of hedge funds and other alternative investors. Looking to make a deal Amaitis got his start in the horse race industry long before he entered Wall Street. Although he wasn’t really fascinated by the gambling in the Sport of Kings, early-on he recognized the importance of liquidity to the industry, a lesson that defines his career. “Horse racing doesn’t survive unless there is a purse provided by pari-mutuel wagering," he says. From the 1970s until 2008, Amaitis worked in the financial markets within the inter-dealer broker space. In the mid-1990s, working for Cantor Fitzgerald, he moved to London to run the broker operations and had a realization. Sports gambling was and still is legal in London, with some of the top bookmakers allowing wagers on virtually anything. “It fascinated me that the same people we were doing business with in stocks, bonds, interest rates and commodities, were all gambling with English bookmakers," he says. Amaitis saw the similarities between the business of the bookmakers and the inter-broker model. “When you look at them, you say, this is an interesting business. From an inter-dealer business, we buy from ‘A’ and sell to ‘B’ simultaneously. I asked, ‘Why couldn’t this be put into a business model that said we could create a marketplace for sports?’ Of course, it’s easier said than done." That answer would be found through the development of technology to beat competitors and bring more transactions to the market, another underlying theme of his career. eSpeed, for which Amaitis served as COO, was founded in 1996 and was one of the first major platforms to trade bonds and currencies on a global scale. “Trading evolved from pieces of paper, to multiple telephones, to trading across technology," he said. “Cantor Fitzgerald, eSpeed and BGC Partners were one of the first to introduce technology." From bonds to sports books Cantor Fitzgerald lost 658 employees on 9/11, wiping out its entire inter-dealer broker operations. Just weeks after the attacks, Amaitis was part of a team that rebuilt Cantor’s broker business. He served as a senior executive under Howard Lutnick from 2001 to 2008. By 2004, Amaitis began to explore the industry of gaming and wagering. He founded Cantor Gaming, which would later become CG Technology. Amaitis officially relocated in late to 2008 to continue pursuing race and sports book operations. He also intended to manufacture and distribute mobile gaming devices. CG Technology offered sports wagering as a gaming option on the company’s platforms and that was fundamental in CG Technology taking shape. “The sports concept allowed CG Technology to take over the casinos’ sports books and provide the underlying technology." With the technology in place, the next challenge was breaking the mold of traditional sports wagering through the expansion of technology and the adoption of the Wall Street account model in Las Vegas. “My focus was to get individuals to wager on an account, as opposed to the old style of waiting and wagering at the window, which was an anonymous wagering model," he says. “This is basically all that Nevada ever did. A few companies had tried account wagering, but they didn’t put much effort into it." The convergence of mobile technology and individual accounts fueled a remarkable surge in demand for CG Technology products and services. “We told people we would accept higher limits for wagers, and provide more liquidity to the wagering markets if they opened an account with us and bet on account through our technology," he says. “Over the last five years, we’ve been adding to that technology to expand the footprint." As mobile expanded, CG Technology became the first company to handle more than $1 billion in sports wagers. “Since we entered the market, the total handle in Nevada has doubled from roughly $2 billion to $4 billion. We’ve had a good part in that given the ability to trade on account. More than 60% to 70% of these wagers are done over mobile devices." The risk similarities To someone who spent several decades managing brokers on Wall Street, sports wagering is similar to market-making specialists on Wall Street. “[This business] speaks to the inter-dealer in me. In my previous career, I bought from company ‘A’ and sold to company ‘B’ simultaneously, so there was no risk," he said. However, running a sports operation carries risk. “With [the Super Bowl between] Seattle and the Patriots, there was a market for that game. Our job is to ensure there are as many buyers as sellers. Because people need to pay for a wager, they are betting 110 to make 100 on every bet or 11/10. In that 10¢, we have our commission value risk. Based on that, you automatically have built in value on your balance. But the world doesn’t always work out perfectly. Sometimes there will be $10,000 traded one day, and $12,000 the other. Now you have to try to get yourself into a position where you get $12,000 both ways or if you accept the risk." Like Wall Street, sports books require a boost in liquidity to reduce exposure to one side or the other. “The more liquidity, the more volume you take, the less risk," he says. “The only way that liquidity grows is through the growth of technology. Our goal was to create multiple transactions the same way that Wall Street did for Treasuries, commodities and foreign exchange. Technology allows volumes to increase dramatically." Enabling the "trade" The underlying technology has propelled an explosion in usage. Gamblers are able to use mobile platforms at the pool, in the restaurants or in their hotel rooms rather than walk into the sports book. And Amaitis’ terminology parallels his years on Wall Street. “We’ve made it easier for them to be able to what I call ‘trade,’ as oppose to ‘wager,’" he says. “I treat it like Wall Street. I treat it like trading. There are smart people out there, and there’s an opportunity to build a business on each transaction." CG Technology is likely the first company to take on the advance quantitative traders who have taken on Las Vegas during the last decade. “We were probably the first to take on the ‘smarter players.’ We assume they have algorithmic models, that they handicap their games, and wager with us, in some cases significant amounts of money," he says. “But when you look at some of these people, they’re actually just trading. They just are using sport as a commodity. They are buying and selling something they find to be of value. And that volume is more than just simple wagers on winners and losers of an NFL game on Sunday. The vast adoption of Big Data has allowed CG Technology to create an in-game market in sports. Traders can wager on whether a team will drive the length of the field to score a touchdown or a field goal. They can wager on whether a batter will strike out in his next time at bat. It can go even deeper—offering odds on the likelihood that a tennis player’s next serve will hit the net within a matter of seconds. The power of CG’s underlying technology enables buyers and sellers to trade on all aspects of the game, with tech taking a commission from each transaction. “I look at this completely as a commission business. The less risk that I can take, the better off I’m going to be. Once the data comes faster, the more people will be able to invest and trade. That’s why account trading is so important." The deregulatory drive Currently, Federal laws prevent Americans from gambling on sports outside of four states: Delaware, Montana, Oregon and Nevada. The latter currently comprises the largest sports book market at roughly $4 billion annually. That pales in comparison, however, to the amount of money wagered in black markets around the country. NBA commissioner Adam Silver raised eyebrows earlier this year when he stated that that, “nearly $400 billion is illegally wagered on sports each year." That number seems extremely high; one suggesting that every American wagers roughly $1,500 a year on sports. Conservative estimates place it near $80 billion each year, although Amaitis says market estimates indicate it’s close to $200 billion. CG Technology stands to benefit if New Jersey is able to legalize sports gaming, which was part of a lawsuit in the U.S. Third Circuit Court of Appeals and was set for a July ruling. Should New Jersey be able to add sports books, the company has already built a base where it can expand the scale anywhere it is legal to gamble. “We can simply turn the switch," says Amaitis. He sees this as a broader movement by many states. “Two to three years ago, I don’t think I would see a push for legalization in my lifetime," he says. “Now I read every day that another state is closer. What state doesn’t want that tax revenue? If you start reading other people’s positions on it – particularly politicians – why can’t we regulate this market? The underground is in the hundreds of billions." The solution, he says, is to look to how Nevada has managed the industry, and use its road map to build a legal gaming sector. The sports gaming industry doubled to $4 billion during the last few years. Other states will see this and want a piece of that pie. With the technology we’ve built, the support from regulators here and our ability to manage risk, we see an acceptance of this industry. The desert game changer While other states are seeking ways to relax the federal sports gambling laws, Nevada is expanding its reach to maintain its own competitive edge. Companies like CG Technology and regulators explored ways to boost the flow of gambling funds to the state while helping the sports books expand beyond today’s traditional business model. The expansion of Las Vegas’ $4 billion sports gaming industry is set to accelerate thanks to a game-changing decision by the Nevada legislators to liberalize investment and domiciling laws for financial entities looking to facilitate sports trading. In June, two bills passed the Nevada state legislature that will merge Wall Street trading with Las Vegas sports gaming in its most advanced form. The passage of Senate Bill 443 will allow the creation of investment funds managed by or on behalf of the state’s top sports handicappers. “What Senate Bill 443 does is allow a fund to run in the state of Nevada that allows individuals to invest in that fund, and have someone making trades on sports," says Amaitis. “Those investors will either share in the profits or the loss of that portfolio manager." Investors from out of state can now invest in a fund that uses a handicapper’s knowledge of the sports betting market to produce alpha. The pro-regulation approach has the capacity to generate billions more for the industry and, of course, more money for state revenues. In addition, the laws have already generated significant interest from portfolio managers across the county. “After a CNBC interview of our lead counsel, we received a ton of cold calls just asking us about this law," says Amaitis. A second bill that just became law allows Nevada to become an anchor state for sports book operations. According to the law, a licensed sports book in Nevada can manage sports books located in other legal jurisdictions. This naturally requires liberalization and cooperation from other states across the nation, but if other states are able to get the federal government to reduce its ban, book operators like CG Technology stand to make a significant profit on a commission basis as liquidity in the legal sports gaming market surges. The registration for sports funds under Senate Bill 443 would require the same collection of investor information and registration of the entity in the state, in addition to a state-based banking account. But between investment in oil and gas futures or the purchasing of stocks and bonds, Amaitis says that they are creating a platform that turns sports into another commodity. “We think this will be a game changer for the state of Nevada," he says. The legislature and regulators are very excited about its potential. The tax-free state seems eager to welcome new residents, and Amaitis is eager to offer its technology as a launching point for investors looking to profit on an expanding sports gaming industry. “If I can get people the opportunity to be able to plug into my platform and trade sports because they have an algorithmic desire to do it, we would welcome it," he says. “They can connect to any other marketplace from Nevada. They’ll be able to connect from here and trade other commodities." But with that expansion, CG Technology will be challenged continually by investors and gamblers alike as they build this industry from the ground up. “This portfolio type of management will bring people who are tied into big data," says Amaitis. “They are looking for value in price. We need to stay ahead of them on issues like what player is injured, what the weather is going to be like." Amaitis’ efforts confirm another trait shared by Wall Street bond dealers and Las Vegas bookmakers ­— he’s always trying to stay a step ahead of the market.