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.

Senate Bill 443

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.

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.

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