Cantor Gaming: the line-setter, $34 million in runner bets, and the 1 in 22 a sportsbook keeps

A book built for volume

Cantor Gaming, an affiliate of Cantor Fitzgerald, opened its first Las Vegas book at the M Resort on 1 March 2009 and by 2012 ran books in six more casinos. Its draw was technology: betting accounts on handheld tablets, and bets taken while a game was being played. The Associated Press called it the first company Nevada licensed to make and run a mobile gambling system. By its own 2014 estimate it handled more than 30% of Nevada’s sports wagers.

In a 2011 interview that NPR later aired, the chief executive described a focus on low-margin, high-volume businesses helped by technology. Cantor chased the volume with limits: a retired New York police detective told NPR that most casinos took $5,000 or $10,000 on a football game, and Cantor would take $50,000, sometimes much more. Important bettors, the Justice Department said, got direct access to the director of risk management, whose job was to set the lines and odds. He was Michael Colbert, one of Cantor’s original employees. Why his job matters so much is arithmetic.

One dollar in twenty-two

The standard price on a two-way sports bet is −110 each side: risk $110 to win $100. Take $110 on each side and the score stops mattering to the book. The loser’s $110 covers the winner’s $100, and the book keeps $10 of the $220 it took in: 1 dollar in 22, about 4.5% of the handle. It is the sportsbook’s version of the house edge, with one catch: it is certain only when the two sides match.

Calculation for this article. Balanced: $110 on each side. One-sided: all $220 on A. The average assumes a true 50-50; if the one-sided money knows better than the line, it turns negative.

Both rows earn the same on average; only the first is a business. A one-sided book is simply betting against its customers, and its average holds only if the line was right. The bettor meets the same arithmetic from the other side: at −110 you must win 52.4% of decided bets to break even, and Ippei Mizuhara’s 19,000 bets show what falling short costs at scale.

So a sportsbook needs volume, because each dollar of handle is worth about 4.5 cents, and balance, because each dollar is worth that only when it is matched on the other side. Getting both is the risk manager’s job: move the line, turn money away, or find money for the other side.

The Jersey Boys

Nevada books may not knowingly accept bets from a paid agent placing them for someone else, or take bets from outside the state. Messenger betting breaks the first rule and often the second: a runner places the tickets, and the real bettor may never set foot in Nevada.

“Jersey Boys” was the name police gave to a ring that NPR traced to an office park in New Jersey. Its leader paid runners to open accounts and bet at Cantor and tried to hide the real bettors, many of them outside Nevada. In the statement of facts the company admitted in 2016, Colbert knowingly allowed runners to bet for the ring from January 2010 to October 2012, and he and other managers knew many of the bets were for out-of-state bettors. Nevada’s complaint counted three runners’ tickets.

First runner: July 2011 to 24 October 2012. Second: February to July 2011. Third: August to October 2012. The totals are our sum; the Las Vegas Sun reported the complaint’s estimate as $34 million.

The ring may also have solved the book’s other problem. NPR’s account, from the retired detective, is that when a game got lopsided Cantor would ask the ring’s leader for money on the other side: in the hosts’ example, with $200,000 on the Chargers, 20, 30 or 50 thousand. Nevada books cannot take bets from out of state, so that was illegal too.

Calculation for this article. The $200,000 is the NPR hosts’ example and $50,000 the largest buyback NPR described; −110 on both sides is our assumption. The last row is a fully balanced book: 1/22 of $400,000.

Fifty thousand dollars from New Jersey cuts the worst case by $50,000. Matched in full, a coin flip between losing $181,818 and winning $200,000 becomes a certain $18,182.

World Wide Wagers

The case broke in October 2012, when Queens prosecutors announced what the NYPD called World Wide Wagers: a 259-page indictment charging 25 people with 225 counts. Arrests were made in five states, eight of them in Clark County, and more than $7.6 million in cash and chips was seized.

Colbert was arrested in Las Vegas on 24 October 2012, aged 32. The indictment charged him with eight counts, including enterprise corruption and money laundering, alleging that he worked as an agent for the enterprise, recruiting bettors, collecting losses and paying winnings, and that he arranged a $100,000 transfer of gambling proceeds between Las Vegas and New York in July 2011. Those were allegations; he was free on $50,000 bail.

A federal case followed. On 21 August 2013 he pleaded guilty in the Eastern District of New York to conspiracy to conduct an illegal gambling business, a count carrying up to five years. In 2016 the U.S. Attorney there described him in one line.

The Cantor Gaming senior officer who oversaw the illegal conduct has pleaded guilty for his involvement in this criminal activity.The U.S. Attorney for the Eastern District of New York, 3 October 2016

The Justice Department listed what Colbert and his staff had done:

• Runners: knowingly accepting and facilitating messenger betting.
• Out-of-state bets: accepting wagers from outside Nevada by wire.
• Cash: processing large deposits, withdrawals and third-party wires known to be illegal proceeds.

In October 2016 Judge Jack Weinstein sentenced him without prison; Bloomberg Law reported that the transcript and the judge’s reasons were sealed.

The biggest account

The ring was not the biggest money through the door. The statement of facts describes Cantor’s highest-volume patron as a Florida professional gambler, identified only by initials, who secretly controlled an offshore bookmaking operation and used his Cantor account to limit his personal risk on his own clients’ bets. That is laying off, the buyback run from the other side: a bookmaker with too much money on one side bets the difference elsewhere and keeps his margin on the part that balances. From about 2010 to 2013, the statement says, he wagered more than $300 million at Cantor, with cash sometimes arriving in duffel bags holding millions, and Cantor filed no suspicious activity report on him for two years. The U.S. Attorney’s summary was that Cantor had become a place where at least two large-scale illegal bookmakers could launder their proceeds.

The bill

On 6 January 2014 the company announced its new name, CG Technology, hours before Nevada’s 18-count complaint became public. It began with a failure to supervise Colbert and ended with an agent betting through another customer’s account in September 2013, eleven months after the arrests. The company admitted 14 counts and agreed to pay $5.5 million, which the Nevada Gaming Commission approved unanimously on 23 January as the largest fine in its history, above The Mirage’s $5 million in 2003. A deputy attorney general said the amount was based on a percentage of the illegal handle.

On 3 October 2016, under a non-prosecution agreement with federal prosecutors in New York and Nevada, the company accepted responsibility for aiding and abetting an illegal gambling business and money laundering from about 2009 to 2013, and paid $16.5 million. FinCEN added a $12 million penalty for anti-money-laundering violations, half of it credited against the forfeiture.

Federal: a $10.5 million fine, a $6 million forfeiture and a further $6 million to FinCEN. Not included: a separate $1.5 million Nevada settlement in July 2016 over about 20,000 underpaid winning bets.

In the book’s own unit the numbers look different. At 1 dollar in 22, the $34.3 million of runner tickets was worth about $1.56 million to a balanced book, so the state fine was about 3.5 times that, some 16 cents for every dollar the runners bet. Keeping $28 million at 1 in 22 takes about $616 million of perfectly matched action.

A price with no other side

A sportsbook’s 1 in 22 is a promise about a balanced book, so whoever balances it is the person the book must trust most. At Cantor, that man pleaded guilty to a conspiracy to conduct an illegal gambling business. The runners brought volume; in NPR’s account, the ring also brought balance; and the biggest patron was a bookmaker balancing his own book.

A casino original has no other side to balance. In dice the multiplier is (1 − house edge) ÷ win chance, so the edge sits inside every roll, whoever else is playing. There is no line to move and nobody to call for money the other way. The result comes from a server seed whose SHA-256 hash is shown before you bet, and from your own client seed, which enters every result.

What a hash commitment proves sets out where that commitment stops: it covers the result, not the people around it. But the house’s 1% does not depend on anyone standing on the other side. A sportsbook’s 4.5% does, and at Cantor, who stood there cost $28 million.