Gambling convergence – an interesting new business model

One of the more interesting articles surfacing over the weekend was a piece from Friday’s New York Times on the development of an innovative pay-per-head administrative business model used by mainly Latin American bookmakers.

Headed by a photograph showing the Costa Rica-based PerHead support centre, the article examined the growing phenomenon of street bookies on the land and often illegal side of the business who are now turning to the internet for three main reasons – player convenience, ease of accounting and financial administration, and to increase business.

But these bookies do not operate their own websites in the conventional business model – instead they use specialised pay-per-head websites with which they have a relationship.

“The basic setup is simple: Instead of taking a phone call from every bettor, the bookie directs his clients to a Web site, where bets can be recorded, tracked and totaled. The bookie can then log on and see who owes – or is owed – money in the coming week,” the article explained.

“It is also a drastic departure from the entrenched notion of bookies operating out of basements or back offices, with jumbles of phone-line wires, drop safes and handwritten ledgers.”

Steve Budin, a gambling expert who formerly operated an online sports book, told the newspaper:

“There is always going to be a huge market for local bookmakers because they are the ones who let players bet with credit, with money they don’t have to produce. People don’t want to give out their credit cards or send money offshore someplace. They like dealing with real people and real cash. These sites just make it a whole lot easier for the bookies serving them.”

Bookies who use the sites pay the companies that operate them a small fee per client – usually around $20.

The most significant difference between pay-per-head sites and offshore online sports books, is that pay-per-head sites do not handle any betting money; they simply offer the players a place to record their bets and the bookies a register for organising them.

“Settling up – and the threatening that occasionally goes along with that for those who try to evade paying – is still done locally,” the newspaper notes.

Travis Prescott, an executive at PerHead.com, said in a telephone interview. “With our setup, everything is streamlined and anyone can run their operation on their own.”

Prescott revealed that his organisation is based in Costa Rica and has nearly 100 employees working in a modern office building. There are six full-time employees focused on I.T., working to ward off hackers and maintain the company’s servers. There is one person dedicated to increasing the company’s search engine optimisation, which helps attract bookies of all experience levels, he said.

The New York Times reports that the surge in per-head start-ups began in earnest about three to five years ago – perhaps in response to US government crackdowns on traditional online sports books.

Although exact figures are unavailable, some estimates have the number of per-head sites operating to be “in the hundreds.”

“Younger bettors are used to ease and quality — they don’t want busy signals or guys who don’t answer their phone,” Steve Budin told the newspaper. “They want Web sites. They want a number they can trust where someone says, ‘How can I help you?’ if they have to call.”

One bookie said that the pay-per-head business model was a tremendous time saver, and was more convenient for his customers. “I can tweak the lines if I want, I can set minimum and maximum bets for different customers. There are still some older guys who like hearing my voice, but most of my clients just go to the site. They can see it all there,” he said.

A US-based gambler whose bookie uses the service said he was leery of sending his credit card number to traditional online sports books because he had friends who lost money when their online sports books were suddenly shut down.

He prefers the per-head setup because it gives him access to a Web site but also allows him to build a trusting relationship with his local bookie; when he won a bet that came with a $20,000 payoff, the bookie still met him at the usual time and paid up, the article reports.

Because the sites administer information but do not handle the money involved in the betting process, there is arguably little legal risk for those involved.

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