Pay-Per-Head books an integral, innovative, and ambiguously illegal part of sports betting industry

Jul 19, 2016 |
Pay-Per-Head books an integral, innovative, and ambiguously illegal part of sports betting industry
Pay-Per-Head services have allowed the "backroom bookie" to offer the same wagering options, convenience, and customer service as the top online sportsbooks.
Pay-Per-Head services have allowed the "backroom bookie" to offer the same wagering options, convenience, and customer service as the top online sportsbooks.
On June 30, Brooklyn District Attorney Ken Thompson announced the dismantling of a massive country-wide illegal bookmaking operation. This underground sportsbook allegedly brought in billions of dollars from thousands of sports bettors across the United States, including an estimated $927 million from NFL betting this past season alone. 

How could a “backroom bookie” generate, coordinate, and operate a handle that large? The answer is one of the lesser-known and darker sides of the sports betting industry. 

"I’m Looking For Something Different"

By the way the traffic was locked, you’d swear you were stuck in Los Angeles rush hour, not smack dab in the middle of a country known for its tropical rain forests, incredible volcanoes, and picturesque shorelines. 

Costa Rica’s famed beaches were less than a two-hour drive away, but for Dave Johnson, they might as well have been on the other side of the planet. He couldn’t remember the last time he left San Jose and was pretty much living in his office building, working 15-hour days.

It was 2001 and Johnson was taking a beating from his offshore sportsbook competition, many of which either shared the same office building or ran out of the identical surrounding complexes. He had come to Costa Rica from the East Coast in 1997 and had been trying to get his foot in the door of the booming offshore gaming business that had claimed Central America as its home.

Johnson was matching big-name online books in innovations and offerings but was fighting outside of his weight class when it came to marketing and advertising. He tried to keep pace with notables such as WWTS, BetOnSports and Sportsbook.com, but his budgets went bust and his advertising costs were overshadowing the day-to-day overhead necessary to run his operation. Johnson desperately needed something to offset those costs and subsidize the post-up sportsbook. 

“I kind of stumbled upon this,” Johnson tells Covers. “I had an agent that had a credit book out of Florida that called me up and he said, ‘Hey, I want to put my customers into you’. I said let’s work out a traditional credit sheet for you, and he said, ‘Well, I’m looking for something different. Can you just charge me a flat fee every week for each one of my customers?’”

The agent (the industry term for “bookie”) didn’t want to be on the hook for big money if his players lost too much – having to share his winnings with Johnson’s operation - and purposed that his clients simply use Johnson’s online sportsbook interface and call center to place their bets, with the agent still collecting money and paying out. In turn, he would pay Johnson a specific amount each week per customer for the service: a Pay-Per-Head fee.

At the time, Johnson had only heard of this type of service once before. It was run by a man he simply knew as “Buddy,” whom Johnson says passed away recently. Buddy, by Johnson’s recollection, was the first Pay-Per-Head sportsbook operator and advertised his service in Don Best’s rotation schedules – the yearly lot of games available for sports betting, along with their assigned identification numbers. Johnson investigated this Pay-Per-Head business further, and it wasn’t long until his first PPH site, BookOffshore.com, was also buying ad space.

“The rotation schedules were being sent out all across the country to the local bookmakers, and once they got those rotation schedules, we had a little ad in the back,” recalls Johnson. “That’s how we started getting phone calls and started building, building, building.”

"Stamp Him Paid"

Building, Building, Building. That might as well be the battle cry for the offshore sportsbook industry, and subsequently the Pay-Per-Head sportsbook as well. The two have been forever linked since online sports betting took off in the late 1990s.

As post-up books expanded their offerings and evolved with the technology, so has the Pay-Per-Head book – even taking bets such as team and player props, quarter and halftime lines, and in-game live wagering. And many post-up operators simply use their sportsbook foundation for the PPH, which means mobile versions of PPH sites are available. Basically, anything a post-up book can do, a Pay-Per-Head can too … except for one major difference.

A Pay-Per-Head sportsbook provider offers agents a custom website to direct clients, a betting menu, phone clerks to take wagers, technical and customer support, and grades and calculates all winners and losers. But it’s on the agent to set his players’ limits, collect losses and pay out winnings. Traditionally, outside of the weekly service fee an agent pays, no money from bettors comes directly through the PPH provider – win or lose.

For pen-and-paper bookies operating out of their homes, businesses or bars, the creation of the Pay-Per-Head was on par with the invention of the microwave oven. No longer did they have to keep track of every wager, sit in the backroom of a bar answering phones in the hours before game time or be bothered by bettors trying to get action down on the late starts. They could simply issue their clients a login to a URL that offered sports betting action 24/7.

One backroom bookie who made the switch to Pay-Per-Head and never looked back has been taking action on sports for more than 40 years. He started out on the East Coast as a restaurateur whose close friend was booking games and making a killing at it.

“I actually owned a bar at a really young age, so I had some mazoola, and I said ‘Let’s take a shot,’” says the long-time bookie who wanted only to be identified as Trixy. “This guy’s doing good, but he was doing stupid shit with his money and wasting most of it, with illegal drugs or whatever. If I can make half his money and not waste it and piss it away in drugs and shit like that, it would be great.”

Trixy (“A girl would be ‘ie.’ That’s a dancer. I got a Trixie up my sleeve.”) continued to build his business and expand his roster of players, estimating his NFL handle was in the $50,000 range most Sundays. However, that workload put a strain on his personal time and family, not to mention making him susceptible to suspicion of illegal bookmaking. It was around the turn of the century when he was first turned on to Pay-Per-Head services.

“I actually know a few (bookies) that are still doing the pen-and-paper thing, and I tell them every day they’re out of their mind,” says Trixy. “You’re not worried about answering a phone. You’re out with family, don’t want to be answering the phone because most of the guys are last-minute, tipoff, first pitch, kickoff – that’s when they want to wager the game. And that’s in the prime time of the day.”

With the switch to Pay-Per-Head also came bigger betting volume. Not only were Trixy’s clients wagering more due to the convenience, but they were spreading their money around on props, halftime lines and even fringe sports that he would have never offered from his barroom book. He also expanded his clientele from strictly big-money players to recreational bettors, happily accepting a $10 wager where before he would have bluntly told that guy where to stick his $10 bill if he’d come knocking on his door.

“The more they can wager and the more things they can wager on, the better your chances are for collecting. Not theirs,” says Trixy, who has trimmed back his client base considerably since moving from the Northeast to Georgia, but still collects and pays out every Tuesday.

That brings us back to the major difference between the regular sportsbooks and the Pay-Per-Head industry. Players at a brick-and-mortar casino or online book must have the money up front in order to place a bet. In the underground world of illegal bookmaking, a bettor can put down $500 in credit on the Monday Night Football game even if his pockets are empty. It was when those credit bettors came up losers and dodged payment that Trixy would ring up the mountain of a man he called “Big Ron,” who he estimates ran about 6-foot-8 and 340 pounds. 

“His slogan was ‘Stamp him paid.’ That’s what he would say, ‘You give me his name – stamp him paid,’ he goes,” Trixy recalls. “He would get 50 percent. And 50 percent, to me, was better than nothing. When he was on the case, everyone was paid. I don’t ask questions.”

“I did see him flip a car over once,” he adds with a mischievous chuckle, recalling a visit to a car dealership owned by a client who had a large outstanding gambling debt. Big Ron told Trixy to wait in the car and, following a heated argument between the collector and bettor, Big Ron took three deep breaths and single-handedly flipped over what the bookie believes was a Toyota.

“The guy comes out and says ‘That’s my fucking car!’ And (Big Ron) goes, ‘I’m coming back next week and I’m going to tip a car over until you pay me!’ He paid before the end of the week,” he laughs.

(Author note: Sure, that last section strayed from topic. But when a bookie tells you a story about a guy flipping a car over by himself, you find a way to work it in.)

The Pay-Per-Head industry has been a boon for more than just backroom bookmakers. Savvy sports bettors have also benefited from the underground market, which falls well below the radar of the mainstream sports betting buzz. 

Wiseguys will often spread their bets between brick-and-mortar books, offshore sites and illegal bookmakers for a number of reasons. It allows them to bet beyond their limits at a single shop and get the odds they want, as most big bettors are flagged and make ripples across the industry with a single wager. 

Playing through an illegal bookie also offers anonymity for those keeping their gambling activities in the shadows, as was the case with golfer Phil Mickelson reportedly being linked to an illegal operation two years ago. 

“Pay-Per-Head has enabled a guy in Lincoln, Nebraska, to make a $5,000 bet, where he can’t get that action down at other books,” says boxing and MMA oddsmaker Joey Oddessa, who admits he bets through a few bookies who use PPH services. “At offshore spots, they’ll cut the limits on big bettors or change the odds. If you get with the right (Pay-Per-Head) people, who are honorable, pay on time and don’t disclose your bets to the corporate books, they’re a gold mine.”

"Opened Up A Pandora’s Box"

While those involved with underground sports betting are enjoying the opportunities offered to bookies and bettors through Pay-Per-Head services, that popularity has flooded the offshore market with PPH providers in recent years – many of which view the industry as a get-rich-quick scheme, a theme shared in most sports betting circles.

According to residents, the number of new Pay-Per-Head offices popping up in Costa Rica outweighs the new post-up sportsbooks setting up shop, and it has turned the PPH market into a cut-throat price war. When Johnson first started his Pay-Per-Head service, his agents were dishing out $50 per active bettor per week. Now, agents can find a digital home for their book for less than a coffee and a donut.

“It opened up a lot of doors, but also opened up a Pandora’s Box,” says Oddessa, who resides in Costa Rica and has seen the progression of Pay-Per-Head first hand. “Now everyone wants to be a book or run one, which has led to a lot of poor operations.”

Many new PPH operators are former employees of the more established providers, who watched their bosses raking in big money from the service but don’t understand the overhead and infrastructure needed to run a reliable and quality business. These offices – or sweat shops, as Johnson colorfully refers to them – seem to spring up overnight and throw up a low Pay-Per-Head price to undercut the bigger shops. However, behind the curtain, it’s a handful of employees with little experience and inadequate resources, in both manpower and technology.

“You know, 90 percent of the time they’re OK, they work,” Johnson says of the so-called sweat shops. “But you’re going to have that time during football season, that Saturday or Sunday, when they go down for four hours and that’s when you have to ask yourself, ‘How much did that four hours just cost me?’ How many bets did you miss, and how are you going to deal with all the customers that are angry. That’s what happens. The good shops don’t go down.”

Like most things in life, you get what you pay for when it comes to Pay-Per-Head sportsbooks. On top of having a clean and easy interface, as well as a variety of betting options to best suit customers, the top dogs in the business back up their products with cutting-edge technology, including triple-redundancy support to prevent crashes and DDoS protection from outside attacks. And thanks to those ongoing price wars, top services offer a premium package around $15 a head. 

The evolution of the Pay-Per-Head industry has seen offices gutted and put back together again, with a major swing in priorities. When PPH first started out, the majority of the office space was designated to phone clerks and customer service, with an estimated 80 percent of bets still being called in from clients. As the internet gained traction – pushed into overdrive by the emergence of smartphones and mobile wagering – and processes become more automated (now only 5 percent of wagers are phoned in) - PPH operators put the emphasis on technology and supporting all those turnkey solutions.

Johnson, who sold his original PPH business in 2009 and restarted a new operation – thebestperhead.com – in 2012, constructed a brand new office in 2013. But instead of first mapping out blueprints to fit his employees, his main concern was building a state-of-the-art tech room to house servers, databases and firewalls. He then constructed efficient space for his phone clerks and customer service personnel. 

In fact, Johnson saw such a lack of knowhow in these other PPH startups that he opened a side business, providing proper office space, networks and hardware, and tech support to newcomers looking to open a Pay-Per-Head shop, allowing them to piggyback on his established and experienced operation. All, of course, for a flat monthly fee. 

Johnson says his company’s current Pay-Per-Head client base is around 10,000 agents, and he believes some of the bigger PPH providers go as large as 100,000. Bet limits are set by the individual bookie, but he’s seen wagers as big as $20,000 a game recorded by his service. 

“I’m sure some bigger operations have some players coming through that bet more than that, but the average with the internet, $10 bets are much more common now than a $10,000 bet, easily,” he says.

"Inextricably Intertwined" 

The rather large elephant in the room when discussing the Pay-Per-Head industry and all its workings is that it’s ultimately illegal – at least according to United States law. Every few months you see a different headline reporting on an illegal gambling bust, like the one spearheaded by DA Thompson, and the connective tissue in each of those stories is mention of an online offshore betting site – a Pay-Per-Head sportsbook. 

Like offshore post-up sportsbooks welcoming U.S. customers, Pay-Per-Head sites servicing bookies within U.S. borders are in violation of both the Unlawful Internet Gambling Enforcement Act of 2006 and the Wire Act of 1961, which has come under fire for its various understandings regarding online gambling. 

But no matter how the federal government chooses to interpret these laws, online sports betting – more specifically “the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers” as it pertains to Pay-Per-Head services – continues to be a big no-no.

“I know the U.S. has been quite active in trying to shut down these sites. (Pay-Per-Head) does operate in a legal grey area in that they’re not handling money, but it’s undeniable that they’re inextricably intertwined with illegal gambling activity, otherwise they wouldn’t exist,” renowned gaming lawyer Dan Wallach tells Covers.

He says that while the federal government can easily round up illegal bookies inside the United States, such as the four individuals involved in that recent 57-count indictment, allocating the resources needed to go after offshore sportsbooks and Pay-Per-Head providers – who operate outside of the U.S. – isn’t an easy task due to constraints on extradition laws and jurisdictional limits. 

The government did hunt down numerous online gaming sites in the spring of 2011, and while that may have put operators on their heels at the time (with some shuttering U.S.-facing operations), not much has put a dent in this multibillion-dollar industry. Johnson believes that Pay-Per-Head doesn’t fall under the same violations that a post-up sportsbook would, simply because of the way the business is structured.

“I think right now, with the way Pay-Per-Head kind of developed, everyone had the mindset that we’re providing a service,” he says. “And that’s what we are doing. We’re not taking money from customers, we’re not taking a risk when customers are making bets, and we’re not collecting wagers from customers in the states.”

“I think it is a gray area, but at the same time, I look at it like a phone provider,” he adds. “We get phone service, they provide us the toll-free numbers and phone service to the states, and those phone calls coming in are coming from gamblers. So are the phone providers in that gray area too? That’s the way I look at it. We’re like a software provider or a phone provider. We are taking all those providers and we’re pooling them into one thing, and then offering the whole package.”

Regardless of the schematics or legal interpretation, the tie-in with illegal gambling puts Pay-Per-Heads in a darker, more sinister light than their post-up cousins, especially with organized crime often using these services. And there have been a number of high-profile illegal gambling arrests in recent years that all have links to crime syndicates. 

"Illegal gambling is not a victimless crime - it preys on peoples' vulnerabilities and directly leads to money laundering, loansharking and a host of other crimes," DA Thompson said in a statement follow June’s high-profile bookie bust. “The principals of this huge gambling operation - possibly the biggest one ever to be dismantled by a local prosecutor's office -  allegedly moved millions of dollars around the United States and the world and used various tactics to launder these proceeds."

Pay-Per-Head user Trixy says he’s stayed independent all these years, with brief run-ins with some shady characters connected to the mob. However, he’s also had friends who were local bookmakers that got tangled up with the criminal underworld, used briefly for big-money bets over the course of a few months before those characters disappeared and took their bankrolls with them, leaving behind the stains of organized crime on those bookies. 

Johnson admits to unknowingly housing some PPH books for agents who turned out to be connected to organized crime, but cut ties with those customers as to not risk his own business being looped in with whatever activities those people did besides bookmaking. 

His staff goes through a screening process when assessing new agents, including checking into their past PPH history and how they will fund the services. As these questions come up, there are red flags that fly with Johnson and his staff, and if any suspicion of organized crime is sensed, they will either recommend another PPH provider or decline service entirely. 

“There are so many good agents out there, guys who just want to service their customers and guys who are going to pay you on time, that you don’t need to get involved with the other ones,” he says. “It’s happened a very few number of times, but it has happened, that we found out that a customer was someone we just didn’t want to do business with and we stayed away from it.”

"It’s Going To Become Legal"

Perhaps the biggest thing the U.S. government can do to choke out underground bookmakers and their Pay-Per-Head providers is to ultimately legalize sports betting across the board. New Jersey continues to pursue legalization despite numerous setbacks in court, but never has the stance of leagues such as the NBA, NHL and MLB been so soft on the subject of sports gambling.

Wallach believes the U.S. is less than a decade away from allowing individual states to bring on legalized sports betting, as it does with Nevada, which offers single-game wagering on almost all major sporting events. Delaware has very limited sports betting through the state lottery, with a parlay system restricted to only NFL, but has watched its overall betting handle triple in recent years.

“If you look at the volume of wagering activity that’s taking place in the underground market, no amount of arrests has proven successful in stopping the spread of illegal gambling activity,” says Wallach. “And that’s why it’s going to become legal within the next five to seven years, because the realization is that the best way to protect professional sports and protect the integrity of the game, and benefit governments, is to monitor and regulate it.”

Legalized sports betting, be it state-by-state or for the entire country, will persuade some of those individuals using illegal books to go the post-up route. Not only would states offer walk-in sportsbooks at casinos and race tracks, as well as kiosks and lottery providers, but mobile wagering and the ability to place a bet online within the state’s borders would by sheer convenience take clients away from bookies.

However, the major difference between illegal bookmaking and the post-up books in Las Vegas and online is the one thing that would keep the black market business and PPH alive in the face of legalization: credit. As long as bookies are allowing bettors to play without putting the money upfront, there will be a large market seeking out those services.  

“There are certain guys who are used to betting with a local guy for years and years, they bet on credit,” says Johnson. “We saw this years ago with the offshore post-up shops. To convert a credit guy to a post-up customer is extremely difficult. They’re used to betting with their local guy on credit, they’re used to having enough credit to bet over the weekend and try to get out of it with the late Sunday game. And they’re used to paying off over time.”

Some think with the potential legalization of sports betting in the U.S. and the taxation of all those winnings – from both bettors and books – that the government would be more apt to weed out illegal operations and offshore gambling providers, who don’t cut a large slice of their action for the IRS. Past indictments against offshore gambling sites have been largely based on tax evasion.

Wallach says if legalization is done on a state-by-state basis, with individual states vying for sports betting and managing it each in their own way, then it could be up to each state whether to pursue legal action against offshore gambling markets, and they honestly don’t have the resources to do so. From a federal level, Wallach says if it’s not a priority now, it will likely be less of one once legalization and regulation are in place.

“If you look at it today, if there isn’t a tremendous amount of law enforcement resources being devoted to what is clearly an illegal activity, (then) when there is mainstream acceptance of sports betting, you’re likely to see less of an appetite from the federal government to go after these sites,” notes Wallach.

As for now, it’s business as usual for offshore sportsbooks and Pay-Per-Head providers. And just like the famed books on the Las Vegas Strip, football season is king. Johnson and his staff are preparing for their busiest time of year – one that solidifies the “illegal” market’s place in the sports betting industry.

The American Gaming Association estimates the offshore industry and underground bookie market (better known as illegal sports betting within U.S. borders) will take in close to $100 billion in football bets during the college and NFL seasons – 98 percent of the overall football betting haul in the United States, with just $2 billion wagered through legal channels in Nevada and Delaware.

According to Johnson, around half of the total action handled by offshore sports betting companies, in some capacity, is being managed by Pay-Per-Head operators. Using the AGA’s numbers and Johnson’s estimation, as much as $50 billion is being accounted for by PPH books (if every illegal bookie is using Pay-Per-Head services) just in football season alone.

That’s a colossal amount of money and a huge chunk of the overall sports betting landscape that, for the most part, goes unmentioned in mainstream sports betting media. Johnson says it would be rare to find a bookie these days, at least one with a significant client roster and betting handle, that isn’t using Pay-Per-Head services to manage their operation. 

“Most of the guys – the guys in the know – have moved offshore,” he says. “And all that business is tremendous.” 

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