How a Saints futures bet evolved into PropSwap – and why it matters to gamblers (via BetChicago.com)
Back in 2013, Luke Pergande held a New Orleans Saints Super Bowl XLVIII futures ticket that was growing in value by the day. Pergande got in at 50-to-1 odds and the Saints were off to a 9-2 start, looking like a good bet to represent the NFC.
He wondered if he could sell that ticket and guarantee himself a profit, and that thought triggered an idea for a business. He called Ian Epstein – with whom he’d become friends while both studied abroad in East Asia while attending the University of Arizona – and they hatched a plan.
And PropSwap was born.
One of the most intriguing sports betting ideas to come to fruition in ages, PropSwap is an online betting slip marketplace, eBay for bets. For those looking to hedge their bets, to cash out early, even just to get out while the going’s good, PropSwap has become the destination.
But like any great destination, it took a journey to get there.
The PropSwap journey began in Macau, a ferry-ride from Hong Kong, just across the Pearl River Delta, a gambling mecca that has been dubbed “the Las Vegas of Asia.”
Epstein, who was serving an internship with a party-planning company and hoping to get into the gaming industry, was throwing a big party at the Macau Venetian to celebrate the end of the summer. Epstein knew Pergande’s roommate in Hong Kong and passed along an invite. They became fast friends.
Three years later, Pergande took a trip to Las Vegas and took a flyer on the Saints, who were coming off a 7-9 season but still possessed Drew Brees’ right arm. When New Orleans surged early in the season, Pergande, who worked in the hedge fund sales department at Bloomberg in San Francisco, paid close attention. By November, by which time the odds had moved drastically, he realized his ticket was more valuable than the $50 at which he’d purchased it.
Pergande called Epstein – who was then working at Cantor Gaming, a sports betting subsidiary of financial services giant Cantor Fitzgerald that runs the sportsbooks at Vegas casinos like the Venetian, Palms and Tropicana – and told him about his lucky ticket. Pergande, ever the investor, wondered aloud, “Is there any way to sell this bet?” Epstein, who was familiar with the industry inside and out, knew there wasn’t.
They got to talking: Well if there’s not a marketplace to buy and sell such betting tickets, why don’t we create one? They threw around business ideas, but kept coming back to one main question.
Was it even legal?
The Nevada Gaming Control Board originally said no. The optimistic duo of 24-year-olds tried again, and once more, an NGCB official squashed their dreams. Get a lawyer, they were told.
So they did. Fourteen lawyers – and 14 no’s – later they were on the verge of quitting. This was a good idea, but it wasn’t gaining traction. Still, the no’s they were getting weren’t sufficient. If they were just given a good reason why this shouldn’t be legal, they would have given up.
On the 15th try, they found their man – high-powered Las Vegas gaming attorney Daniel Reaser. In April of 2015, Pergande flew to Las Vegas to rendezvous with Epstein and Reaser, and the three went in for a meeting with the NGCB. Reaser pleaded their case, and minutes later, Pergande says it felt like, he walked out with a yes.
Their idea had merit, and they were off. They’d agreed with the NGCB that they would first maintain a storefront, an official place of business to complete the exchange of money and tickets. They struck a deal with Sporting Life Bar in Las Vegas, about 25 minutes off the Las Vegas Strip, and they launched a website in August 2015 and their retail location a month later.
Epstein remembers their first sale.
“A 2015 New York Mets World Series ticket,” Epstein said. “A guy comes in, ‘I heard about you on the radio; if the price is right, I’ll buy anything.’ He gave us $1,000 and told us to keep it on hold. Not long after, a guy who had come in to sell a Mets ticket came in to get it back from us, said, ‘It’s not moving.’ I’m like hold on, I get on the phone, and in person, I’m brokering the deal with the first guy over the phone. ‘Would you take $400?’ Sold! Got off the phone, me and Luke hugged each other.”
Even if it wasn’t a $1 million ticket at 20-to-1, this was a big deal, at least to Epstein and Pergande.
Pergande funded the business with no-interest credit cards and by selling off his 401K, and he and Epstein raised $50,000 from family and friends prior to launch. But their goal was not to be some small-time Las Vegas operation. They wanted to take it national, and soon they did. By 2017, they had ditched the storefront and went exclusively online, opening the market to bettors in Nevada, Pennsylvania, Connecticut, Massachusetts and New Jersey that September, and expanding to Kentucky, West Virginia, Indiana and Ohio in March of this year.
They plan to launch in Rhode Island on Aug. 1, and New York, Mississippi and Illinois shouldn’t be far behind.
The recent landmark Supreme Court decision that leaves gambling legalization up to individual states should be a boon for the company. The goal: Find new buyers in all 50 states.
And, more importantly, more sellers.
If they’ve run into one major hurdle since their inception, it is the psychological theory of possession bias. Otherwise known as the endowment effect, the concept is simple: Applied to gambling, people place a higher value on their own bets, because they made them. Whether it is because of sentimentality, naiveté or plain old crossed fingers, the team at PropSwap has been surprised by how resistant people have been to selling their tickets.
“You don’t want to sell stuff you own,” Pergande said. “That’s one weird thing we’re fighting against. The other is loss aversion. People don’t want to be the person who sells the winning ticket.”
Pergande brings up a documentary he saw, where people who bought lottery tickets were asked, “You just paid $1, we’ll pay you $6 right now for that ticket?”
“The math says you should take that profit and then buy six tickets. But the overwhelming majority said no, which is just absolute stupidity,” Pergande said. “A buddy sent me that six months in, and we’re gonna run into this forever. That’s why all these Golden Knights ticket owners didn’t want to sell.”
The Las Vegas expansion hockey team’s shocking run to the Stanley Cup Finals was almost the perfect storm for PropSwap. Almost being the key word.
Pergande and Epstein were stunned by how many bettors turned down huge returns on the Knights. One bettor declined a 225-to-1 offer on a $20 ticket (originally bet at 500-to-1) when the Knights were heading to D.C. for Game 3 with the series tied 1-1.
“The emotions that go into sports betting I never thought would be so strong,” Pergande said. “I come from the finance world where they could give a rat’s ass if Apple crushes their quarter. There is way more emotion that goes into sports than just numbers and making money. Parlays people sell all day long. They just want to make money. They bet it solely to profit. Futures, people are way more sentimental about, like I’ve been riding this team all year, I can’t sell now.”
Added Epstein: “The number is thrown out the window. People treat these tickets like they’re a collectible. There is a very distinct value for these tickets at any point. But people couldn’t care less about the math. They’re valuing their ticket as more than their mind. One of the ways we do it, we make the money real to them. You bet $100 to win $5,000. You see $5,000 on a ticket, you’re counting your money already. We say it is worth $700 now, and $700 books you a flight to Europe. You make the money real. Would you wager $700 on this game right now?”
Pergande recalls the craziest PropSwap negotiation he’s been a part of. The morning of Super Bowl LI between the New England Patriots and Atlanta Falcons, Pergande and Epstein met with a bettor at Caesar’s Palace who had $10,000 across 11 Falcons future bets. They had a buyer ready at $75,000, a deal that would have meant a 750-percent return on investment. Of course, if the Falcons won, the man stood to win $200,000. He chose not to sell. Not a one.
“I don’t know if we’ll ever see a more agonizing defeat,” Pergande said. “I had his number. I never texted him once during the game. The Monday after, I asked him if he would do an exit interview. ‘Why didn’t you sell?’ He didn’t respond.”
The World Cup has provided PropSwap with plenty of action, including a $10 ticket on Japan that sold for $50 when the team was up 2-0 over Belgium in the World Cup Round of 16. Japan’s futures odds entering the game were 59-to-1 after opening at 300-1.
Pergande puts it plainly: “Of every single person who bet on Japan, only one person made money: the guy who sold his ticket.”
That, both Pergande and Epstein believe, is going to be their best sales pitch. It’s already working in Europe, where savvy gamblers make reasonable longshot bets hoping to sell the tickets early, and Epstein believes the expansion of sports betting in the U.S. will lead to a similar dynamic here. Some offshore books offer buyback options on certain bets once odds have shifted, including, Pergande said, PaddyPower and Bovada.
“Europe is 10-to-15 years ahead,” Epstein said. “I look at Europe as a time machine almost. People come to Vegas, and they expect to lose money. The goal is maybe they strike it big. We’re constantly dealing with ‘go big or go home’, people trying to hit this seven-team parlay that won’t hit. But once it becomes local, once you can gamble anywhere, we hope they’re going to treat it more like an investment. You come to Vegas to lose money, but you don’t want to lose money at home. I want people to look at it like eTrade rather than Vegas.”