{"id":143196,"date":"2020-03-03T09:00:32","date_gmt":"2020-03-03T14:00:32","guid":{"rendered":"https:\/\/www.theparisreview.org\/blog\/?p=143196"},"modified":"2020-03-03T10:07:18","modified_gmt":"2020-03-03T15:07:18","slug":"the-pioneer-of-online-gambling","status":"publish","type":"post","link":"https:\/\/www.theparisreview.org\/blog\/2020\/03\/03\/the-pioneer-of-online-gambling\/","title":{"rendered":"The Pioneer of Online Gambling"},"content":{"rendered":"<p><em>Michael LaPointe\u2019s monthly column,\u00a0<a href=\"https:\/\/www.theparisreview.org\/blog\/columns\/dice-roll\/\">Dice Roll<\/a>, focuses on the art of the gamble, one famous gambler at a time.\u00a0<\/em><\/p>\n<div id=\"attachment_143197\" style=\"width: 1034px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/www.theparisreview.org\/blog\/wp-content\/uploads\/2020\/03\/dice_roll2_2.jpg\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-143197\" class=\"size-large wp-image-143197\" src=\"https:\/\/www.theparisreview.org\/blog\/wp-content\/uploads\/2020\/03\/dice_roll2_2-1024x514.jpg\" alt=\"\" width=\"1024\" height=\"514\" srcset=\"https:\/\/www.theparisreview.org\/blog\/wp-content\/uploads\/2020\/03\/dice_roll2_2-1024x514.jpg 1024w, https:\/\/www.theparisreview.org\/blog\/wp-content\/uploads\/2020\/03\/dice_roll2_2-300x150.jpg 300w, https:\/\/www.theparisreview.org\/blog\/wp-content\/uploads\/2020\/03\/dice_roll2_2-768x385.jpg 768w\" sizes=\"auto, (min-width: 62.5em) 67vw, 100vw\" \/><\/a><p id=\"caption-attachment-143197\" class=\"wp-caption-text\">Original Illustration \u00a9 Ellis Rosen<\/p><\/div>\n<p>In April 1995, traders on the floor of the Pacific Exchange were in a frenzy. The jury in the O. J. Simpson trial had refused to come to court that morning. In the<em> Washington Post<\/em>, a law professor said that the probability of a hung jury had increased. And so at the exchange, if traders had shares in guilty or not-guilty verdicts, they wanted to dump them; a hung-jury share was looking a lot sharper today. Everyone was looking for Steve.<\/p>\n<p>This had nothing to do with the stocks on the ticker, and everything to do with an elaborate, parallel marketplace operated by Steve Schillinger, an independent broker, who sold futures on the side for countless things you couldn\u2019t find at the exchange: Who would win baseball\u2019s MVP award? Who would make the Final Four? Would O. J. go to prison? Although Schillinger was a decent enough stockbroker, his real talent was in figuring the odds for nebulous outcomes like that of the O. J. verdict and revising them as events unfolded. His colleagues placed bets with him, and he\u2019d pay out on the basis of whatever the odds had been at the time of the wager. He was, in short, a bookie.<\/p>\n<p>\u201cPeople were leaving their stocks to come bet on the NCAA,\u201d Schillinger said, explaining why he was quietly asked to leave the exchange. But by then, he had a dream. In his covert marketplace, he\u2019d glimpsed not just his own future, but the future of gambling. That vision would lead him to become the pioneer of a multibillion-dollar industry, and then a fugitive from justice who would die in exile.<\/p>\n<p><!--more--><\/p>\n<p style=\"text-align: center;\">*<\/p>\n<p>Originally from Chicago, Schillinger came to San Francisco in 1979. He was preternaturally gifted at perceiving probabilities. Golf, backgammon, chess\u2014he could set odds on anything, and place a savvy bet. I recently spoke to a former colleague of his, who said that the day Princess Diana died, Schillinger bet that Elton John would write a song about her. \u201cThat was a long shot,\u201d the colleague told me, \u201cbut Steve won it at twenty to one.\u201d<\/p>\n<p>In the mid-\u201990s, Schillinger and two friends from the exchange, Jay Cohen and Haden Ware, decided to start an online sports book. On the surface, the start-up conformed to the logic of many early dot-com endeavors: take a well-established practice and put it online. But in fact, what Schillinger, Cohen, and Ware were developing was far more radical. They wouldn\u2019t just book conventional bets. In keeping with Schillinger\u2019s O. J. experiment, in which the odds fluctuated as the trial progressed, the start-up would offer \u201csports futures.\u201d You could buy stock in eventual outcomes\u2014who would win the AFC Central division in football or who would appear in the NBA finals\u2014and the value of those shares would rise or fall in real time, depending on the breaks of a season. Even the bets on individual games would follow a futures model, with probabilities fluctuating as the outcome came into focus. \u201cThe future of sports gambling is totally interactive wagering during the game,\u201d Cohen declared.<\/p>\n<p>This innovative futures market gave the start-up its name: the World Sports Exchange. They raised $600,000 and registered an alluring website: www.wsex.com.<\/p>\n<p>It was time to book some bets\u2014but where? Unless you were a Nevada casino, it was illegal to be a bookie in America. Of course that didn\u2019t stop it from happening. In 1998, it was estimated that Americans illegally wagered about $100 billion. But WSEX was proposing to do its business proudly out in the open, not in the smoke of some dingy backroom bar.<\/p>\n<p>And so they set out for Antigua and Barbuda. In the aftermath of devastating hurricanes, the island nation\u2019s tourism industry was in decline, and it was pivoting to online gambling. With underwater fiberoptic cables connecting it to the U.S., Antigua was ideally positioned to capitalize on this burgeoning business. By 1999, the online gambling industry would be the island\u2019s second-largest employer, and the nation of 65,000 would account for over half of the world\u2019s remote gambling market.<\/p>\n<p>Above a camera shop in a Saint John\u2019s strip mall, Schillinger, Cohen, and Ware set up an office and launched WSEX in November 1996. At first, they had about twenty customers. Then came the golf tournaments. With dozens of players competing over several days, golf was perfect for showcasing WSEX\u2019s futures market. News of the start-up spread by word of mouth, and business started flourishing<em>.<\/em> In 1997, the client list grew to five hundred. In 1998, it blossomed to two thousand, and it was six thousand the year after that. By 2000, as they were booking bets on the outcome of <em>Bush v. Gore<\/em>, or who would get booted off <em>Big Brother<\/em>, the annual income of WSEX was reportedly more than $300 million.<\/p>\n<p style=\"text-align: center;\">*<\/p>\n<p>As far as its founders were concerned, WSEX was doing nothing illegal. They were fully licensed by Antigua. Certainly they were doing nothing immoral\u2014at least nothing worse than what they\u2019d done at the Pacific Exchange.<\/p>\n<p>Drawing comparison to the stock market was the WSEX company line. \u201cYou can\u2019t tell me that when someone buys a stock on Monday and sells it on Tuesday that that\u2019s investing,\u201d Jay Cohen told <em>Sports Illustrated<\/em>. \u201cThat\u2019s gambling, just like our [sports] futures market. Internet gambling is the same as my last career, except the folks I work with now are less sleazy.\u201d Haden Ware added, \u201cIf you go on our site and change Boston Red Sox to Boston Market, we\u2019re Ameritrade just like that.\u201d<\/p>\n<p>They weren\u2019t wrong to draw such parallels. As David G. Schwartz writes in <em>Roll the Bones<\/em>, his history of gambling, the\u00a0 pioneers of finance capitalism saw speculation as a kind of gambling. A coffeehouse near the royal exchange in London was described as \u201cbeing full of gamesters, with the same sharp intent looks\u201d; but as Schwartz writes, \u201cthese gamesters had turned in their cards and dice for stock.\u201d The stock exchange inherently attracted gamblers. In <em>The General Theory of Employment, Interest, and Money <\/em>(1936), John Maynard Keynes states that \u201cthe game of professional investment is intolerably boring and overexacting to anyone who is entirely exempt from the gambling instinct.\u201d<\/p>\n<p>But the law wasn\u2019t amused by these comparisons. As WSEX flourished, Schillinger and his colleagues made powerful enemies. Back in the U.S., Senator Jon Kyl of Arizona was crusading against online gambling. Likening the practice to crack cocaine, Kyl said that sites like WSEX were \u201cwhere little Johnny can basically bet away mom\u2019s entire credit card before she gets home from work.\u201d In time, the senator refined this message into a kind of fearmongering jingle: \u201cClick the mouse and bet the house.\u201d He introduced the Gambling Prohibition Act of 1997, under which an online bookie would face a four-year prison term. Kyl tried out another, less melodious slogan: \u201cUse email and go to jail.\u201d<\/p>\n<p>WSEX tried to make light of the opposition. They even set odds on whether the Kyl bill would pass. It did not, but in March 1998, Schillinger, Cohen, and Ware were nevertheless charged in federal court with violating the Wire Act.<\/p>\n<p>Introduced in 1961, the Interstate Wire Act was intended to cut off the lifeline of bookies, making it illegal to use telephone wires for booking bets. WSEX argued that the act didn\u2019t apply to them. Not only was the law obsolete, having been written decades before the internet, but that also just wasn\u2019t how they did business. WSEX customers wired money, sure, but that wasn\u2019t a bet. The money remained banked until they made a wager, and those wagers didn\u2019t occur over phone lines; they occurred in the internet server housed in Antigua, where everything was legal.<\/p>\n<p>I recently spoke with Haden Ware, and he described the mood of cautious optimism the three men felt when Jay Cohen returned to the U.S. to fight the charges. \u201cWe felt that it was a bluff,\u201d Ware told me, \u201cand that if we called it, they\u2019d go away fairly quickly.\u201d Cohen urged his colleagues to keep WSEX plugged in, estimating he\u2019d be back in six months.<\/p>\n<p>It would be eight years. On July 24, 2000, Cohen was found guilty. He served eighteen months at Nellis Federal Prison Camp, north of Las Vegas, and was sentenced to a lengthy parole that kept him away from Antigua.<\/p>\n<p>WSEX continued its operations, but for Schillinger and Ware, the writing was on the wall: returning home would mean prosecution and imprisonment. They were exiles.<\/p>\n<p style=\"text-align: center;\">*<\/p>\n<p>When Morley Safer disembarked in Antigua to interview Schillinger and Ware for <em>60 Minutes<\/em>, he was turned back by customs. The island wasn\u2019t sure what kind of slant he\u2019d give the story, and they didn\u2019t want any bad publicity. The WSEX team went to meet him on the nearby island of Saint Martin. The story, which aired in January 2001, showed the men happily golfing. Safer enviously observed that Schillinger never wore a tie to work\u2014or \u201cWe\u2019re real happy down here,\u201d Schillinger said. \u201cIf you\u2019re going to be trapped somewhere, it\u2019s not a bad place to be trapped.\u201d<\/p>\n<p>The reality of exile was slightly different. Schillinger had brought his wife and children with him when he first moved to Antigua. He\u2019d thought it would be a temporary adventure before WSEX became legitimate and they returned home. But by 2000, the family was back in California. Antigua was \u201cnot a great place to raise young ones,\u201d he said. \u201cThere\u2019s nothing here for them to do.\u201d The family tried meeting on various Caribbean islands about once a month. Then his wife filed for divorce.<\/p>\n<p>Around the same time, Schillinger called to wish his father a happy seventy-sixth birthday, and his mother informed him that he\u2019d died five days before. She\u2019d refrained from telling him, in case he impulsively risked arrest by coming home for the funeral. \u201cI knew something like that would happen one day,\u201d Schillinger told the <em>New York Daily News<\/em>. \u201cIt was horrible.\u201d<\/p>\n<p>But he vowed to keep going. \u201cThere\u2019s really no slowing us down,\u201d he said. \u201cThere\u2019s no stopping us.\u201d By 2003, WSEX was planning to strike back.<\/p>\n<p style=\"text-align: center;\">*<\/p>\n<p>&nbsp;<\/p>\n<p>While serving his sentence, Jay Cohen received fan mail. People had seen the WSEX founders on <em>60 Minutes<\/em>\u00a0and were impressed by how they\u2019d stood up to figures like Senator Kyl. One such letter contained two ideas. The first was for a betting service that would track pregnancy due dates. Cohen discounted that one. But the second idea was intriguing. What if Antigua sued the U.S. government for violating trade rules?<\/p>\n<p>After all, the letter writer argued, the U.S. allowed some long-distance wagering, such as offtrack horse-race betting. By outlawing WSEX but still allowing offtrack betting, the government was giving preferential treatment to U.S. companies. That violated World Trade Organization rules.<\/p>\n<p>In 2003, the WSEX lawyer filed a complaint with the WTO on behalf of the Antiguan government. The U.S. responded by claiming their laws were designed to protect public morals. But in a repudiation of Senator Kyl\u2019s rhetoric, the WTO ruled that the U.S. had failed to demonstrate a moral basis for their laws. Instead, targeting the Antiguan gaming industry was clearly an attempt to protect economic interests. The U.S. was ordered to pay damages.<\/p>\n<p>\u201cThe U.S. doesn\u2019t control Antigua and it doesn\u2019t control the internet,\u201d Schillinger declared. But above the camera shop in Saint. John\u2019s, things were starting to unravel.<\/p>\n<p>By then, Ware told me, \u201cWe were a law firm fronting as a sports book.\u201d Much of the company\u2019s revenue had gone into fighting the Cohen and WTO cases, and whatever remained went back into the site. Meanwhile other, fiercely competitive sports books had emerged online, and the comparatively low-tech WSEX struggled to keep pace. What\u2019s worse, after licking its wounds from the WTO decision, the U.S. government circled back on Antigua.<\/p>\n<p>On October 13, 2006, President George W. Bush signed the Unlawful Internet Gambling Enforcement Act. Full of typos and tacked onto an unrelated homeland security bill, the act prohibited banks, credit card companies, and eWallet services from transferring funds between U.S. residents and offshore gambling businesses. It was spearheaded by none other than Senator Kyl.<\/p>\n<p>Now WSEX had its money seized by banks, and credit card companies wouldn\u2019t process payments. Soon, complaints started circulating that WSEX wasn\u2019t paying its customers on time. In 2010, the sports book had its Antiguan gaming license revoked. In 2013, the site went dark.<\/p>\n<p style=\"text-align: center;\">*<\/p>\n<p>\u201cSteve was a very analytical person,\u201d Ware told me. \u201cHe looked at things from a probability standpoint, not a human standpoint. And he looked at his life and death that way.\u201d<\/p>\n<p>Around five o\u2019clock on April 20, 2013, neighbors at the Darkwood Beach apartment complex went around to invite Steve Schillinger to a gathering. They found his door ajar. Inside, they discovered Schillinger\u2019s body, a .38 revolver, and a suicide note. He was sixty years old.<\/p>\n<p>In the company\u2019s final days, Schillinger had been saying that he was too old to start over. He hadn\u2019t saved anything from the WSEX heyday; he didn\u2019t even have a bank account. Where would he go? What would he do? The consummate oddsmaker saw a high probability of becoming a burden on others, and that was intolerable: worse than exile, worse than death. \u201cFor him, there was no emotional attachment to the decision,\u201d Ware said. \u201cIt was all very cold and calculated.\u201d<\/p>\n<p>After Schillinger\u2019s suicide, Ware spent a few more years as a fugitive, then returned home in 2016. The FBI handcuffed him at the airport terminal. He pleaded guilty to a felony and was sentenced to time served, plus probation.<\/p>\n<p>When Ware\u2019s legal troubles were finally over, the Supreme Court was hearing a case that would allow states to legalize sports betting. The mood had changed in the intervening years: a majority of Americans now favored regulating the betting industry. In 2018, the decision came down: states were free to legalize it. Schillinger, Cohen, and Ware had always felt they\u2019d be vindicated one day. \u201cMaybe even ten years [from now], they\u2019re going to look back at my case and say, \u2018We sent a man to prison for that?\u2019 \u201d Cohen told NPR in 2005. (Cohen\u2019s current whereabouts are unknown. He has renounced his American citizenship and declined to comment for this story.)<\/p>\n<p>If Steve Schillinger had come home, faced the music, and waited until the Supreme Court decision, perhaps there would\u2019ve been a future for him, one he couldn\u2019t quite perceive in the black months of 2013. That\u2019s what Ware wagered on. With a fairly thin and suspect r\u00e9sum\u00e9 after decades at large, he applied to one of the newly legal sports books in New Jersey. After all, he\u2019d helped start up one of the first online sports-betting enterprises, a multimillion-dollar business that had juggled probabilities in real time, fielding hundreds of thousands of bets a month. But his application was denied; he was a felon.<\/p>\n<p>&nbsp;<\/p>\n<p><em>Michael LaPointe is a writer in Toronto. His debut novel,\u00a0<\/em>The Creep<em>, will be published by Random House Canada in 2021.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>How Steve Schillinger went from a stockbroker to the pioneer of a multibillion-dollar industry to a fugitive from justice who would die in exile.<\/p>\n","protected":false},"author":1093,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[50175],"tags":[],"class_list":["post-143196","post","type-post","status-publish","format-standard","hentry","category-dice-roll"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v25.4 (Yoast SEO v25.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Pioneer of Online Gambling by Michael LaPointe<\/title>\n<meta name=\"description\" content=\"March 3, 2020 \u2013 How Steve Schillinger went from a stockbroker to the pioneer of a 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