Edition 03: A Look Inside the “Underworld” of Pay Per Head Betting
Why do the masses flock away from legal betting?
Welcome back to Edition 03 of The Handle, where we’ll be taking a deep dive into the depths of PPH betting and its evergreen place within the sports betting ecosystem.
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One of the most common forms of unregulated betting in the United States is “Pay Per Head” (PPH) betting. PPH betting is the modern version of the “local bookie”. PPH betting is incredibly decentralized, unaccountable, and common. Today, we’re going to take a look at how the role it plays in the modern American betting landscape.
Let’s start with the technology that makes PPH betting possible. There is a multitude of sites that offer their own user interfaces and lines. A local bookie pays a small fee to one of these websites and gives each of their clients an account with a username and password. These sites include Metallic, Ace23, Yopig, and many more. These sites are the one-stop shop for tracking and placing wagers. They take care of the grading, the accounting, and any logistics aside from payment for the local bookie and provide an easy-to-use UI & UX for sports bettors.
The local bookie pays a small fee for each user on the site knowing that the expected loss of each user is greater than the cost for the technology platform. The end-user, or the bettor, simply goes to a website and can place a bet on anything they want, knowing the lines will be reliably available. The actual betting interface itself looks quite similar to what you might see on Draftkings or Betonline with slightly fewer bells and whistles.
The biggest difference between PPH and regulated betting, in our opinion, is betting on credit vs betting with deposited money. At a regulated book, I deposit $500, and then I have that $500 to bet with and can withdraw at any time with whatever money I have won, or whatever money is left. PPHs function on credit (for the most part). The bookie decides how much credit to give each client, with a new client getting $250 and a trusted client getting thousands and thousands if they want. The client can risk as much of their total credit as they choose, or as little. At the end of a specified time period (generally a week), the client pays or receives the amount of money they have gone up or down in that period. Payment is generally on Venmo for smaller or recreational transactions, though Zelle, Cashapp, cash, and crypto can be used for larger amounts.
Due to the relationship-based nature of PPH, many users would rather bet on credit in good faith cycling money through friends or extended contacts than corporate legal sportsbooks. Avoiding legitimate entities allows bettors to skip out on taxes as well.
Credit brings its own payment risks on both sides. Bettors who lose significant sums can simply choose to not pay with no legal recourse available to the bookie. On the other side, bookies have the leeway to kick bettors off their book or refuse to pay large sums. The bookies themselves are usually insulated from bettors choosing not to pay by their “agents”. Agents are in charge of bringing clients into the book, collecting payments, and disbursing payments. With this responsibility comes the importance of vetting clients up front or based on a reference system, as agents are barring extenuating circumstances responsible for the reliability of their clientele. This way, the bookie doesn’t have to individually settle with each of his clients, but rather with each agent. Agents generally agree to indemnify the bookie against the bettors under them refusing to pay. However, agents are not responsible for paying winning bettors or paying for the technology. Rather, they take a cut (often between 10-20%) of the losses each week from the bettors they manage relationships with.
At the risk of stating the obvious, this entire PPH ecosystem, at least in the United States, is completely and entirely illegal. Your buddy from college cannot legally accept bets and pay you on Venmo. So how does this system still exist? Why haven’t law enforcement officials been able to stem the PPH industry? The answer is simple: decentralization. The technology platforms themselves are based far outside the reach of American regulators and do not accept any bets themselves. Each bookie might have an average of 50 clients betting a couple of hundred dollars a week. It’s simply not worth law enforcement efforts to pursue such small operations. Because there is no centralized organization, shutting down individual PPH books is akin to playing whack-a-mole and does nothing to reduce gaming.
There is almost never violence, the bettor and the bookie are generally happy with the arrangement. The market is in a happy equilibrium and seems to continue to thrive even in the advent of legalized betting.
The online aspect of the modernized PPH system has transformed the local bookie character from operating out of an Uncut Gems-like backroom to sitting in front of a laptop. After the account is set up, bettors can place bets at any hour without interacting with any intermediary, as the PPH websites will spit out the return for any given bet and immediately take a user’s bet.
A threat to the PPH ecosystem is the destigmatization and rapid expansion of legal sports betting. Regulations on sports betting are loosening up across the country and the market is growing exponentially, which has led to an enormous uptick in activation and retention efforts including extensive spending on content, free bets and boosted odds promos, and other marketing spend.
Only time will tell if the PPH industry can survive, but we wouldn't bet against a decentralized system with happy customers and providers.
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Twitter
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