It was around 10 a.m. PT the morning of Super Bowl LI in Las Vegas, and a young patron was milling around the Caesars Palace sportsbook, letting other bettors know exactly what he was holding: a handful of futures tickets on the Atlanta Falcons, potentially worth $200,000.
In his mid-20s and from California, the bettor wasn't a Falcons fan, but he was emotionally attached to the team through his betting slips. At several different points during the 2016 regular season, he had made the trip from San Diego to Nevada to put money on the Falcons to win Super Bowl LI. In total, he had around $10,000 at risk. He had visions of putting any winnings toward a new house for his parents.
Two young Las Vegas entrepreneurs, Ian Epstein and Luke Pergande, were also at Caesars Palace that morning. They run PropSwap, an online secondary market for sports bets, where customers can buy or sell live wagers before an event takes place -- like, for example, a bunch of futures bets on the Falcons to win the Super Bowl.
PropSwap launched in Nevada in 2015. It's a small, unregulated startup. Both Pergande and Epstein still dabble in occasional side gigs while also looking ahead toward a future that may include expanded legal sports betting in the U.S. For now, though, it continues to be a learning experience for the 28-year-old founders and almost a case study on the thinking of American sports bettors, who have big wagers on the line.
Epstein and Pergande were introduced to the Falcons bettor, explained their business and offered $75,000 for his betting slips on the Falcons. The bettor politely declined.
Brokering the sale of the Falcons bets, potentially worth $200,000, would have been by far the largest transaction in PropSwap history. Pergande and Epstein didn't want to give up and discussed what to do over lunch at In-N-Out Burger across the street. Pergande texted the bettor some of the things he could buy for $75,000, including "a brand new Mercedes for your parents."
They drove home, got the company checkbook and headed back to Caesars Palace. Shortly after they arrived, they physically handed the Falcons bettor a check for $75,000.
He looked at Pergande and Epstein and replied, "Nope. The Falcons are going to win. I'm not going to hedge at all," before tearing up the check.
"[He did it] nicely," Pergande recalled, "but, still, it amazed me. 'It's Tom Brady. Why aren't you scared?'"
We all know the story by now: Atlanta squandered a 28-3 lead and lost to the Patriots 34-28 in overtime. PropSwap didn't hear back from the Falcons bettor after the game.
"Americans' greed," Pergande said, "compared to European greed is off the charts, specifically in sports betting. We're just as risk-adverse in trading stocks and real estate. But we're so risk-seeking in American sports betting. And I just don't get it."
Epstein and Pergande, both originally from Chicago, met as freshmen at the University of Arizona. They didn't start talking business, though, until they were both overseas and ran into each other at the Venetian in Macau. Epstein eventually went to work for Las Vegas sportsbook operator CG Technology; Pergande spent 3½ years in finance, working for Bloomberg in San Francisco.
In 2013, Pergande went to Las Vegas for Labor Day. During his trip, he bet $100 on New Orleans Saints to win the Super Bowl at 50-1 odds. The Saints got off to a 7-1 start to the season, and their odds plummeted to 15-1.
"I called Ian, because I knew he worked in sports betting, and asked where I could sell this ticket for a profit," Pergande recalled. "He said nowhere." Just like that, the idea from PropSwap was born.
Pergande and Epstein reached out to 15 different lawyers for advice on their plans. None of the first 14 attorneys thought the idea would work. Their 15th email went to Dan Reaser, a Nevada attorney, who formerly served as general counsel for the Nevada Gaming Control Board.
"[Reaser] said he would take the case and meeting with gaming control," Pergande said. "He did, and here we are."
PropSwap shares a lot of similarities with other online markets, like StubHub and eBay. Here's how it works: Sellers put a bet ticket up for sale, by providing a credit card, the asking price and the potential payout of the betting tickets. Buyers make purchases with a credit card and, if the bet wins, PropSwap sends the actual betting slip through certified mail.
Buyers are responsible for cashing the ticket. Sellers are paid with check or through an online payment processor. And Prop Swap takes a 10 percent commission from brokering the transaction, although the fee often is less for larger transactions.
In early November, there currently are 34 tickets for sale on PropSwap. The most expensive is a ticket on Stanford running back Bryce Love to win the Heisman Trophy at 80-1. Potentially worth $40,500, the bet, which was placed in mid-September at the Westgate SuperBook, was for sale for $8,999 on Nov. 6. Love's odds to win the Heisman at the Westgate, at the same time, were 10-1.
There are much cheaper offerings as well, including a ticket on the Philadelphia 76ers to win the NBA title listed for $17, with a potential payout of $760.
The largest PropSwap transaction in company history came during the 2017 World Series. With the series tied 1-1, a ticket on the Astros sold for $13,800. The buyer collected $31,000 with Houston's win in Game 7.
Neither Pergande nor Epstein bets on sports anymore; they don't want any appearance of a conflict of interest or wrongdoing. They also don't accept sales of bets made with offshore sportsbooks, although they get near weekly inquiries about doing so. They want to stay in the good graces of regulators and position themselves for the future.
With their supply of betting tickets restricted to Nevada sportsbooks, growth has been slow the first three years. They haven't had much luck convincing old-school Las Vegas bookmakers that their service could potentially be an asset, comparable to the early cash-out options available with bookmakers in the United Kingdom. But Pergande and Epstein aren't quitting and instead are expanding into other states.
This summer, they met with officials in Connecticut, Massachusetts, New Jersey and Pennsylvania. While they didn't receive explicit authorization, they did come away feeling comfortable enough to begin operating in those four additional states. They've also talked with compliance firms in New York and started crafting policies in an attempt to get ahead of any regulatory action in the future.
"The same reason PropSwap is legal in Nevada is the same reason it's legal in these other states," said Reaser, director of Fennemore Craig, P.C., who represented PropSwap in some of the meetings with the new states. "The PropSwap transaction relates to what the holder of the sportsbook ticket wants to do with that piece of paper, which is now really a contract, between the player and the book. It is not the business of taking wagers to facilitate someone buying or selling that contract."
"It's much like the secondary market that some financial institutions engage in when they decide to sell loans," Reaser added. "That's one of the comparisons I made to the regulators."
PropSwap opened in those four states on Sept. 1, right before football season. Over the last two months, the majority of their sales have come from those states, the company said.
"Every day, we probably average six or seven new users, per day," Pergande said. "And I would say, five of every six comes from outside of Nevada."
PropSwap is closely monitoring the debate over expanding legal sports betting in the U.S. In December, the Supreme Court will hear oral arguments on a case that could result in removal of the Professional and Amateur Sports Protection Act of 1992 (PASPA), the federal ban on sports betting. A dozen states have introduced sports betting legislation this year, with Connecticut, Mississippi and Pennsylvania among the states ready to move quickly if PASPA is struck down.
"The more sports betting tickets floating around the country, the better for us," Epstein said.