Q&A: Ian Epstein and Luke Pergande, co-founders of PropSwap

In September 2013, financial analyst Luke Pergande made a speculative bet during a weekend trip to Las Vegas – New Orleans to win the Superbowl at 50/1. Pergande returned home to San Francisco and proceeded to watch the Saints rip off nine victories in their first 11 games, and subsequently saw the 50/1 odds tumble to 15/1.

It struck him that his bet was now roughly three times as valuable as when he made it. Looking to cash in on his prescience without any further risk, Pergande called his friend Ian Epstein who worked in risk management for the Nevada bookmaker CG Technology.

“Is there anywhere I can sell this ticket,” Pergande asked.

“Nope,” Epstein replied.

“Could you cash this ticket for me if you had it in your possession?” Pergande asked.

“Yep,” Epstein replied.

A peer-to-peer marketplace for sports betting slips seemed obvious to the pair and some investigative work showed there was indeed a gap in the market, if only they could get it past the notoriously strict Nevada Gaming Control Board first.

“We went to more than a dozen lawyers who told us it wouldn’t be allowed, but we kept persisting and the fifteenth finally agreed to work with us,” says Pergande.

The operation is as simple as the idea itself. A bettor wishing to sell a ticket downloads the PropSwap app, takes a picture of his ticket and submits it. Pergande and Epstein provide their valuation, and if the seller is happy, he sends the ticket into PropSwap’s offices in the Venetian Casino in Las Vegas, where it can be bought by anyone who wants it.

With legal backing, the pair presented their case to the Nevada Gaming Control Board, who took a long look at the business and decided it would neither approve nor deny it; essentially permitting Pergande and Epstein to go ahead and launch PropSwap, which they did in the summer of 2015.

Below, Pergande and Epstein explain how they plan to scale the business and educate US bettors about the benefits of cashing out.

EGR North America (EGR NA): How do you come up with the price of the tickets?

PropSwap (PS): At the end of the day it’s still the seller’s decision what the price is, we can only guide them so much. In terms of how we come up with our price, we take an aggregate of the three most popular prices on that event from sportsbooks in Vegas and come up with a market value.

But sometimes that can’t be done for certain bets if the odds aren’t available in-season, in which case we do the research ourselves. There are services out there we are looking to use, who would provide odds for us on a daily basis, but right now, where there aren’t odds available, we tap into our experience in the odds making industry.

EGR NA: Why did so many lawyers not want to work with you and why did you persist?

PS: They didn’t give us the time of day. They often said no without really giving us a reason why. I think the transfer of ownership was the biggest problem they had. The idea of one person making a bet and someone else cashing it seemed alarming to lawyers.

But if you think about how the ticket system works, you don’t need ID or to be registered. That would be a super onerous process, and it’s not going to happen for a long time. There’s already too many lines in Las Vegas, and you can’t add more. Every time I go to a book the lines are out the door. And now you’re going to add on a registration process? We’d bet against that. We disagreed with the lawyers and pressed on. To be honest even if we couldn’t find a lawyer to help us, we might have done it regardless.

EGR NA: Would you consider selling tickets to customers outside Nevada?

PS: That’s not something on our radar because right now we don’t have a buying problem, we have a selling problem. Until we can convince enough sellers to meet the demand of all the buyers, expansion is not even a concern. For instance during the NFL playoffs, we had a ton of guys with Cowboys futures who weren’t willing to sell them for the market price.

There’s something called possession bias, where people put great value on something just because they own it already. There’s also loss aversion. For example, scientists have done experiments where they offer to buy lottery tickets off people for $3 immediately after they’ve bought them for $1. But they can’t bear the idea of giving up that ticket because it could be the ticket that changes their life.

For us, it’s about explaining to people: ‘I understand it says on your slip that you get $10,000 if the Cowboys win. But we’re offering you $3,000 and you will have no risk. Educating people about that is our biggest challenge.

EGR NA: It’s an interesting problem, given the popularity of cash-out in the UK. What do you think the difference is?

PS: The simplest response is that the UK betting market is way beyond the US betting market. The understanding, the competency is way further along. People in London look on these things as an investment whereas here it is a vanity thing. People are trying to win five grand using a $100 and if they win that’s great, but if not that’s fine too. We’re trying to shift that mind-set to more of an investment mind-set.

EGR NA: There’s currently a lot of ‘manual labor’ in the process. You have to collect the ticket, and then you sell it to customers from your offices at the Venetian Casino. How can you digitize the business?

PS: In terms of collecting the ticket we’re always going to need to possess it because we need to verify it’s real by taking it to the sportsbook that generated it.

But on the buying side, from March Madness onwards, we’ll have a site up where you can buy the tickets online. So anyone in the state of Nevada can go to propswap.com and buy the tickets. Once you buy it there you’ll also be able to re-sell it instantly, a bit like StubHub.

EGR NA: And where does your profit come in?

PS: We charge 10% commission. If the ticket sells for $100, the buyer pays $100, and the seller gets $90. We’re also thinking of introducing a listing fee to put off any time wasters from the outset.

EGR NA: What’s to stop someone like William Hill introducing cash-out or a similar service to this?

PS: Two things. Firstly we don’t see any single operator copying us. They’re in the business of writing bets. This would be a whole ancillary business for them and it’s completely different.

Secondly, we are sportsbook agnostic, so we can sell tickets from anywhere. I can’t see William Hill offering to buy up MGM tickets for example.

And on the cash-out front, I’m not sure we have the scale in Nevada to warrant that. It would only be available on mobile bets, which make up less than half of wagers in Nevada, and the cost of offering bettors a price on their bets at all time is simply too much for the current size of the market.

Cash-out also doesn’t work for paper tickets, which is what the tourists love, and those aren’t going away any time soon, so we’re pretty confident in the business.

EGR NA: You’ve talked about acting like an exchange for these bet slips. Have you taken learnings from people like Betfair?

PS: We’ve studied StubHub a lot more than we’ve studied Betfair. The reason is because we’re not allowing people to create new wagers like Betfair does. These are existing wagers and we’re just a secondary market for those pieces of paper. But we understand the numbers being done by Betfair and we understand they’re killing it over there so we keep an eye on them too.

EGR NA: Have you seen any backlash from the casinos and sportsbooks?

PS: At first they basically ignored us. They saw us as another company that would be gone in a couple of months. But they’ve become a lot more receptive to us since they’ve seen some of the coverage we can generate.

We had a $100 ticket on Lamar Jackson to win the Heisman at 100/1 that sold at $9,000 in late November, and that ticket – from the Westgate Superbook – was covered on ESPN and Bleacher Report.

We’ve also done research on cash-out, and on average, 65% of the dollars that go to bettors through cash-out get re-wagered. So we’re helping the books here, and that’s our pitch to them. This cash isn’t going in the bank, its going onto another bet, so we’re raising handle.

EGR NA: Have you ever considered getting involved in the marketplace if you see a bargain?

PS: We see great opportunities all the time, because although we recommend a price, it’s up to the seller to pick the number.

There was a Cowboys ticket up for sale in January that was much cheaper than the market dictated and we were debating whether to try and buy it, but we decided it’s better to remain neutral, and avoid risk. We’ll take our fee. As soon we get involved, it starts throwing up conflict of interest questions.

If a seller brings us a ticket and we take it before it gets to the market, we’re no longer neutral, and that’s just not the way to scale the business.

One thing we want to do in this area to maximize the value for the seller is introduce a bidding system. That should be in place by next season, it’s just a slight tweak to the backend.

EGR NA: How do you plan to grow for 2017?

PS: We’re looking to get into more sportsbooks and boost the number of sellers. Right now we do Facebook ads, Twitter ads, we’ve got a commercial running in cabs, and we do radio advertising which worked well. Ian and I also walk around the Venetian wearing shirts that say “sell your bets”.

As obvious as it is, we’re trying to drill it into people’s brains that there’s a third option. You can cash out your bet in the middle. That’s brand new here.