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Cantor Fitzgerald Hopes to Bring Spread Betting to Las Vegas Casinos

Brokerage's Cantor Gaming subsidiary already makes markets for spread betting in the U.K. and sports wagering in Las Vegas resorts. Next, it hopes regulators will permit spread betting in Nevada.

People often refer to Wall Street as a casino, but New York City institutional brokerage Cantor Fitzgerald's Cantor Gaming subsidiary brings a literal truth to that metaphor. Last year, it brought the eSpeed trading platform its brokers use out to Las Vegas, where tourists use it to bet on sporting events via wireless devices. Next year, Cantor Gaming hopes to debut wireless betting on the financial markets at the Vegas resorts.

How does a firm go from Wall Street voice brokerage to survivor of the devastation of September 11, 2001 to Vegas? The force behind this is Cantor Gaming's CEO, Lee Amaitis, who is also vice chairman of Cantor Fitzgerald's affiliate, BGC Partners.

Amaitis began working at Aqueduct racetrack at the age of 16 and eventually became a horse trainer. In the 1980s, he worked at Fundamental Brokers in New York City. In 1995, he joined Cantor Fitzgerald; a year later, he moved to Europe to run the U.K. division. "We started in the U.K. getting involved in things like internet gaming and developing technology for people to bet on the financial markets," he says. Internet gambling and "spread betting" are popular in Europe. Spread betting is similar to day trading in that you're betting on which direction a stock will move, but it's tax-free and doesn't require the actual purchase of stock.

"Pretty much everyone in the U.K. gambles, they either gamble during the day or they gamble at night, but they gamble," Amaitis says. Cantor formed Cantor Index, one of the first financial service companies to offer spread betting. Cantor Fitzgerald built the technology in-house to support it.

In the U.S., spread betting and internet gambling are illegal. Nevada was the first state to pass an internet gaming law but never enacted it because of federal restrictions. "I said, 'I've got to figure out a way to cross that bridge,'" Amaitis recalls. He came up with the idea of building a wireless network and mobile devices that would allow people to gamble only in Nevada. "I presented that concept to the Nevada Gaming Control Board five years ago and they thought I was completely insane and that the operators and builders of these casinos would kill me," he says. But Amaitis said he didn't want to run a casino, but only to build and license the technology for wireless gambling. "I didn't want to give up because I thought it was too good an idea," he says.

Amaitis pursued the idea in several follow-up meetings with the Nevada officials, who said they would need a new law to allow mobile gambling. So Cantor wrote and sponsored a bill that was passed in 2005. In October 2008, Cantor's mobile gaming system was approved and in March of this year, it was deployed at the M Resort. "Our philosophy is to use the applications we're so versed with in financial trading and apply them to gaming," Amaitis says.

Cantor Fitzgerald had rolled out mobile trading in 2005. "We were the first to put U.S. Treasuries on a BlackBerry in real time, with a guaranteed latency of less than 100 milliseconds; that was unheard of," Amaitis says. Components of eSpeed's matching engines and the BlackBerry trading application were rolled into the handheld gaming device, eDeck.

eDeck offers in-running sports wagering, which means people can place bets at any time throughout sporting events such as college football games. "In the U.K. and Europe, 70% of all wagers on sports are made after an event starts," Amaitis says. "In the U.S. that number was zero, until Cantor started offering it at the at the M in March." Today, about 8% of Cantor's "handle" (total amount of money bet on events) at the M sports book is in-running. "It's still a small number but at the end of the day it's above zero and it's getting more popular as the day goes on," Amaitis notes.

Cantor is the principal on those transactions, so there is risk, which the firm monitors with a risk management system attached to its price making system. "It's impossible to match every bet against every bet," he says, especially when there are 150 sporting events in one weekend. "But you can manage the probabilities of risk. You start to see the profiles of players and you understand which way people go, which you can factor in." Cantor Gaming bought odds maker Las Vegas Sports Consultants, Amaitis says, "so we have a vested interest that the line is a true line."

Casinos carry little to no risk, Amaitis explains. "Casinos have a mathematical hold on the game and the longer players play, the more chance they have to not win," he says. "The only time casinos lose money is if someone comes in for a short hit, wins money and leaves. If a player stays at the table, he's going to lose his money. That is why they built these buildings — they weren't built for losing, but for winning."

Sports wagering is different, he says, because the amounts wagered are smaller and the line is harder to hold. "The way you do it is you apply the mathematics of probability," he says. "We put seven million permutations into our pricing model for the NFL alone. The development work for that mathematical formula is tremendous investment, it's not a short-term gain." It's similar to the price modeling performed on Wall Street. Just like the quants who price bonds, the firm performs Monte Carlo simulations to come up with the odds.

The application Cantor Gaming is hoping to bring to Nevada next year, pending approval from state regulators, is called Financial Fixed Odds. It's operational in the U.K. and it allows people to bet against movements in the markets. Cantor makes prices for these bets based on algorithms developed in eSpeed. Wagers can be placed over two-minute, five-minute 30-minute or day's long increments of time. The amounts wagered can be $10 to $1,000. "This will allow people in the state of Nevada to trade the market without having to go through a brokerage account," Amaitis says. "If I like gold or don't like gold today, I've got to go through all the paperwork to invest in stock, options or futures. There's nothing wrong with that, but this system will allow you to bet $100 on gold now for the next two minutes and then walk away."

Regulations require that Cantor Gaming keep its IT infrastructure — wireless devices and the servers that serve data to them — at a licensed operator. "Ideally we'd love to have a giant server farm in the middle of the desert to supply all the technology to all the casinos," Amaitis notes. "That's how we do our electronic trading in BGC, through massive server farms around the world."

Cantor's competition in Las Vegas is what Amaitis calls the "box guys," vendors of slot machines such as Bally's, IGT and WMS, who see the mobile gaming devices as a cannibalization of their business, "just like electronic trading was somewhat of a cannibalization of the voice brokering business," Amaitis says. Yet he believes his firm is meeting the needs of people who want to enjoy the restaurants, bars and shows in Vegas and gamble in a more comfortable environment than a casino. "We've been able to convert what most casinos call dead space into a casino space," he says.

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