November 09, 2015

The Godfathers of Sports Betting

On Super Bowl Sunday of 1985, the FBI raided 43 locations across 16 states in an attempt to take down the Computer Group, maybe the most successful gambling syndicate of all-time. A round of follow-up indictments based on some off-kilter assumptions was all it took for the bane of sportsbooks everywhere to close up shop.

Anyone with any money tied to the daily fantasy sports (DFS) industry—especially the people implicated in its most recent scandal, wherein Draftkings employees won hundreds of thousands of dollars on FanDuel using proprietary, inside info—would do well remembering the lesson of the Computer Group’s demise.

Gaming the system is one thing, getting away with it forever is quite another.

By now, it’s become obvious that the unregulated multibillion-dollar DFS industry is headed for a reckoning. Reports of employees at the two major DFS sites—DraftKings and FanDuel—using insider information to line their own pockets has led to increased state and federal scrutiny of not just the industry’s unregulated status, but also DFS’ iffy self-interpretation as a game of skill rather than gambling per the Unlawful Internet Gambling Enforcement Act.

All good cons come to an end. The brain behind the Computer Group can likely relate.
Before becoming the secret king of sports gambling, Michael Kent spent most of the 70’s in Pittsburgh working to build a better nuclear submarine with Westinghouse, a Pentagon contractor. He also played center field for the company softball team and began using company resources to analyze the team’s statistics.

However, the data Kent compiled wasn’t comprehensive enough to pump out the results he wanted, so he started digging into college football statistics and point spreads instead. By 1979, Kent had developed a predictive program built on seven years' worth of data. That same year, he quit his job with Westinghouse and moved to Las Vegas where he would put his program up against the sharpest bookmakers in America.

They never stood a chance.

While the most successful modern sports gamblers and DFS players rely on a style of gambling that is high-volume and data-first, Kent was a pioneer in his own time and bookmakers were unprepared for his strategy. Despite some occasional losses in the tens of thousands during his first year as a full-time gambler, Kent diligently continued updating his model and was soon turning a profit on both college football and college basketball wagers.

The only problem was the raging paranoia Kent felt whenever he had to carry around duffel bags full of money. This was 1980, after all, and cash-in-hand was the only currency known to gambling.
Ivan Mindlin, an orthopedic surgeon and heavy gambler, whom Kent had met through a mutual friend, became the solution. Kent proposed to Mindlin a 50/50 split of profits in exchange for Mindlin posting and collecting on bets while Kent remained the sole party entrusted with access to the program that informed the bets. And just like that, the Computer Group was born.

Kent was all too happy to focus on his program and Mindlin was all too happy to use his gambling world contacts to expand the scope of the operation beyond anything Kent had ever imagined. During the 1983 college football season alone, Kent claims that $23 million in wagers netted a profit of $3 million. But Kent was mostly kept in the dark on the Computer Group’s true scale by Mindlin, who surreptitiously opened offices in New York and Las Vegas, staffed by dozens of employees who used Kent’s data to make their own bets.

Rumors of profit in the tens of millions soon spread and those rumors eventually reached the ears of FBI agents. Those agents became convinced that the Computer Group was an illegal bookmaking operation working in concert with the Italian mafia to manipulate betting lines.

While the Computer Group’s high-volume betting style did rely in part on manipulating betting lines, the FBI’s suspicions were wrong. Still, the Super Bowl Sunday raids uncovered a far more easily proven bit of illegality: the Computer Group wasn’t paying any taxes on its winnings.

The raids also revealed that the operation was much bigger than Kent had assumed. He was under the false impression that the Computer Group was made up of himself, family, Mindlin, and a few others who helped Mindlin place bets. However, Mindlin, who kept Kent far away from the day-to-day operations, had built the Computer Group into something much bigger and he wasn’t cutting in his partner on those profits.

Kent’s desire to remain focused entirely on his gambling program even allowed Mindlin to con Sports Illustrated, which ran a credulous piece on the Computer Group in 1986 that claimed Mindlin had designed the Computer Group’s program himself. Nowhere in the story is Kent’s name even mentioned.

By then, Mindlin’s exploitation of Kent’s genius had left their relationship beyond repair. Kent secured his own legal representation, brought a civil lawsuit against Mindlin, and chose to cooperate with the FBI’s investigation in exchange for immunity.

With the information provided by Kent, the FBI soon realized that instead of busting the world’s biggest mafia-run illegal bookmaking operation, it had simply caught a few dozen gamblers using off-shore bank accounts to shield their winnings from taxation. Still, the Computer Group folded in 1987.

Kent went on to form a three-man gambling group with his brother and a friend that actually bothered to report its winnings to the IRS. He eventually left the gambling world altogether in the mid-’90s and now lives in seclusion. Mindlin still lives in Las Vegas and recently spoke at a sports betting conference. He claims he uses Kent’s program to this day and earns a good living as a full-time sports gambler.
In this case, the FBI made a fool of itself by pursuing a glorified conspiracy theory, but it did put an end to the tax-evading Computer Group. The syndicate had simply grown too big, too fast, and too reckless to avoid scrutiny.

The DFS industry—now the largest advertiser on TV and a multibillion dollar industry—might be no different.

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