He Invented Online Betting...Then Went To Prison For It - Jay Cohen

0:00As soccer takes center stage this summer, Comcast helps bring the experience home to America. As the exclusive Spanish-language home of the tournament in the U.S., Telemundo is set to present its most expansive coverage ever. 700 hours of programming, live on-site presence at all 104 matches, and with multi-view and real-time 4K, Xfinity will deliver the most innovative and immersive sports viewing experience for fans watching on Telemundo, Peacock, Fox, and FS1. Learn more at ComcastCorporation.com. We are live from Fetty's house. Guests are gathering around the TV, even with a big storm outside.

0:35Are we worried about the fee? Nope, they have Xfinity Wi-Fi. Get reliable fiber-powered gig Wi-Fi with Peacock included to stream the beautiful game this summer. Xfinity, imagine that. Restrictions apply. New gig internet members only. Speeds vary. Use of fiber coaxial cable. Peacock offer for Peacock Premium with ads currently$10.99 a month value. Activation required to access content. Terms apply. Peacock must be activated within first 90 days. Manage existing subscriptions to avoid multiple charges. Third-party subscriptions continue until canceled. And we're live on match day as Doug reaches for a buffalo wing.

1:04He's got it. Oh, and he's gone for a can of Pepsi too. What a finish. There's no doubt about it. It just tastes better. Match days deserve Pepsi. Risk is the consequences if things don't go well. Everything in life has risk, especially in business. And with risk, you have five options. You can avoid it. You can mitigate it. You can transfer it to someone else. You can hold it if the reward is high enough, or you can take on more. We take risk from people who have it and don't want it and sell it to people who want it and don't have it. Welcome to Open Book. I am your host, Anthony Scaramucci. Joining us today is Jay Cohen.

1:44He's the co-founder and former president of World Sports Exchange. But he's got an amazing book out, and the title of the book is Odd Man Out, the untold story of how professional sports crushed the pioneers of online betting. Man, we got a lot of online betting now, Jay. It's great to have you here. But before we get into this story, you began on the Pacific Coast. You were an options trader on the Pacific Stock Exchange. I want you to take us there because like me, you're a better, okay? I just have long-term bets in the market, but you're a bit of a better, right? That's what our business is about, actually.

2:25Tell me a little bit about your background and what shaped your understanding of risk. Well, first, thank you for having me and covering this book. I do not consider myself a better. I always go back to, well, when I was an options market maker on the floor, I was the house. And when I opened the World Sports Exchange, I was the house. And there's a line in a sportsbook management book by Roxy Roxborough that says, gambling is wagering at unfavorable odds. And when you're the house, you have favorable odds. So that's how I've always seen myself, not just a shot taker, but more is taking calculated risks where I have an edge, statistical arbitrage.

3:14I graduated from UC Berkeley in 89 with a degree in nuclear engineering and I took a base level job on the floor of the exchange because I wanted to work in the markets. So I started as a quote operator and you're in the middle of the action, you meet people and I worked my way up to a firm and eventually became a market maker, options market maker. All right. So I stand corrected. I think that that's a fair characterization. I guess I always tease people on Wall Street that we're, you know, we're taking risk. I do think sometimes we do have an edge on people. I think it's a fair characterization, but you came up with this idea of a world sports exchange.

4:01Somehow OJ Simpson is involved with this as well. I want to get into that a little bit. And it came in the very early days of the internet, long before online betting became mainstream. So you had a vision, Jay. Tell us about that. What made you believe that this wasn't just a niche idea, but it was like something that was going to be part of our future? Well, my founding partner, Steve Schillinger, he was kind of the floating bookie around the floor. He was an amazing trader, but he could price anything. He was a brilliant odds maker. And he used to take bets on Academy awards, sports, whatever you, anything obscure, he was involved.

4:42And when the OJ trial went down, he set up a market for it. And he had three products, guilty, not guilty, and other, which was hung jury or something else. And he made markets in these three products, whichever one covered would be worth a hundred and the other two would go to zero. and it was so busy and he it could have been the busiest trading floor in the pit people came in every day wanting to know where the market was especially during the trial a guy guy ran around from the morgan stanley desk and said hey henry on the desk in new york wants a quote on a three-way you know things like that and so it was very active and very busy so after that trial ended uh steve was still kind of doing the same thing with season long season long bets on sports and we said hey let's put this on the internet we should find out how we can put this on the internet i barely knew what the internet was at the time i didn't even have a computer at home but i knew it was something that was going to allow people access globally and so we set about figure out how to do it how to build it how to how to do it legally where we had to go and we basically built a futures exchange from the ground up and that's we we built a functioning futures exchange of our own to trade these sports futures plus we also built a platform that could take ordinary traditional bets and exotic wagers and anything else you can think of and uh you're three decades ahead of the market basically right almost yes i'd say so so but it's not legal anywhere right i mean this is when you know and the nba is moving to vegas we've got a hockey team in vegas we've got a football team you and i are old enough to remember when the commissioners of those sports were like nfw we're never going to have a team in those areas but we we now can bet on balls and strikes during a baseball game right so so you got there ahead of everybody, but you ended up in Antigua.

6:56Tell us about why you went to Antigua and tell us what happened there. Okay. Well, you're right. Back then, the NFL wouldn't even take a tourism ad from Las Vegas for the Super Bowl. They wouldn't even take a hotel ad back then, anything related to Vegas. We went to Antigua because it was licensed and regulated there. And we consulted with lawyers and consultants and everything else you can think of. and at the time the united states was why the spokesman for the department of justice was widely quoted as saying it's out of our jurisdiction we and the work the understanding was if we went down there if we live there if we ran the entire business from there uh we didn't take credit we we weren't like a street bookie we didn't have people betting on credit.

7:47They had to put the money up first in what we call a post-up account, that the bet took place down there. And not only were we legal, you know, because the government of Antigua licensed regulated us, the government of Antigua had consulted with the U.S. about how to set up their licensing. But not only did we feel we were legal, but we we believe the U.S. didn't care. You know, that was our position at the time. And so that's how we ended up in Antigua. We moved down there. We lived there. And that's how it started. And you mentioned bets on balls and strikes. We did all that back then as well.

8:28We were taking bets on, you know, who's going to score next, what's the next at bat. And we pioneered live betting. We had people betting. We kept the market open from the beginning of the game to the last second. No one was doing that then, and they still don't do it properly today. It's such an incredible story, but you're in Antigua because you see it as a safe haven or a safe harbor. And you mentioned that the Americans don't have legal jurisdiction, but yet you end up getting prosecuted and you make a decision to return to the United States. So tell us a little bit about that. What happened and why did that happen?

9:07And then why did you make a decision to leave and come back to the U.S.? Well, like I said, the U.S. had been quoted as saying it's out of our jurisdiction. Right. And then we were in a we weren't hiding what we were doing. We were actually in a very favorable article in The Wall Street Journal in April of 97. Rebecca Quick, now known as Becky Quick, wrote the article. And so we clearly weren't hiding. after that article came out i get a letter of fedex from a law firm called deba voice and plimpton saying we represent the nfl the nba baseball and hockey you're running an illegal business blah blah blah you're using our team names you're using our trademarks and you're linking to our site i send my lawyer and they said i should cease doing business with u.s residents I sent my lawyer to go talk to them, and we agreed to take down their team names.

10:08So instead of Pittsburgh Steelers versus San Francisco 49ers, the games then said Pittsburgh versus San Francisco. We took down links to their sites, but as far as stop doing business with U.S. residents, we said, you're a private firm representing private interests. We're licensed and regulated to do what we do. It was at that point that the lawyers for Debovoise and Clinton, representing the sports leagues, went to their former colleagues at the U.S. Attorney's Office in the Southern District and said, go get this guy. And they built the case. They brought, said, Cohen's doing this, Cohen's doing that.

10:49And the original AUSA at the Southern District of New York used to work for that law firm. The point person at the law firm used to work for the Southern District. It's a very, there's a major revolving door relationship between that firm and the U.S. Attorney's Office in the Southern District. We found out 25 attorneys had gone back and forth. We found out that if you work at that law firm and you go work for the Southern District for two years, you still, you come back, you still get credit towards seniority when you come back. So they went and said, go after Cohen, and the Southern District did.

11:27That's how the case started. Well, you came back, though. You said, why'd you come back, sir? Well, my initial reaction was, no judge was going to let this stand. This is ridiculous. I said, I'm going back. I'm going to fight this. And I was a little jaded because I had a family member 20 years later have a case that was thrown out on a motion to dismiss. So I thought that's just how things worked. and so i went back and um and so began the you know six or eight year legal odyssey of fighting it and losing and losing and serving time and finally coming out so that's that's uh those were literally my words no judge will let this stand and when i when i first came back uh they let me self-surrender so i flew back in the evening and then next morning i surrendered to the FBI in Manhattan and I got processed and everything.

12:24And we, we had just been in another article at the time, a cover story in Sports Illustrated. I'm sitting in the, in, in the, uh, Manhattan MDC and, and the, the cop says to me, what are you here for? I said, internet gambling. He said, I thought that was legal. I just read about that in Sports Illustrated. I said, yeah, that was me. So did I. So, uh, that, that was where we were kind of at. so when i got out that afternoon i went to my lawyer ben brofman's office and i i told ben i i told him i said ben i did nothing wrong i don't care if they kick it down to littering you will not hear the words guilty roll off my tongue i i strongly believe that now i will say this unlike a lot of people who i met in the system you know i was single i didn't have it was easy to be to be a real renegade like that i don't know if i could do that if i had a wife and child at the time but i didn't so that's where i was at and i said i'm going to fight this and i'm not going to plead to anything and let's fight it all the way thank you for tuning in open book and if you haven't already please hit the subscribe button below so that you're the first to know when our new episodes drop each week we've got a lot more coming and now back to the show.

13:45So Justice Roberts actually shows up in this case. Okay. He's the future chief justice. Yes. Tell me about that. Well, what had happened was we had lost our appeal in the second circuit and Ben Brofman and his team, they're amazing attorneys. Mark Baker also handled the appeal. melinda sarafa brilliant but i kind of got this feeling like uh that this is an insider's game i said i've got to find someone on the inside uh to to petition the supreme court so i went in martindale hubble and i i searched supreme court practice harvard college harvard law school i came up with about 40 lawyers and uh i looked at all of them and there was this a gentleman named John Roberts at a law firm called Hogan and Artson.

14:40And I read his bio. He had clerked for Rehnquist. He was an associate solicitor general. He had appeared before the court than any other lawyer practicing alive. I said, this is my guy. So I call him up and he said, he said i don't take just any case um you know send me your send me your papers and i'll i'll let you know so we send them all the documents the appeal papers and a few days later he calls me back he says this is not a frivolous case you have real issues i'll take the case send me a retainer and i just need to clear it with my executive committee shouldn't be a problem and we sent him a retainer and about a week later i get a call from him he said i can't take the case i need to conflict out because it was an 800 person law firm they send around what they call a conflict check and he said we have lawyers in the firm that represent the american gaming association and the ncaa and they don't want me taking the case so that was they sent back our retainer.

15:50And that was the end of our relationship with John Roberts. But that was before he was a Supreme Court justice, before he was any justice. It was such a great story. You know, the one thing that, you know, when I read the book, the one thing that, because I went to law school, I never was a lawyer, though I only play one on television, Jay, I'm not really one. But there was something that happened in the case that I want you to discuss. The judge kept the Wire Act key exception from the jury. So tell our viewers and listeners what the Wire Act is. And then I'm going to ask you the obvious question.

16:28Do you believe that the fix was in? And how does the citizen compete with Debovois and the Department of Justice? We're learning from Donald Trump that we have a two-tiered system. So you learned that three decades ago. So tell me what all of that is about. Well, the Wire Act is what I was charged with. It wasn't wire fraud. A lot of people hear wire and they think fraud. My case was using the wires, telecommunication wires, to transmit gambling information. And that's what the Section 1084A says. Section 1084B says there's an exception. If it's legal to place a bet where the bet's being placed, where it's legal to receive a bet, and all that is being transferred is information assisting in the placement of a bet, then you fall under the exception.

17:18Yeah, remember, this whole law was written to go after horse racing, mafia horse racing bookies in 1961. so uh and at the time capital otb was actually operating new york otb was actually operating under the same exception so we made this argument to the judge and the judge and of course the prosecution objected and the judge agreed with them and he would not let them see or or be have the jury instructions allow them to consider the exception he went so far as to when and I had testified on my own behalf and talked quite a bit about 1084B, which is the exception. The judge went so far as to when the jury came back and asked for a copy of the law, he only gave them a written copy of the law.

18:09He did not include 1084B. He did not even include the little letter A in the first subsection to imply that that was the whole thing and there was nothing else to talk about. The judge, the jury also asked for a readback of my testimony, which the judge redacted half of it, and they did not hear half of my testimony. Now, fast forward to today, and this is really, the hypocrisy never ends. Recently, in the last couple of years, there was a case between some Indian tribe in Florida against the state of Florida. And the Indians are taking sports bets, and they're trying to take them from throughout Florida.

18:53And Florida's saying you can only take sports bets on your reservations. Indians are saying the bet takes place on our server. We can take bets from around the state because the bet takes place on our server. Now the feds come in with a letter on the side of the Indians. the same thing they said to me was was simply not not uh true that they're taking the same exact position i had in favor of the indians and and that's just kind of how it went you know it the whole trial i mean there were things that happened at the trial with ben would turn to me and say 28 years i've never seen this i mean the prosecution even filed a motion ahead of the trial to stop me from testifying and as as tilted as the judge was against me even he said there's no there's no legal way i can stop him from testifying but he handled that on the instructions when he told them my testimony was not relevant was it a conspiracy i don't know i i mean the deep state i mean i mean i don't know listen you paid the price you're a visionary you paid the price.

20:02The book is awesome. And I wanted to bring you on because I think it's just some things that we think about are legal until the future catches up with making it legal, right? So we finally are allowing stem cell injections as an example in Florida. So I predict that will be all 50 states and these athletes won't have to go to Panama anymore. You know, it's just one of these things that we do to ourselves for some reason. But I admire you. I appreciate the honesty in the book and I appreciate the wisdom and the vision. So this is a half hour program. So we're down to our last couple of minutes.

20:42If you ever watch this, I have five words that I pull out of your book. All right. I'm going to say the word and then I want Jay Cohen to give me a sentence or two. You ready, Jay Cohen? I'm ready. All right. I say the word sports. You think of what? I mainly think of just professional sports, basketball, football, baseball, hockey. I really don't go. Golf. Golf was very big, but just competing. That's all. It's interesting. I think of adrenaline and dopamine and vicariousness, right? That's what we live off of, right? All right. What about gambling? I say the word gambling, you think of what?

21:20Well, I told you earlier, to me, gambling is wagering at unfavorable odds. I distinguish it from the word wagering. And yes, I do believe a lot of business is wagering and you're always trying to set positive risk reward. So that's what I would say about gambling. All right. So corollary to gambling, I say the word risk, you say what? Well, risk is what can happen, the consequences if things don't go well. And everything in life has risk, especially in business. And with risk, you have five options. You can avoid it. You can mitigate it. You can transfer it to someone else. You can hold it if the reward is high enough, or you can take on more.

22:10and going back to the trading floor with risk, you know, people, there were some guys who didn't really understand what we were doing as option market makers. They thought it was all just a joke. I said, we standing here, besides we're here to make money, we take risk from people who have it and don't want it and sell it to people who want it and don't have it and quite often hold some of it ourselves. And without us here as market makers, the entire financial system could not be as robust as it is if this platform didn't exist amen okay i say the word justice you think of what all right the lack the lack of it okay yeah so it's a capricious it can be arbitrary and capricious we both know that uh the world i'm sorry go ahead sir you you read about the whole wto case as well i mean yeah of course the u.s just refused to comply.

23:08And that was it. So it's like, might makes right. That was it. Yeah. Well, we remember the middle powers are also learning that there's a two-tiered rules-based system. Superpowers have a certain tier. Remember, the Russians were not allowed to play in the 2022 World Cup in Qatar. They started a war in Ukraine. The Americans started a war in Iran, no problem. We're the host country. It's the way the world works. You have to live in the world the way it works jay not the way we want it to be okay so george carlin was he say it's a club and you're not in it it's a big club and you ain't in it well amen the the world sports exchange i say that what do you say the the father or grandfather of online gaming i mean we were doing stuff back then than no one was doing we were fully transactional and it it when i hear them talk about some of these new companies as revolutionary something like these are things we we were doing and had perfected 30 years ago this is not uh we when other websites were counting traffic we were having transacting in in dollars and and we had real money flowing back then uh there were other some other sites at the time that would have their lines up but it was just a link to an 800 number.

24:28You could do everything on our site back in the 90s, betting on games in progress, bet, check your balance, everything. Never deal with a human. People didn't believe it was possible at the time, but we were way ahead of our time. Well, I want you to keep your phone line open because if I'm ever the SEC chairman or the chairman of the CFTC, I'm going to call you up. I'm going to say, hey, man, I need your help in writing the rules for these prediction markets, because I think you're the guy. And I really appreciate you coming on today. The title of the book is Odds Man Out, the untold story of how professional sports crushed the pioneers of online betting.

25:14It's written by Jay Cohen. He's the co-founder and former president of the World Sports Exchange. change. It's a fantastic book, Jay. I appreciate you coming on and I wish you great success with this book. Great. Thank you again for having me. Really appreciate you covering it.