Riding Virginia Tech as a value play against two double-digit seeds and prohibitive favorite Duke, a bettor catapulted into the upper decile of a popular off-Strip NCAA Tournament pick’em contest as the field continued to dwindle.
The contestant, a Southern California marketing executive, hit eight of 10 selections over the first three rounds of the contest, good for fourth overall in a field of 763 entrants. Nicknamed Parlay Paulie, the bettor has entered a bevy of sports gambling tournaments in recent years, including the famed Westgate Las Vegas SuperContest for the NFL and an occasional golf contest on DraftKings. None are as unique as a pool he entered last month for March Madness.
Unlike other contests throughout Sin City, the annual Beat The Spread Challenge from Vegas Stats & Information Network (VSiN) contains a twist. Utilizing blockchain technology from BLOK SPORTS, a California-based start-up, VSiN has awarded entrants with free credits over the course of the tournament in the form of a digital token. The player who accumulates the most digital tokens following Monday’s National Championship game will be declared the winner.
At the start of the tournament, each contestant started out with 1,000 tokens, dubbed by the network as the “VSiN token.” For each successful spread wager, a contestant receives a payout with a ratio of 1:1. Some contestants opted to fire away from the outset, betting their full bankroll on the opening round. Others took a more judicious approach. Parlay Paulie, for instance, wagered 250 tokens on Baylor +2 over Syracuse in the first round and 500 more on the Hokies (-10) against Saint Louis, the following evening. There are 14 players left with 6,000 or more tokens, and 8 players with 8,000 or more.
Blockchain in sports betting
Have what it takes to win @VSiNLive's March Madness "Beat the Spread Challenge"? Here's your chance to compete for $10,000, 2 nights at the @southpointlv & a guest spot w/ @brentmusburger live on https://t.co/UTXKYrx1ix's #MGITD! ➡️ https://t.co/iHJnbfR25z • #SportsBetting
— SeventySix Capital (@76Capital) March 13, 2019
While picking winners is critical for a strong performance, it is not the lone determinant. Contestants must place as much of an emphasis on money management when weighing their selections. The current leader, who goes by the username Mizzou Dan, made only four wagers through the first four rounds, but nailed all four for a balance of 16,000 tokens. Though two others have already recorded more than 20 winners, they still remain outside Top 10. Those two each trail Mizzou Dan by at least 10,000 tokens.
Interest in the contest has been robust. Overall, 763 VSiN all-access members completed free entries, a total that more than doubles the number of entries from 2018. Contestants placed more than 6,000 bets during the opening weekend, including 4,783 on the first round. Even as the field continues to shrink, activity remains high. Nearly 101,000 tokens were wagered on the Elite Eight matchup between No. 3-seed Texas Tech and No. 1-seed Gonzaga, the most of any game in the tournament.
“Thanks to BLOK SPORTS’ blockchain technology, our ‘Beat The Spread Challenge’ will be even more challenging this year…this new platform enables us to simulate the sports betting experience,” VSiN COO Bill Adee said ahead of the tournament.
How it works
For bettors without a digital background, blockchain is not Bitcoin and is not a virtual currency. Rather, blockchain is the underlying technology that allows cryptocurrencies such as Bitcoin, Ethereum and Litecoin to be distributed online. Ultimately, blockchain is a decentralized ledger that records transactions made in a peer-to-peer environment. You may think of it as a digital record of financial agreements.
Mitchell Chun, the founder and CEO of BLOK SPORTS, has more than 25 years of experience in the tech industry, spending time as an executive at prominent media companies such as Fox Interactive, Fox Networks and Yahoo! Prior to founding BLOK in 2018, Chun served as a blockchain gaming and business development consultant for Worldwide Asset eXchange (WAX), a virtual marketplace that allows users to trade virtual items from nearly anywhere with an internet connection.
Last spring, as the Supreme Court weighed the merits of a decades old federal ban on sports betting, Chun began researching the application of blockchain technology in online gambling. He spent hours upon hours researching the blockchain marketplace, studying other companies in the space assiduously. It then dawned on him that he could leverage his vast experience in sports and media to capitalize on the convergence of events.
For Chun, BLOK Sports was founded on the premise that blockchain can create a decentralized marketplace for sports gambling — that effectively cuts out the traditional bookmaker, otherwise known as the house, which maintains an edge on its clientele in the form of a vig. Although BLOK’s underlying, token based platform is not operational as a full-fledged sports betting platform at the moment, Chun is targeting the second half of 2019 for a potential launch. From there, BLOK plans to migrate to a fully decentralized exchange by late next year and offer sports betting in a peer-to-peer environment — one that contrasts dramatically from a traditional bookmaking operation.
Think Texas Tech will upset Michigan State on Saturday by at least 5 points? The opportunity and proposition BLOK sports and competing start-ups are after: Why pay a bookmaker a 4.55% vig when you can serve as your own market maker?
For now, the company’s blockchain-based platform has already been built and is being used to power VSiN’s contest. BLOK’s proprietary web application and high-speed transaction engine has the ability to process millions of bets at once. Before loading each contestant’s account with 1,000 digital tokens, BLOK minted the tokens on the Ethereum network.
“We wanted to test our platform in a real-world sports betting environment,” Chun said.
The tokens have no monetary value and are being utilized solely to track player performance throughout the contest, according to contest rules. The tokens are not redeemable or transferrable and will remain the property of VSiN post-contest.
Chun is encouraged by the high engagement level during VSiN contest. Over the first two rounds, contest entrants engaged in more than 75,000 bet interactions, defined as any instance when a player placed, modified or deleted a bet. The transactions, meanwhile, have been processed flawlessly, Chun added.
The results provide Chun with optimism, as he moves closer to the company’s next venture. For the upcoming football season, BLOK is close to securing partnerships with two major media companies, he said. The prospective partners plan to offer a football pool based on similar concepts used for the VSiN March Madness contest, but over a 17-week regular season.
It is important to note that there is a clear distinction for how lines are set for contest play, such as the one being offered in March Madness by VSiN and true peer-to-peer wagering, the next phase of BLOK’s operation. During the contest, spreads on each NCAA tournament game are based on the opening lines provided by VSiN oddsmakers. Once a peer-to-peer betting exchange becomes operational, players will have more latitude to set their own lines.
In a peer-to-peer environment, if you are able to find another bettor that will take the Spartans with the points, you can complete the wager in mere seconds. Although BLOK plans to charge a commission on exchange wagers, Chun says it will be “substantially lower,” than the vig charged by a traditional book.
As for the financial logistics of blockchain betting, BLOK plans to automate payments through “smart contracts” that transfer tokens from the losing party of a specific wager to the winner. The contracts securely escrows amounts from each bettor’s account and transfers it based on the result of each game. Using the aforementioned Red Raiders’ example, if Texas Tech prevails over Michigan State, the winning bettor would receive a pre-determined amount, say 100 tokens, from the counterparty that wagered on the Spartans. The parameters are set by the two counterparties before the event, instead of the house.
Nevertheless, regulatory concerns persist. As start-ups that integrate blockchain into sports betting platforms emerge, there are signs that some companies could operate in a regulatory gray area. The companies may draw enhanced scrutiny if they opt to set up an exchange in an offshore jurisdiction.
At the same time, these companies could face a crucial decision on whether to release their token as a utility token or a security token. A security token features tradable assets such as stocks and bonds that are transformed into digital versions of financial securities. A utility token gives users future access to products and services offered by a company. By designating a token as a security token, a company can also face stricter regulatory requirements, according to sources.
The Securities and Exchange Commission (SEC) declined to comment through a spokesperson.
While the SEC has not published formal guidelines on blockchain use in the U.S. legal sports betting market, the Commission has warned investors on the red flags associated with cryptocurrency fraud. In some cases regarding companies domiciled in offshore locations, U.S. federal securities laws can apply when U.S. investors are involved.
“Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws,” SEC Chairman Jay Clayton wrote in a May 2018 press release. “I encourage investors to do their diligence and ask questions.”
A competitive marketplace
Besides BLOK SPORTS, a handful of other blockchain focused companies have entered the fray. Last June, Las Vegas-based BlitzPredict launched an app that offered fans betting tips on the World Cup through a digital token. Another peer-to-peer sports betting marketplace, ZenSports, held a month-long public token sale in December that ran through early-January. ZenSports’ betting feature is currently available in every jurisdiction worldwide except the U.S., according to the company website. Outside the U.S., one provider, Kamari Coin, offers mobile payments solutions to sports bettors in several African countries.
A burgeoning company with high growth potential could be ripe for acquisition by an established sportsbook operator, according to Ben Godfrey, general partner at SportVEST, the venture arm of NFL Alumni. A major company such as Paddy Power Betfair or William Hill could consider an acquisition if the target has developed enough sophistication with their blockchain and tokenization technologies, Godfrey said.
“They have unlimited budgets, they will look for acquisitions in the blockchain space when it comes to betting,” said Godfrey, an internationally recognized sports blockchain expert. “It outweighs them putting money down themselves and starting from scratch.”
Of the blockchain focused companies making forays into sports betting, BLOK SPORTS’ partnership with VSiN is arguably the most visible. Moving forward, VSiN could consider additional business opportunities with the start-up, a VSiN spokesperson said. The winner of VSiN’s March Madness contest will receive a cash prize of $10,000, a hotel stay at the South Point Hotel and Casino in Las Vegas and a guest spot with Brent Musburger and his program “My Guys in the Desert.”
“We see an immense opportunity ahead to grow our platform into the most secure and trusted sports betting experience for players around the world, while reducing the frictions that come with the traditional online sportsbook,” Chun said.