Online Pirates of the Caribbean

Three San Francisco men found riches in Antiqua with their Internet gambling site. Now they're federal fugitives. Caribbean

"Jay came up to me and said, 'You know, you should really be doing this on the Internet,'" remembers Schillinger. "I knew nothing about the Internet at the time. I don't even think I had a computer. But he was serious about it."

Schillinger and Cohen both visited Antigua and decided it was the ideal place to base their new company. Setting up offices there, and employing the locals, they thought, would keep them from running afoul of any U.S. laws.

The three arrived within a few weeks of each other in the fall of 1996, armed with gambling software and a computer programmer. Antigua was up for grabs. At the time, only a couple of gambling companies were operating, mostly using 800 numbers to take bets over the phone. World Sports Exchange was going to be revolutionary. Internet only, right through the computer.

The Pacific Exchange houses the nation's third busiest trading floor.
Anthony Pidgeon
The Pacific Exchange houses the nation's third busiest trading floor.
Michael Miller

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RELATED LINKS

World Sports Exchange
wsex.com: Visa and Mastercard accepted

World Sports Exchange gambling license
Certificate authorizing the establishment and operation of business in the Antigua and Barbuda free trade and processing zone.

Internet Gambling Prohibition Act of 1999
The full text of Sen. John Kyl's anti-gambling legislation

Gamblers Anonymous
The front page of wsex.com refers people with gambling problems to GA.


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World Sports Exchange opened bank accounts, paid the annual $75,000 licensing fee to Antigua's government, and the founders underwent mandatory criminal background checks. As with all its offshore businesses, Antigua exempted them from any income or corporate tax.

When they needed a source for their odds and point spreads -- what gamblers call "the line" -- they registered with Don Best and Roxy Roxborough, two of the best-known Las Vegas oddsmaker services. They would make money the traditional way, keeping 5 percent of all money taken in bets.

Customers were initially skittish about sending their money to some address in the Caribbean, an area historically rife with rum-crazed pirates and smugglers cradling machine guns. World Sports Exchange hit upon a relatively safe method of cash flow, which most offshore gambling sites also use. With a few minor variations, this is how it works: Customers deposit funds into an account, either from credit card or wire transfer, and then draw from that balance to place their bets. There is a maximum amount that can be lost -- the contents of the account. No credit is extended. Winnings are automatically deposited back into the customer's account, unless the gambler wants to be paid right away, in which case a check is FedExed to him the next day.

Unlike other gambling sites, crowded with images of heroic athletes and lazy palm trees, the World Sports Exchange site is designed without graphics, just plain text so customers can bet quickly. "If you can use a mouse, you can place a wager," reads the company's slogan. Online gamblers quickly discovered how unique the site is; it even offers an interactive betting feature that allows customers to essentially trade futures while a sports event is under way.

"We were trying to do a whole new thing, where you could bet on the games during the games," says Schillinger. "We were combining the stock market with sports gambling."

They launched in November 1996. Cohen worked on advertising and promotion, and Schillinger and Ware concentrated on setting odds and explaining their system to new customers over the phone. It was the same, really, as day trading, buying and selling contracts throughout the course of a day, except with sports events instead of stocks.

Business trickled in, initially from friends and trading floors, but then Cohen's marketing efforts began to pay off. After only a few months, the company was the subject of articles in the Wall Street Journal and New York Times, and business went through the roof. It made for good copy -- options traders turned sports bookies. The group was processing dozens of bets per minute, well on its way to the current client base of 10,000.

"We were able to do well right away because we had such low overhead," says Schillinger. "We were working 18-hour days, seven days a week, the three of us."

As it progressed, and the money rolled in, the three saw patterns emerge. Their customers weren't just fellow options traders, or long-term gamblers tired of calling their bookie from a pay phone. People came from all walks of life -- doctors, attorneys, professionals from Europe and Australia, mostly guys about 40 years old, who would make wsex.com their home page.

Football became by far the most popular sport, with bets equally split between college and pro. The Super Bowl isn't even their biggest game. Any weekend during football season is complete gravy, as are the annual "March Madness" playoffs of the NCAA basketball tournament. Business slows down in the summer months, but Schillinger has devised ways for gamblers to geek out. Customers can buy and sell contracts on every shot of a golf tournament, or every pitch during a baseball game.

But their booming business, and the media attention, made the three an easy target for the FBI.


Like most businesses during the early years of the Internet, bookies raced to establish an online presence. The U.S. government watched offshore sports books making millions of dollars with absolutely no restriction, and realized there was no existing regulation for this new type of gambling.

The only weapon the U.S. government really had was a dusty 1961 law, pushed through by then-Attorney General Robert Kennedy to fight organized crime and racketeering. Its official language reads: "Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers, or information assisting in the placing of bets or wagers, on any sporting event or contest shall be fined under this title or imprisoned not more than two years, or both."

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