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Kevin Smith

Q & A: Anthony Novac, 1X Inc.

18 March 2005

Since its inception, 1X Inc. has been trying to carve out a niche for itself in the seemingly impenetrable person-to-person betting sector.

" BetBug doesn't know what people are betting on or who is betting. We simply provide software that brings bettors together."

The Toronto-based company is currently focusing its efforts on the rollout of BetBug, a betting exchange system that the group hopes will change the face of P2P betting. Perhaps even more significant are their aggressive plans to bring exchange betting to the U.S. market.

Most exchange operators have been leery of taking U.S. play for fear of being prosecuted under the Federal Wire Act, which prohibits the use of sports betting through telephone lines across state lines, but 1X Inc. CEO Anthony Novac says the BetBug model works around this by implementing software that's similar to file-sharing applications used for downloading music and other media files. Users of the BetBug system download the software and connect with others looking to make wagers, and what each user decides to do with the software is his prerogative.

Interactive Gaming News caught up with Novac to talk about BetBug, developments at 1X Inc. and the exchange industry in general.

IGN: How did the transformation to focusing efforts on BetBug come about?

Anthony Novac: We did shift the focus of our software development, but it's important to note that this shift started about two years ago when we realized that traditional betting exchanges were going to be shut out of the U.S. market due to its regulatory environment.

This wasn't a snap decision. The U.S. remains the biggest market for active sports betting, and as early developers and innovators in the betting exchange industry, we recognized the potential. So did some others.

At GIGSE 2003, there was an executive from a leading exchange company who said during one of the panel discussions that the company able to capture the U.S. market with an exchange product would be immensely successful. BetBug coding had only just begun at that time, but we knew we were onto something big. Plus, given that we had already spent two years building betting exchange systems prior to BetBug, we were able to leverage all of our existing knowledge and produce a robust, compelling product from the start.

IGN: What makes BetBug different from other P2P exchange platforms?

AN: First of all, while BetBug offers many of the advantages of a betting exchange--no bookie, better pricing and the ability to offer your own odds--but it isn't an exchange per se. It's really more of a network. A betting exchange is centralized. The user goes to the exchange and bets on the exchange. The exchange operator knows the customer and knows the underlying nature of each wager. And the exchange holds the bettors' money, which, as we saw with Sporting Options, is not ideal.

Furthermore, in the words of the Wire Act of 1961, the exchange operator clearly "transmits wagering information" and is "in the business of betting."

By contrast, BetBug is a decentralized product. The individual downloads the product the same way he may download a music file-sharing application. BetBug admin staff populates the betting options using the Don Best rotation, but individuals put up their own odds, and all bets take place directly between the individuals. BetBug doesn't know what people are betting on or who is betting. We simply provide software that brings bettors together.

We think that BetBug offers the user an intuitive interface that resembles a regular sports book, as opposed to the complexity of other betting exchanges.

Most of the popular exchanges have been designed for the U.K. betting industry, and the action they see is predominantly horses. BetBug, on the other hand, is designed for North American sports, which is mainly binary wagering options (moneyline, totals, etc.).We've put a lot of time and effort into our interface and think it is the most intuitive and easy-to-understand in the market.

IGN: How has BetBug been received?

AN: Frankly, we've been extremely surprised at the response. Our goal was to soft-launch during the '04/'05 NFL season and build some volume over the next year before really marketing the product and rolling it out with white-label partners. But the number of downloads has surpassed our goals. We don't have access to user numbers, so it's a little hard to give you an idea of volume, but we do get an indication of action from our payment partner.

To give you an idea of the metric, we expect there to be about $500,000 wagered through BetBug on the March Madness tournament. That will probably amount to some 700 unique users placing wagers. And every single week of operation so far has been better than the one before. So bottom line, we're pretty happy.

IGN: Given that you've surpassed growth expectations so far, how do you see the next six to 12 months unfolding?

". . . We've created a product that stays within the U.S. laws, so regardless of where we're based, we don't expect any legal repercussions."

AN: We intend to make BetBug ubiquitous in the market by distributing it via our white-label partnerships and through other compelling distribution opportunities that are available uniquely to us due to our legality. That will obviously bring a lot of liquidity to the platform, which will further increase the attractiveness of BetBug to bettors and create additional benefits. So our key 12-month goal is to leverage our unique legal position to establish an unassailable lead in terms of bet liquidity and odds in the U.S. marketplace.

IGN: Do you think the U.S. bettor is ready for exchange betting?

AN: I think what that question really comes down to is, "Are exchanges ready to cater to the U.S. bettor?" Clearly with BetBug, the answer is "yes." We know that U.S. bettors are like anyone else in that they are attracted to the best odds. But we've always felt that a successful U.S. exchange will have to cross two key hurdles. The first is getting the interface right, and the second is finding a way to market to the masses with a product that has lower margins than a traditional sports book. Our legal advantages make the distribution side truly viable for the first time. In terms of interface, BetBug's already catching on very quickly with bettors who would have never looked twice at a more complicated exchange. So we're confident that we've solved that issue as well.

IGN: Other than legal reasons, why do you think it has taken so long for the trend to catch on in the U.S.?

AN: In our view, other exchange offerings to date simply haven't had all of the pieces in place. Good value is a great starting point, but you've got to have critical mass, which means that you have to be able to reach a lot of bettors. And once they come to visit you, you've got to have a way to make them feel comfortable. To date, BetBug's the only exchange which has addressed either of these crucial issues, so the fact that no other exchange has done well in the U.S. is logical rather than surprising.

IGN: Being based in Canada, do you expect any legal challenges from the U.S. Department of Justice?

AN: Unlike any other sports betting product out there, everything about BetBug is designed to comply with U.S. law. Existing operators of offshore sports books seem to have taken the position that since the U.S. can't reach them, violating the law doesn't matter. We don't think that's a viable position. With BetBug we've created a product that stays within the U.S. laws, so regardless of where we're based, we don't expect any legal repercussions.

Will the DOJ like BetBug? Probably not, as they don't seem to like any kind of gambling. But at the end of the day, they enforce laws with which we're compliant, while many other operators are in clear violation. So if the DOJ wants to prosecute someone offering illegal sports betting to U.S. citizens, it's safe to say that BetBug will not be the one in their crosshairs.

Q & A: Anthony Novac, 1X Inc. is republished from
Kevin Smith
Kevin Smith