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Catch
Me If You Can
As Reported
by Forbes
SAN
JOSE, Costa Rica - On a warm, bright morning just outside
San José, Costa Rica, Calvin Ayre, slightly hungover,
was lounging in his bathrobe at a poolside office in his new
$3.5 million, 10,000-square-foot compound. Sipping coffee poured
by one of his five servants, the entrepreneur declared, paraphrasing
Sun Tzu’s The Art of War, “I’m going to win this
war without fighting battles. I’ve put a lot of energy
into finding ways not to fight my enemies.”
From this
tropical oasis, Ayre has dodged and taunted those enemies, the
main one being the U.S. Department of Justice. His Bodog Entertainment
Group is in the not very kosher business of Web gambling. It
takes bets from 16 million customers, most of them in the U.S.
And that appears to violate the law--Title 18, Section 1084
of the U.S. Code--which forbids using telephones or other communication
devices “in interstate or foreign commerce” in order
to take bets. “Online gambling, whether it is located offshore
or not, is illegal when it comes to the United States and its
citizens,” says a Justice Department official who works
on Internet gambling crimes.
Video Update:
Ayre Gets Raided
But Bodog
has no physical presence in the U.S., Ayre is not an American
citizen, and the extraterritorial reach of U.S. law is not clear.
Ayre, at any rate, has no assets in the U.S. for the G-men to
seize.
Last year
the privately held Bodog handled $7.3 billion in online wagers,
triple the volume of 2004. Ayre says all this betting gave him
sales of $210 million, and that he took 26% of the revenue to
the bottom line. What’s his business worth? Two similar
ventures that are publicly traded (in Europe) go for well over
18 times trailing earnings. At that multiple, Bodog, along with
other assets, gives Ayre a net worth of at least $1 billion.
Ayre presumably
has not just the vice squad but the tax collectors in a huff.
While 95% of his sales come from the U.S., the 44-year-old doesn’t
pay a nickel in corporate or personal income tax here. Is that
legit? Foreigners are supposed to pay federal tax on income
derived from U.S. business activities. The suckers are stateside,
the electronic roulette wheels and digitized sports pools in
Costa Rica. Where’s the action? It remains to be seen whether
irs agents could make Ayre pay, assuming they could get their
mitts on either him or his money.
His taunting
analysis of the law: “We run a business that can’t
actually be described as gambling in each country we operate
in. But when you add it all together, it’s Internet gambling.”
There are
2,400 Internet gaming sites, estimates tracker Casino City,
a few hundred of them operating in Costa Rica’s tax and
regulatory haven. According to research company Christiansen
Capital Advisors, they pulled in revenue (vigorish, that is)
of $12 billion last year, double the volume on the Las Vegas
Strip. Ayre gets his share with a smorgasbord of offerings (sports,
poker and casino games), a heavy dose of marketing and a lot
of repeat business. Bodog.com claims 145,000 regulars who bet
at least once a week. Their average wager: $60 for sports, $13
for casino games.
Bodog is
spending $80 million this year to nudge beyond gaming into a
kind of MySpace for adults. Most of it is pretty cheesy entertainment,
like his recent hosting of the Lingerie Bowl, a raunchy pay-per-view
cable alternative to the Super Bowl halftime show. Ayre is also
supporting the careers of a dozen lesser-known rock and hip-hop
acts (Bif Naked and Syndicated Villain among them) and producing
a poker show on cable TV with a slew of C-list celebrities like
Rob Mariano (a contestant on CBS’ Survivor) and card shark
David Williams. Hardly any of these ventures makes money, though
Ayre insists they will one day. But it probably lures customers
to try their luck on Bodog.com. Its 1.5 million unique visitors
per month, according to Internet tracker Hitwise, rivals that
of Sportsbook.com, which is owned by London Stock Exchange-traded
Sportingbet Group, the world’s largest sports betting company.
Ayre likes
to be seen--especially with attractive women. He is unmarried
and has no steady girlfriend (“It would be unfair to the
girl,” he says). He has himself driven around in a black
Hummer by a chauffeur who was trained as a sniper in the Canadian
military and practiced in Somalia, Bosnia, Afghanistan and Iraq.
Why the heavy metal? Ayre says he and three friends were robbed
at gunpoint on the streets of San José a few years ago.
His rivals say there’s about as much need for a bodyguard
in Costa Rica as in Boca Raton.
Raised in
Lloydminster, Sask., Calvin Edward Ayre (pronounced “air”)
is the son of grain and pig farmers. He placed his first bet
during his teens, playing blackjack for pennies with his mates
on long hockey trips across the Canadian tundra. By the time
he attended the University of Waterloo, Ayre was betting on
sports (for beers, he says), and developing a taste for business.
Over the summer he bought a five-ton truck, loaded it with cherries
and peaches he’d picked and sold the fruit to motorists
on the side of the road. He also organized trips to Florida
and Cuba for his party-going classmates.
It didn’t
take him long to land in trouble. With an M.B.A. from City University
in Seattle, Ayre took a job in June 1990 as president of Bicer
Medical Systems, a Vancouver, B.C. heart-valve maker. The company
was underfinanced, he says. According to British Columbia Securities
Commission documents, Ayre sold 300,000 Bicer shares without
releasing a prospectus. He also moved millions of shares between
several accounts, including his own, without filing insider
trading reports. “I knew that I wasn’t following all
the rules,” he says. “But I also knew I had to do
it to keep the budget alive.” Though he was never charged,
Ayre settled in 1996 for a $10,000 fine and a 20-year prohibition
from running a company listed on the Vancouver Exchange.
Meantime
Ayre borrowed Cisco (nasdaq: CSCO - news - people ) training
manuals and taught himself network design, then tried launching
several Web-based ventures, including a voice-over-IP company.
All of them flopped. Then he read a newspaper story about Ronald
(the Cigar) Sacco, a U.S. bookie who had set up an offshore
phone-in betting operation in the Dominican Republic to elude
felony charges in the States. “There was a loud bang in
my head and the whole universe came together,” Ayre recalls.
(Sacco pleaded guilty in 1994 to money-laundering charges and
went to prison a year later. His operation later moved to Costa
Rica.) Ayre invested $10,000 to build a Web-based system for
betting online, providing software to offshore bookmakers.
By 1996
he was in Costa Rica, helping to launch some of the first online
casinos, like WinSports and GrandPrix, for other bookmakers.
Internet gambling was basically unheard-of, and there was a
strong disconnect between the kid and the old coots taking the
bets. Ayre not only wanted to encourage smaller bets to generate
more predictable revenue and profits, he also wanted to settle
accounts with online checks, instead of suitcases of cash. “I
was pioneering a new industry,” he says. That’s half
true. Sportsbook.com was championing a similar model, taking
bets from customers using credit cards issued by European banks.
Ayre launched
his own site in April 2000, starting with sports betting. There
were options to pay with credit cards and online checks (wired
from U.S. accounts to Bodog’s London accounts), a $5,000
maximum and plenty of pictures of pretty girls. Later he added
online poker and casino games. In the event that you are a winner,
you collect via wire transfer. Presumably, you declare your
winnings on your 1040, but Ayre does not file reports with the
IRS.
To create
some attention, Ayre begat the fictitious “Cole Turner”
as the public face of Bodog. He convinced Christopher Costigan,
owner of Gambling911, an online tabloid promoting Web gambling,
to post stories of Turner, an Indiana Jones-like character.
In 2003, for example, Ayre turned his vacation to Thailand into
a Cole Turner Internet adventure. Using a digital camera, a
machete, fake blood and a cast of taxi drivers and massage-parlor
girls, Ayre spun the tale of Turner leading an expedition into
Cambodia to fight a cell of Buddhist terrorists. Along the way
Turner was captured by the Cambodian army, double-crossed by
opium warlords in a lost ancient city and wounded in a knife
duel while escaping the country. Ayre wrote the eight-story
series on the plane back to Costa Rica. It was released during
the college bowl season.
The series
got noticed. Disgusted bookies at rival companies posted notes
on Internet forums saying Turner was a terrible businessman
because he was off on an adventure rather than at his desk during
one of the busiest betting times of the year. One gambler called
Bodog and said he wouldn’t place another bet until he knew
if Turner was alive.
But the
joke got old. After being quoted in a 2004 Cigar Aficionado
magazine story as Cole Turner, Ayre got tired of explaining
to reporters that Turner was just a marketing trick. Still Ayre
hasn’t lost his crude touch: He sometimes hands out thong
underwear as business cards. For an April Fool’s gag last
year he released a statement apologizing to customers for losing
Bodog to Virgin’s Richard Branson in a drunken poker match.
Bodog is
based in Costa Rica, where 150 bookmakers and customer service
reps guide the action. The government doesn’t charge businesses
on money earned from other countries, and since Ayre doesn’t
take bets from Costa Ricans, all Bodog revenues come from foreign
lands. He pays no personal income taxes in Costa Rica since
all his assets--cash, cars, houses and other properties--are
in Bodog’s name, not Ayre’s. He says he has $25 million
invested in Costa Rican and Canadian real estate and $40 million
in Swiss banks.
In Vancouver,
200 graphic designers and computer programmers work at Riptown
Media, whose only client is Bodog. But producing advertising
copy is not a crime and Bodog itself doesn’t keep an office
in Canada, which has legal restrictions against online gambling
similar to those in the U.S. Ayre says his citizenship isn’t
a reason for not setting up operations in Canada, though he
still carries that insider trading settlement on his record
and admits he doesn’t want to “tempt fate.”
The U.S.
Justice Department hasn’t had much luck prosecuting online
gambling operators. Jay Cohen, an American who co-owned World
Sports Exchange in Antigua, is the only known proprietor ever
put on trial. Found guilty of accepting bets from America over
the Internet in August 2000, he was sentenced to 21 months.
But some American offshore operators haven’t been touched,
even though they sometimes return to the States. Among them:
Ruth Parasol and J. Russell DeLeon, a married couple who, along
with Indian partner Anurag Dikshit, got very rich when they
took PartyGaming, a Gibraltar company, public in London last
June. Dikshit is worth $3.3 billion, Parasol and DeLeon $1.8
billion each.
Uncle Sam
has found ways to make those who help Web casinos sweat. In
2003 Ebay’s PayPal operation paid the U.S. $10 million
to settle charges of enabling online betting with money transfers.
In January the tabloid Sporting News surrendered $7.2 million
to the government, money it earned advertising gambling sites.
Ayre has a clever work-around. Most broadcasters in the U.S.
don’t want to pay fines for running Bodog.com ads but happily
take money for advertising Bodog.net, a free “educational”
site that looks almost identical to the Bodog.com money machine.
There is
some risk that Congress will give the DOJ more weapons with
which to attack offshore gamers. Senator Jon Kyl (R--Ariz.)
has introduced a handful of bills to stop online gambling. One
made it to the floor and was voted down in November 1999; Kyl’s
handler blames “shadowy forces.” Rep. James Leach
(R--Iowa) introduced similar legislation last November. “Internet
gambling has dangerous implications for families and society,”
Leach says. “It’s also a front for money laundering
and terrorism,” though he has only anecdotal evidence.
Ayre, paradoxically,
might also be in trouble if Congress went the other way and
legalized online gambling. That, he says, would encourage the
likes of Google (nasdaq: GOOG - news - people ), Microsoft (nasdaq:
MSFT - news - people ) and Ebay to open sites. But other powers
disagree. “Do you think the Internet or gambling is going
to disappear in the next ten years?” asks Nigel Payne,
Sportingbet’s chief, who spends much of his time lobbying
for regulation. (His largest stockholders include Fidelity Investments
and Merrill Lynch (nyse: MER - news - people ).) “The U.S.
needs to regulate it, license it and tax it.” Payne says
the U.S. government could have reaped $900 million from online
gambling taxes last year. He has a strong ally in Terri Lanni,
chief executive of MGM Mirage (mgm: NYSE - news - people ),
which owns the Bellagio and MGM Grand in Las Vegas. Washington
is “making a major mistake by not legalizing this type
of gambling, considering that almost all wagers going to offshore
sites come from the United States,” he says.
Whatever
happens, Ayre will try to make sport of it. “One of the
things that drives me is the excitement that I could fail,”
he says. “What better buzz can you get?”
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