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In 1996, Chris Hehman built one of the first online bracket managers for the NCAA men’s college basketball tournament, or March Madness, as it’s known to the millions of Americans who gamble on it every year. Hehman’s boss at the now defunct telecom company Nortel Networks wanted a better way to keep track of the 50-odd entries in the annual office pool. “Fifty doesn’t seem like a large number now,” says Hehman, “but back then you had to print it all and mark up all of the results and score them by hand.” Hehman’s program was such an office hit that he turned it into a business, PickHoops, which now processes 180,000 brackets annually.
PickHoops isn’t the only, or even the biggest, online bracket manager. Its volume is nowhere near the 5.9 million brackets filled out on ESPN’s free service or the 4.5 million at CBS Sports. All of them provide a place for the members of a pool to enter their picks, and the programs keep score as teams are eliminated from the tourney. PickHoops goes further: It allows pool members to look ahead at potential outcomes and will even generate their initial picks, taking into account their tolerance for upsets. About the only thing PickHoops won’t do is collect and distribute money. It’s not that Hehman couldn’t add this function. It’s that he’s afraid to. “When we were first getting started, we looked at what the various rules were,” he says. “They are often extremely confusing or extremely weird. It’s not practical for us to even know where and when it’s legal.”
March Madness may be America’s largest annual ritual of collective lawbreaking. A 2009 Microsoft survey estimated that 58 million Americans fill out brackets, and according to Las Vegas oddsmaker Pregame.com, about $12 billion is wagered on the tournament. “There are easy arguments that could be made that outside of Nevada, a bracket of any sort is illegal, especially if you’re moving it online,” says Alexander Ripps, a legal analyst at Gambling Compliance in Washington, D.C. A federal law passed in 1992 prohibits sports betting except in Nevada, Delaware, Oregon, and Montana. (New Jersey is currently fighting to get on that list.) The Interstate Wire Act of 1961 made it illegal to communicate sports wagers across state lines over wires, a rule the Department of Justice has deemed to include the Internet. And then there is the Unlawful Internet Gaming Enforcement Act, a 2006 law that made it illegal to accept payments related to gambling. The act contains an exception for fantasy sports, which may or may not include March Madness, depending on who you ask.
Ripps says that while law enforcement may view co-workers plunking down bets as harmless, making a business model off it would turn heads: “If you see a company setting up a product that easily facilitates this and it becomes a multimillion- or billion-dollar business, someone is going to look into it.” Hehman at PickHoops avoids the problem by providing a space where users can leave instructions about payment. “We see people frequently saying, ‘Pay us with PayPal (EBAY) or send me a check,’ ” he says. PayPal has restricted some customers’ accounts for “sales/offers of march madness sports pool,” according to e-mails from the company obtained by Bloomberg News. The e-mails ask the alleged offenders to submit an online “affidavit” agreeing again to the terms of service, or else PayPal will “escalate” the issue. A PayPal spokesperson declined to comment other than to say that the company follows all U.S. gambling laws and regulations.
Crowdtilt, a Palo Alto startup that helps groups of people pool their money to fund anything from non-profits to tailgates, would be perfect for March Madness. Or at least that’s what a recent e-mail from their public relations representative claimed. A curious journalist responded: How do they deal with gambling regulations? Well, actually, the company later said, Crowdtilt is not to be used for gambling on the NCAA tournament. “If it’s explicit gambling or, especially with March Madness pools, if someone is taking a cut, then we have to put a stop to it,” says Crowdtilt founder James Beshara. “Personally I wish we could [allow it],” he says, but the company’s payment processor, PoundPay, forbids it. A Google search, however, pulls up a Crowdtilt March Madness pool of $2,950 (and counting) in Tulsa. “Last year our challenge had over 130 participants with a pot over $3,400,” write the organizers. “Let’s double that number this year!”
If a crackdown ever comes, it may be hard to find anyone with clean hands to wield the whip. Hehman says his customers include government officials, law firms, law enforcement, and “other places that you think maybe they shouldn’t be doing office pools.”
The bottom line: The laws around March Madness pools are complex, and they’ve forced online bracket services to stay away from processing bets.