• • •
The way the betting system worked before Neteller came along was not elegant. For example, if you wanted to bet on an NFL game being played on Sunday afternoon, you would use Western Union or a bank wire to send your money to a particular bookie the Thursday before. If you were sending a check, it would have to be the week before. More often than not, when you got up on Sunday morning, you would find that your hand-picked bookie’s lines were no longer as good as another bookie’s lines. Too late, though; you were committed.
Or maybe you wanted to use your credit card, but, because fraud from stolen cards was widespread, credit created huge headaches for the bookies in Costa Rica. “Somebody gets a bill,” says Lefebvre. “He goes, ‘Holy fuck! Somebody incurred a gambling debt on my credit card! It wasn’t me.’ So he phones up Visa and Visa says, ‘That’s fine, we’ll just charge it back.’ When they reverse the charges, it’s the guys down there that lose the money.”
The other problem was what happened when you won your wager on that NFL game. Getting your winnings was even more of a pain because the bookie would send you a check drawn on a bank such as Banco Central de Costa Rica, which could take up to six weeks to clear.
After Neteller came along, when you put your money in your Neteller account you didn’t have to choose your bookie until Sunday morning. You could be watching which way the lines were moving with, say, sixteen bookies on the internet and then make the call an hour before kickoff.
It gets better. If you won, the bookie you chose put your money right back into your Neteller account. You got your winnings straight away, and then you were betting on the four o’clock Jets game. No delay.
At the other end, before Neteller, bookies suffered bad debt in the neighborhood of fifteen percent—not a great business model, but they had to put up with it. Lefebvre explains,
You have to understand how bookies work. They don’t make money winning and losing bets. Indeed, they want to wake up Monday morning and not care which way the game went. It’s the concept of laying off bets. If you’re high on this side, you’ve got two choices. One, change the odds, try to even out your book. But that’s dangerous because then you’ve got odds that are all over the map. Guys start realizing the arbitrage opportunities between the various odds and hit you with $30,000 on that side and $30,000 on this side. They make a margin, right?
So what bookies do is lay off bets. They all know each other and get on the phone and say, “I’m high on New York this game, are you high on Detroit?” And the other guy says, “Yeah.” So they switch. The New York bookie covers the Detroit bookie, and the Detroit bookie covers the New York bookie. They lay off bets and they balance the book, and that’s the way they want it on Monday morning. All they get is the vig [vigorish, Yiddish slang from the Russian for “winnings,” or the juice or take], the five percent.
The bookies had to put up with the bad debt. It was a fact of life in a high-risk business. But what if you found a way to take that risk and punt it? Once it was in a position to do so, that’s exactly what Neteller did, and they started to give the good news to bookies. Lefebvre recounts the mantra: “If you get Neteller money, that’s good money. You’ll never be charged back.”
The company decided to absorb the bad debt because it wanted to get into bookies’ good books, but also because most of the time it identified the bad guys and systematically weeded them out. If you signed up for a Neteller account, the company automatically allowed you to use your credit card up to $250. If you wanted the limit increased, and of course you did because you wanted to gamble more, the company said, sure, but first you need to connect your bank account to its bank account. That way, Neteller security people could get hold of your social security number, phone number, and address. And you had to send them a copy of your phone bill, and it had to have the same address as the one you used. Then they phoned you to find out if you answered that phone. If everything was in order, Neteller increased your credit card limit to $1,000.
Neteller, in effect, groomed its accounts on an ongoing basis. Much of the staff was dedicated to monitoring accounts to make sure they were secure. “We selected from the marketplace those people who actually wanted to gamble,” says Lefebvre, “not the people who wanted to scam gambling money.”
• • •
What had been an underlying concern about money circulation in the online gaming business became the overt solution for a new electronic wallet company, which by 2000 had rustled up enough financing to make Neteller a go. Lefebvre approached two Calgary men about his latest start-up, and that was enough. They pitched in some funding and gave a bit of advice, but otherwise remained silent partners. Lefebvre never disclosed the sum of the original combined investment, but according to a U.S. probation officer’s August 23, 2011, presentence investigation report, they, meaning Lefebvre and Lawrence, “raised approximately $300,000 from Canadian investors.” (The report may not be the most reliable guide; it is riddled with obvious errors. In the application for admission to AIM, the figure is cited as $200,000.)
Lefebvre says:
I only pitched the idea to two guys, and they both came through. My biggest supporters were Bruce Ramsay and Victor Choy. They’re both guys who are natural and down-to-earth, and completely non-reliant on their achievements for their sense of self-esteem. Victor’s absolutely the most modest rich guy you’ve ever met. He wanted to get into a dot-com biz. This was before the crash. And Bruce wanted to support my bid to become solvent. I had negative net assets at that point. I’d used up my capital, my friends’ capital and my mom’s capital. Neteller was my bid to graduate from fiscal adolescence.
Choy certainly was a good businessman. He began by running clubs in Calgary, such as the Republik. Later on, he branched into restaurants. And indeed he was a humble guy—solid, responsible, a family man. According to Lefebvre:
He’s gone to every one of his clubs, every night, since he started—one three-day holiday here, one four-day holiday there. He drops in, different schedules, mixes it up, nobody knows when he’s coming. He tells his staff, “Don’t tell anybody I own this place. At the most tell them I work here.” Of course everybody knows, but not everybody knows which guy in the room he is. He and Bruce understand. I’ve been fortunate in my life to have run with guys that help me understand that being loaded doesn’t make you any better than the next guy—although you can play that card if you want.
Ramsay succeeded Lefebvre as president of the student union at University of Calgary, in 1979–80. His previous experience in student government—as vice president, services, and then president—came in handy. Upon graduation, he worked for a couple of years in the Edmonton office of Alberta’s then education minister, Jim Horsman. This afforded Ramsay an excellent opportunity to watch the levers of power. Then he was accepted into the Wharton School at the University of Pennsylvania, the Ivy League institution in Philadelphia. After graduating, Ramsay became a corporate businessman, much like Lawrence.
Lefebvre had known Ramsay for years. In the mid-eighties, they lived together for a while on Tenth Street NW and at 702 5A Street NW, renting a run-down two-story dive from United Properties, owned by the wealthy Singer family. They called it “Wormy House.” It was demolished in the nineties and replaced with an ugly condo box that stood straight and wasn’t drafty. Lefebvre moved out of Wormy House before Ramsay and set up house with Jane Bergman up the block up at 802 Memorial Drive.
Ramsay stayed at Wormy House for another year, sharing the rent with Oliver Friedmann, Choy’s one-time club-owning partner. Then he moved out to Chestermere Lake, about fifteen miles east of Calgary. He and Lefebvre remained close even though they saw less of each other. “Bruce didn’t move in with anybody,” says Jeff Proudfoot, the vice president, finance, from Lefebvre’s student government administration, “but he was dating and getting kind of serious with Debbie Cullen, John’s cousin. They never married, but they lived tog
ether for nineteen years.”
The union produced two daughters, Fiona and Isabel. In 2004, Lefebvre would invite his two teenaged “nieces” to shop on Rodeo Drive in Beverly Hills, encouraging them to spend as much as possible. What did he care? At that point, dropping $44,000 in two hours at high-end retail stores had “absolutely no impact” on his bottom line. The money derrick was cranked wide open.
Ramsay and Choy were good guys—trustworthy, smart, and sensible. It was heartening news for Lawrence, a solid endorsement, having these two men support his electronic money wallet baby. McMullen says, “John’s the social guy. Steve couldn’t have raised all the money and put the people together. That’s John’s forte. Everybody knows John and John knew people with money. He’d been involved with Victor and Bruce before, so he could bring money and people with ideas to the table.”
• • •
As they worked through late 1998 and 1999, Lefebvre and Lawrence started to think more seriously about how this new venture would work. Lawrence had the business brain and Lefebvre was the marketing guy (who could handle lawyering details, if necessary). Natland was the kid with the IT smarts. They had a couple of silent backers, but a few pieces were still missing. Natland, they all understood, would need to replace himself because he wanted to head to Silicon Valley and get in on the dot-com buzz. There he would cofound his own company, to be named Arizona Bay, and get in the big game.
They divided up the company—Lefebvre says he thinks he was the one who came up with the compound of “internet” and “teller,” and it stuck—roughly seven ways. Lawrence and Lefebvre were cofounders, so they retained the largest slices of the pie. Lawrence’s share was around thirty-six percent and Lefebvre’s around twenty-two percent. Natland was given a couple of points for his original idea even though he didn’t want to stick around Calgary. Please do not weep for the kid’s measly deuce—by his late twenties he lived on the fifty-ninth floor of the Shangri-La, an exclusive luxury condo highrise, the tallest building in Vancouver. He had a 270-degree view. “You can just sit there and stare out the window for two hours,” says Glavine. Natland drove a Bentley and a Ferrari and generally lived how he pleased.
The two investors, Choy and Ramsay, split around twenty percent, with the ratio being two to one in favor of Choy, based on what was invested. “After the crash but before the forfeiture, I was around $125 million. Victor had half of that and Bruce had about half of that,” says Lefebvre.
Choy would have been a successful businessman whether or not he had invested in the new play, but the decision had quite an impact. Lefebvre says, “I guess he made a fortune in nightclubs, but he made a way, way, way, way, way, way bigger fortune in Neteller.” Choy has never spoken of his investment in Neteller. Never has, says Lefebvre, and never will. Lefebvre doubts Choy even told his wife. “She has an idea. You know, I’m hanging around a bit, and suddenly they have way, way, way more money.” And, in August 2000, Lawrence and Lefebvre, having little choice, took up the sweat equity option and increased the number of investors from five to seven.
After securing start-up cash from Choy and Ramsay, and picking their brains occasionally, Lefebvre shopped the concept around town, trying to raise more capital. In one comic incident, Lefebvre says, he talked to some senior lawyers in a fancy corporate boardroom high above Calgary’s Stephen Avenue downtown. One of them—Lefebvre can no longer recall the name but has no trouble labeling him “asshole”—didn’t give them a direct answer. Instead, he chose to tell a parable:
He said, “You know, I used to go the Barbados all the time, and when I did I noticed that the wine was always really expensive. I thought, you know, if we imported some South African wine, it’s nice wine, it’s cheaper and we could undersell all of these guys and make a whole bunch of money and lower the price of wine in the Barbados. Boom, done, good idea. Let’s do it.” He paused. Finally, I said to him, “Well, okay, so what happened?” He said, “I found out something—if you’re going to do that, you’ve got to be careful whose bottles you’re pushing off the other end of the shelf.”
Good joke, especially because it’s true. If this new business model worked the way the Neteller guys thought it might, other entities currently making a tidy profit in gambling revenues might get alarmed enough to flex their first-in-the-market muscle with various state governments. Lawrence and Lefebvre’s idea was so clean and beautiful it might get officials from legal gambling jurisdictions such as Nevada and New Jersey standing up and sputtering, “Why, if we let this stand we’re going to have people staying at home gambling in their housecoats!” Visions of all those so-last-year bricks-and-mortar outlets in Vegas and Jersey crumbling and rotting while the company that created this new methodology collects its toll with each electronic transaction—Ping! … Ping! … Ping!—slowly bleeding all of these hopelessly old-school outlets to death. So clean they wouldn’t know their veins had been razored, so to speak.
Lefebvre also traveled to Philadelphia around this time to meet a bookie named Jack Gallagher and learn more about the actual process of moving funds from customers to bookies and back, and the historical problems involved with this structure. The main problem, he found out, was the insane level of bad debt bookies carried, and the tenacity of fraudsters with phony addresses and stolen credit cards. Then he traveled to the Bahamas to inquire about banking and Western Union and setting up a Visa account. About the only Canadian bank that would listen to him about financing Neteller’s operations was the National Bank of Canada (Banque Nationale du Canada, based in Montreal), the nation’s sixth largest. None of the big five Canadian banks, all based in Toronto except for the Bank of Montreal, would go near the idea. Too much risk. Then he traveled to Costa Rica to glad-hand the bookies he’d be dealing with—a little B2B, a little hi-how-are-ya, a little hey-let’s-work-together-here, and, mainly, a little reassurance that if anything went wrong Neteller would have a guy in place they could go to.
A little later on, just before Steve Glavine arrived to take over Neteller’s IT position, Lefebvre says, he and Lawrence went down to the Caribbean a couple more times, for a couple of days each time, to meet with a Bank of Bermuda guy named Simon to talk financing. The talks didn’t go far. Then they heard something about a “smart card” kind of system from two guys who worked at a small bank located in the Dutch Antilles, who themselves had learned about this new concept from a supplier working with the bank. They thought maybe they should buy this system for Neteller, as it might help ease the money traffic bottleneck. But these guys were a dead end. “They were not nearly as ready as they said they were,” says Lefebvre. “Stringing us along. One guy seemed to think we were being impatient after four or five months: ‘You guys have got to stop bothering me or else I’ll take this online gaming business somewhere else.’ We said, ‘Fuck you.’ They were presumptuous and grabby. They thought they could own Neteller’s concept.”
Lawrence and Lefebvre had lined up approximately thirty business-to-business clients (i.e., bookies), each of them with anywhere from dozens to thousands of clients (i.e., gamblers). It’s tempting to wonder why Lawrence settled on Costa Rica. There were other legal jurisdictions—Antigua, for instance—but it didn’t have as large a customer base. And there were other, lesser centers, such as the aforementioned Dutch Antilles, or “ABCs,” north of Venezuela: Aruba, west and slightly north of Curaçao; Bonaire, due east of Curaçao; and Curaçao itself. Later, when online gambling became more popular—and more corporate—the Isle of Man became the preferred home for Neteller. At this point, though, that ancient farming island, located east and south of Belfast, north and west of Liverpool, and stuck in the middle of the Irish Sea for no particular reason except that it broke water during the Ordovician Period, around 450,000 million years ago, hadn’t yet come into view as a viable alternate. It hadn’t yet become the kind of experience where they would need to alert authorities ahead of time that they would be arriving at Isle of Man Ronaldsway A
irport, seven miles southwest of Douglas, with marijuana. That was later. For now, it was enough to know that Costa Rica had always been one of the major centers for gambling.
• • •
By May 2000, Lawrence had the incorporation documents for Neteller and had struck a deal for the company to take possession of an oversized space above the Keg restaurant at Eleventh Avenue and Fifth Street SW, along the strip known as “Electric Avenue.” Aside from stealing the title of an Eddy Grant party song, Electric Avenue was known for being the place where boisterous Calgarians could get loaded with impunity. The cops were there, of course, on the lookout for some poor sucker to toss into the drunk tank, and there was the odd episode where hundreds of overserved locals created a ruckus on the street, but otherwise it was the usual strip of booze joints for the bourgeoisie.
The early days at the Keg building consisted of, first, Lawrence working alongside Lefebvre, and then Lawrence cruising by once in a while when he wasn’t looking after his development properties in Bridgeland, east of downtown, or in Midnapore, where Neteller was conceived. Otherwise, Lawrence left the operation in Lefebvre’s hands. They both worked at Neteller for nothing. Lefebvre had saved up a bit of cash, maybe five grand, from the various lawyer gigs offered to him by McMullen. He was living on $800 a month and selling enough pot to cover his habit. He could afford to commit himself to long hours on the phone with customers. “I had enough money,” he says. “I could work for nothing for a while.”
Life Real Loud Page 15
