Bill Reynolds - Life Real Loud - John Lefebvre, Neteller and the Revolution in Online Gambling

As the company expanded through 2001, the brain trust needed to think big — beyond Calgary, beyond national borders. “We discovered we weren’t going to be able do it in Canada,” says Lefebvre. “The investment bankers ask, ‘Is this entirely legal?’ And then they ask, ‘Can you get us an opinion?’ And we reply, ‘Uh …’ It became evident that if we were going to go public we were going to need to do it in a gaming-friendly jurisdiction.”

Before long, Lawrence ran out of room in the Midnapore bay and had to lease space from the office building across the street. “We’d be running back and forth,” Glavine says, “from the car wash to the other building and back to the car wash.”

The cool downtown loft-space office was gone, and the surf-and-turf era was over. Now they were worker bees in strip-mall hell, twelve miles from the heart of the city, living on Wendy’s and Mickey D’s in suburbia.

Meat Loaf with the Man Purse

On April 25, 2001, Lefebvre moved to Costa Rica to set up a Neteller B2B shop. He and Lawrence decided his job would be to meet and greet the sports-book people and convince them Neteller’s model could revolutionize their business by making them more money and losing them a lot less. But he required experienced help, so a few lucky ones from the Keg office inner circle got to go with him.

“So, Mer, want to move to the Caribbean?”

“Ha-ha … When and where?”

The buzz had been going around the office. Exotic destinations — way more exotic than Calgary in the wintertime — were gossiped about, places such as Jamaica, Antigua, Costa Rica. Was it only one place Neteller was setting up? Was it more than one? Who was going? Was anyone really going? The rumors were kicked back and forth in the hacky sack zone. “They decided to go to Costa Rica because Steve already knew about it,” says Glesby.

There were other reasons. One cliché that is sometimes trotted out to describe Costa Rica is that it’s the Switzerland of Central America: it’s got alpine forest, it’s a neutral country, it has no military presence, and, yes, it’s a bit soulless. Sure, it has issues — the environmental consciousness of many of its citizens seems to be stuck in the Mad Men era, for instance, and small-time crime is rampant (if you don’t lock it down, it’ll be gone). But it has a stable government that allows legal gambling and legal prostitution to flourish. A real tourist draw, you might say, for older male Americans. More pointedly, while close to the United States, it remains outside its jurisdiction. You can fly from Houston to San José, the capital, in three hours. And maybe it’s because San José has the Hotel Del Rey.

Lawrence could have followed the path of the World Sports Exchange (WSEX), which was created in Antigua and run by a couple of American ex-stockbrokers who wanted to set up a sports gambling business. He could have planted Neteller in Antigua, which chose to view gambling as a legal activity before Costa Rica did. But by this point Costa Rica was gaming central — roughly one-third to half of all gaming companies operated there, according to Lefebvre. A big part of Neteller’s business became meeting new merchant clients to cajole them into becoming part of its system. “One of the big concerns in the industry was using money transferers who could grab the money and run,” says Lefebvre. “In any given month, those guys might be holding several million dollars on Visa or MasterCard or Western Union, until they settle. If they start using money transferers who aren’t reliable, even if you settled with them weekly you’ve still got a whole week of receipts that you could beat them for.”

That suspicion was a natural barrier to entry into the market, but Neteller found a way around it. Lefebvre says, “We had the confidence of all of the people we worked for because we were approaching it professionally and responsibly. The thing that made us golden in the industry was we never, ever, paid a dime short or a minute late. Having a presence in Costa Rica, where people could walk over and actually see you, enhanced that.”

Another factor that made Costa Rica so attractive was the relatively tax-free situation. “We set up a Costa Rican company, and there were some Bahamian companies involved,” says Lefebvre. “We were experimenting with running our profit center not in Canada, trying to avoid paying Canadian taxes.”

Online gaming was big business in Costa Rica, but gambling itself was a gray area. It wasn’t exactly legal, but it wasn’t exactly illegal. Lefebvre explains,

Blue Marlin, for instance, was an online gaming site that had a bricks-and-mortar site called the Hotel Del Rey in San José. It was world famous because you could gamble there, and they had a live sports book there. The thing that distinguished it was that on any given night there were two hundred to three hundred prostitutes wandering among the gamblers.

You can gamble at the Del Rey, but you can’t call it gambling. In roulette, you throw a ball into a wheel and the wheel spins and you get one to thirty-five red and one to thirty-five black. And then there are the two green ones that put all the odds in favor of the house. Well, roulette is illegal in Costa Rica, so what they do is they have these bingo-ball tumblers and each of the Ping-Pong balls inside the tumbler has exactly the same markings as a roulette wheel would have. You’re playing bingo but Costa Rican bingo goes exactly like roulette. You bet money exactly like roulette and you win money exactly like roulette, and you take money home or lose it exactly like roulette — but it ain’t roulette. Blackjack is called rummy, and the difference is that if you get three of a kind you get rummy, and that’s a big payout. And that’s what proves it’s not blackjack.

At one point, the Costa Ricans decided they had to get heavy with sports books, because they had to show the Americans they were getting heavy about sports books, and so they went around and shut down all of the bricks-and-mortar sports books. So the Blue Marlin, with its rummy and its bingo and its prostitutes, had its sports desk shut down in a police raid. Why did they shut it down? Because it’s illegal. But internet gaming, of course, wasn’t shut down. Why? Because the internet gaming sector probably hired fifteen thousand people in San José to do customer service.

When Costa Rica decided to perform this Kabuki for the U.S., Neteller wasn’t even considered a gambling or even a gambling-associated company. Lefebvre says,

At one point, Banco Nacional de Costa Rica [BNCR] decided it would no longer operate accounts for gaming businesses, and so all of the gaming businesses had to shut down their BNCR accounts and open up accounts with private banks — which cost them one day of lining up in the bank, basically. That was all the inconvenience that was dealt to them. I went to Banco Nacional, where we operated accounts freely, and asked them, “We’re not a gaming company but our whole business comes from gaming companies, so do you have a problem with our business?” They said, “No, no, no, no!” Eventually, merchants started opening Banco Nacional accounts so Neteller would be able to settle up faster every Monday. It was all pretty funny.

Lefebvre estimates it took him three months to get the San José Neteller branch fully operational. He says,

It’s frustrating. Costa Rica is a terrible place to do business. ICE [Instituto Costarricense de Electricidad], Costa Rica’s telephone company, you go in there and pick a number to get an appointment to set up a telephone business. Then you wait all day with your number in a room full of people sitting in chairs. It gets to four o’clock and they say, “Sorry, we’re finished, come back tomorrow.” Then you have to come back the next day and take a new number. So you wind up having to get there an hour before it opens in the morning to be first in line. They do actually serve at least one person, and there’s more than one wicket.