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

He’s from California or Phoenix, or like a well-dressed college jockstrap from Colorado. He wasn’t really that heavy himself, but he didn’t mind hanging out with heavy guys.

I was sitting in my office in Costa Rica, explaining to Nick a difficulty, how I stopped paying people with checks. I had a hard time doing my own signature — it kept changing. So I just started going to the bank every two weeks and getting a pocketful of cash, $7,000, and bringing it back across twenty blocks of downtown San José.

One American dollar is worth about 500 colones, so a rolled-up wad of $7,000 looks like a wheel of Camembert cheese. Lefebvre carried his wheel of fortune in his tan leather knapsack, “sort of a bronze-y looking canvas with a blackness on it. Anybody in the bank could have phoned anybody they wanted and said, ‘Dude, the guy with the yellow knapsack’s carrying.’ Right?”

“You gotta get one of these,” Barlow advised at the time, pulling out a gun from his underarm holster. He put it on the table.

Lefebvre continues, “I was sitting on the other side of my desk. It was a snub-nose gun that had a barrel on the front — he could roll the chamber. Then Nick pulled out a bullet about the size of the first knuckle on my little finger — a real, old-fashioned, brass bullet.”

“I can fix you up with one of these,” Barlow told him.

“I don’t know, Nick. I’ve never seen one of those up close before.”

“What kind you want?”

“Nick, if I pulled one out I’d likely get shot with it. It’s not just about having a gun—”

“Well, if you ever change your mind.”

To Barlow, this behavior was normal. In this business, you had to protect yourself.

“Nick, I’ll let you know.”

Lefebvre either didn’t worry or didn’t act like he was worried about the shadier aspects of his business. He was a large man and could be intimidating when he wanted to be. That was one thing. The other was a kind of evangelical fervor built into his company to modify and modernize the behavior of people in his industry. Providing transactional security for bookies was crucial.

Lefebvre says,

The convenience Neteller brought for the bookie was security for his money. When we were pitching to merchants, as we called them, our pitch was: “A Neteller dollar is a good dollar every time and we guarantee it.” So we were able to walk into a bookie’s office and say, “How’s your bad debt situation?”

They’d say, “Fuck, it’s terrible.”

And we’d say, “Say goodbye to bad debt and say hello to Neteller.” At first they were skeptical. Bookies were reluctant about something like Neteller because they considered the bettor to be their property. They’d say, “If we sign up with Neteller, that’s the same as introducing the bettors to all the other websites.”

We’d say, “Oh yeah? And how’s your bad debt ratio doing? Are you finding it worth it to keep all those customers who steal from you? Hee-hee-hee.” They came to see we were right and said, “That’s pretty good — you’re on.”

The simpatico arrangement emerged over a two-year period. Websites began to push Neteller on bettors, and bettors began to push Neteller to websites. Lefebvre explains, “Merchants would say, ‘We don’t take customers — we only take Neteller.’ We never even had to advertise.”

Lefebvre and his young gang were down in Costa Rica, building Neteller’s customer service relations with bookies and casinos. PayPal was still killing Neteller with market share, hogging eighty-five percent of the traffic. No one thought that was too big a deal so long as Neteller kept growing. The guys running the little upstart weren’t happy about PayPal’s dominance, but what were they supposed to do about it? If they had stuck it out with PayPal, the Neteller brand would either have become a subsidiary or been eradicated. They were stuck with the leftovers, and they could live with that.

But then things started to shift. The first thing wasn’t a thing, but a guy. New York State Attorney General Eliot Spitzer decided to take a run at online gambling in his jurisdiction. Spitzer’s new millennium modus operandi was not so much Eliot Ness — style shakedown as common-sense persuasion. Respectable banks had been allowing gambling transactions to proceed, and they had collected a lot of money in transfer fees for doing so. Spitzer could let bygones be bygones, but things had to change, so he started to reason with executives. He warned Citibank that he would get an injunction against the company for processing gambling transactions. He told Newsweek he would give Citibank “a black eye,” and did they really want that for a public image? Citibank blinked. It coughed up $100,000. Then it donated $400,000 for the rehabilitation of gambling addicts. Spitzer wrote it on the wall, and Discover, MBNA, and American Express — while they all loved the easy revenue from processing fees — saw the hint and vacated the market.

If the executives who ran the company being targeted decided to fight the fine, Spitzer unleashed the dogs and a full investigation ensued. Getting charged with money laundering and racketeering — nobody needed that hassle. Spitzer modified corporate behavior and filled government coffers with the proceeds of the allegedly illegal activity. It was one way of battling white-collar crime, and at the time seemed novel.

Lefebvre says, “Spitzer took a run at PayPal. It ended in a settlement with the State of New York saying, ‘We’ll pay you $2 million and we will no longer transfer for New York IP addresses.’ So PayPal left New York. We had New York all to ourselves. Spitzer didn’t ask us to stop.”

Thanks to Spitzer, Neteller’s business received a nice bump. While Spitzer was harassing PayPal to stop accepting money transactions involving gambling bets on the internet, PayPal was planning to go public, and the Securities and Exchange Commission (SEC) told the company it had six months to get out of gambling. In other words, the commission let PayPal milk the cash cow for half a year, but then it was game over. And then eBay came along. “Everybody thought the SEC ruling was good enough,” says Lefebvre, “and then eBay began negotiations to take over PayPal and said, ‘We have no interest in the gambling trade, so PayPal: stop it.’”

When PayPal became a subsidiary of eBay in October 2002, it agreed to wind down any online transactions having to do with gambling, which, in the first half of 2002, amounted to eight percent of its business, or $8.2 million. One year later, eBay paid a $10-million fine for PayPal allegedly transmitting funds to aid offshore gambling in violation of American law between 2000 and 2002.

Neteller, being the next-biggest brand in that market, picked up the slack. It was an astonishing move that required no movement at all — less Sun Tzu, more Bodhidharma, and it decisively changed the fate of the smaller company. Two armies are on a battlefield, and the one that is ten times larger, looking to annihilate the other, suddenly flees. It was like Spartacus versus the Roman Empire in reverse.

“There was some jubilation,” Lefebvre recalls, trying to remember the peculiar combination of deep puzzlement and elation in early 2003. “Neteller was: ‘Hey, you mean we don’t even have to fight for it?!’ That’s when the business exploded. There was also a tremendous amount of anxiousness because PayPal went home for a good reason— because they were going to get charged . So, yeah, I’ve got millions, but it was always tempered by that ‘but’ side of it, right? I’ve got the cash but we still weren’t really sure about how much the cash cost us.”

Lefebvre lets out a mordant laugh. “And we’re still not.”