Sports entity wagering may be the next big investment opportunity in Las Vegas, but don’t expect to hear about it on sports talk radio.

Chris Connelly, founder of one of the first approved entity betting businesses in Nevada, poses for a photo near the Strip in Las Vegas on Wednesday, May 11, 2016. Joshua Dahl/Las Vegas Review-Journal

Chris Connelly, founder of one of the first approved entity betting businesses in Nevada, poses for a photo near the Strip in Las Vegas on Wednesday, May 11, 2016. Joshua Dahl/Las Vegas Review-Journal

Sports entity wagering may be the next big investment opportunity in Las Vegas, but don’t expect to hear about it on sports talk radio.

Contrarian Investments, owned by Chris Connelly, is one of the pioneer companies in the world of sports betting mutual funds. Connelly’s plan to draw more investors to his company doesn’t revolve around him selling picks on the radio, where listeners are looking for action instead of an investment strategy, Connelly said.

“I’m trying to grow the fund organically by creating returns for my current investors, which will lead to additional investors becoming interested and joining the fund,” Connelly said recently. “I’m more focused on investors, readers of The Wall Street Journal and those who watch CNBC. Those investors have been getting the short end of the stick with traditional funds and stock advisers. I know investors who are desperate to see their funds grow just enough to beat inflation.

“That seems crazy to me as I know I can beat the market and produce returns that a typical investor would be cynical about. It’s not easy to be successful in sports betting, but it’s harder to convince a traditional investor that you’ve returned 9.5 percent in less than a month.”

Contrarian Investments results-oriented approach to sports wagering has paid off as Connelly is returning a 19.5 percent annual percentage yield, as of June 15. He is not planning an end of year dividend, saying the return generated is reward enough. Although his fund is still growing, Connelly estimates the maximum funds under management to be at $2 million to $2.5 million.

Connelly devised a computer program that helps him line up the right wagers. The program takes an estimated point spread and compares it to Connelly’s forecastpoint spread versus the actual point spread listed by the books. The program also looks at trends and estimated money backing each side.

Only in Vegas

Investing in sports wagering is one of those “only in Vegas” things, and thanks to visionaries at CG Technology pushing Senate Bill 443 last year, sports betting mutual funds have arrived.

While Contrarian is the first to take the leap, a flood of others are expected before football season kicks off.

Connelly made his first investment in April and returned a 5 percent profit to his initial investors during the first round of the NBA Playoffs. In early May, Connelly had gone 3-1 in the NBA Playoffs and was up 9.5 percent.

Connelly, a former project estimator for commercial construction projects, has been betting on sports for a while. His success led to offers to sell his picks at multiple sites, but he turned down those offers because he was hoping entity wagering would someday be legal in Nevada.

And when SB 443 passed the state legislature in 2015, Connelly immediately started the arduous process of registering Contrarian Investments as an entity wagering business in Nevada.

Deep background checks

SB 443 has numerous restrictions that the entities and investors have to comply with in order to place wagers in order to keep the criminal element away.

The entity must be created and organized under Nevada law. All owners, managers, directors and officers must provide identifying information, such as a copy of a valid photo ID, proof they‘re older than 21, a Social Security number or tax identification number. Investors are also highly scrutinized.

All transactions must go through a Nevada financial institution that has a principal branch or agency relationship within Nevada. So far, Bank of Nevada is the only bank that accepts funds on behalf of these funds.

The minimum investment he’s accepting is $1,500 with that expected to rise to $5,000 by September. For Contrarian, there is a flat $50 processing fee to get started and a $100 fee for payouts. Connelly only makes payouts on Jan. 21 and July 31, basically at the end of the NFL and NBA seasons. Pro football and pro basketball are his specialties.

Also starting in September, there will be a performance fee in place, but it will be less than the traditional mutual fund’s 2+20 model – 2 percent of assets plus 20 percent of profits, Connelly said.

“Investors have to fill out a form verifying who they are, and how they came across the income they are going to invest,” Connelly said. “Once verified, they can then invest into the funds through Bank of Nevada, much like you would an ETrade account. From there, I’m available to invest on their behalf. …

“We want everything to be transparent and monitored all the way through to protect the entities as well as the investors.”

Protecting the public

CG Technology first proposed an entity-wagering bill in 2013, but the initial bill died when the Gaming Control Board raised significant objections. The board did not want to be responsible for vetting entities or worrying about additional scrutiny from the federal government. To get around that, the Control Board wanted the onus on sports books to vet everyone involved.

Pete Bernhard, former head of the Nevada Gaming Commission, is concerned entity wagering has the potential to make operations less transparent. However, he believes it has the potential to bring in a lot of new money.

“I am still skeptical,” Bernhard said. “Not in the sense that it would not be a popular product to offer the public, but that it makes it more difficult for a regulator to enforce and make sure the public is protected. Part of the danger, and not just in entity wagering but also internet wagering, is how can you make sure who is on the other side of the betting table or the game itself?”

Keeping investors happy

While Bernhard has concerns, Contrarian’s initial investors are pleased.

Matt Knust, an advertising sales executive from Chicago, said he is pretty well diversified in more traditional investments, and he enjoys following Connelly’s plays a little more closely. However, per SB 443, Connelly cannot disclose whom he bets to his investors until after the game has started.

“The reason I chose to invest with [Connelly] is because I’ve followed him for the past two years or so, and he’s an individual that I’ve seen his past success and I believe in his ability to have future success,” Knust said. “I’ve very happy with the results, and I would recommend him. I would say entity wagering is not for everyone, but if someone is looking to make an investment, my first recommendation would be Contrarian.”

Scott Gilmore, a finance professional from Orange County, California, is also an investor with Contrarian. Gilmore has also followed Connelly for a while, and had a good sense for his record and decided he can do a good job with entity wagering. Like Knust, Gilmore has been pleased with Connelly’s early success and would recommend him to others.

“I enjoy the thrill of playing the games. I don’t have the time to do it professionally or the ability,” Gilmore said. “This is the next closest thing.”

Beneficial to Vegas?

While there are still some reservations among local sports books – CG Technology is the only operation accepting these wagers – Connelly and his investors see sports betting mutual funds as a big opportunity for Las Vegas and believe in its growth.

“Once sports betting becomes legal across the U.S., why would someone come to Las Vegas to bet at the sports book when they can do that in their home state?” Connelly asked. “But, if you relocate the best in the business to Nevada to invest, you can keep the money/handle here in the state. On top of that, just like you have the commodities market in Chicago and the stock market in New York, you’d have sports trading here in Nevada.”

While Connelly sees a futures market here, it’s not something he’s interested in, as he wants his company to be more value based by specializing in full-game point spreads for collegiate and professional basketball and football. He does foresee days of specialized funds, such as one devoted to certain teams, over/under and futures.

“There is definitely a future for commodities to be traded here,” he said. “Another opportunity is the bet exchanges. This will be one of the biggest opportunities for Nevada going forward. Investors would be able to trade and invest in futures. Just like a mutual fund manager might invest on the future of oil. It’s all up to the discrepancy of the mutual fund manager.”

As far as the future of the legalization of sports wagering across the United States, the U.S. Third Circuit Court of Appeals has yet to make a decision on whether New Jersey can legalize sports betting.

Representatives from CG Technology declined to comment for this article.