Intrade Co-Founder Opens Fantasy Sports Site

The online betting and prediction market Intrade shut down last year after discovering financial problems and running afoul of regulators.

But now, a co-founder of Intrade, Ron Bernstein, is hoping he will have better luck in a different arena: fantasy sports.

His new site, Tradesports.com, which licenses Intrade’s technology, announced its public testing period on Wednesday. By styling itself as a fantasy sports site, the company hopes to avoid the kind of regulatory trouble that hastened Intrade’s demise.

Tradesports, which is based in New York, is relying on an exemption for fantasy sports in a 2006 law that cracked down on online gambling. Tradesports says it qualifies because it is offering games of “skill,” as opposed to luck.

“The Intrade model was just too gray,” Mr. Bernstein said in a recent interview. But he added that “the idea is so good, we couldn’t just let it go.”

For Intrade, which rose to prominence during the 2012 presidential race, as users wagered on the outcomes of primaries and congressional elections, the end came quickly. The company, based in Ireland, was accused that November by the Commodity Futures Trading Commission of offering contracts outside traditional exchanges and without regulatory approval. Intrade closed its site to United States residents.

The following March, after its outside accountants said they had found “significant financial irregularities in the internal accounts,” Intrade halted trading and froze customer accounts. It soon faced the possibility of liquidation because of a cash shortfall.

Thanks to a settlement in November with the estate of John Delaney, Intrade’s chief executive who died in 2011 while climbing Mount Everest, Intrade has made its customers whole, Mr. Bernstein said. The company otherwise has been largely dormant.

Mr. Bernstein, who helped start Intrade in 1999 and left in 2003, returned to the company after Mr. Delaney’s death. He said he was still planning legal action related to Intrade, though he would not go into detail. “We’re not the defendants,” he said. “We’re the plaintiffs.”

But his focus now is on Tradesports, which has been operating in a private testing mode for the last few weeks. With the new site, Mr. Bernstein is trying to combine real-time trading - a hallmark of Intrade - with principles of fantasy sports.

The site features various “contests,” each centered on a real-life sports game. Players, after paying an entry fee, get to buy and sell different prediction contracts, using fantasy money. The contracts might include, for example, that the Miami Heat will beat the Charlotte Bobcats; that more than a certain number of points will be scored in the game; or that LeBron James will score more than a certain number of points.

To ensure that the contest is one of skill and not chance, the site requires players to trade at least 200 shares of at least three different contracts. The winner or winners of the contest - those with the best outcome across their contracts - get real money as a prize. The company makes money when the entry fees exceed the advertised prizes.

The site may still attract the interest of the authorities. But embracing a fantasy sports model may serve it well, according to I. Nelson Rose, a professor at Whittier Law School who is an expert on laws related to gambling.

“Fantasy sports has always been a problem for law enforcement,” he said. “As a practical matter, law enforcement doesn’t want to go after fantasy sports because it’s too hard to prove that it’s actually predominantly chance.”

Rajiv Sethi, a professor of economics at Barnard College, who closely followed the downfall of Intrade, said that after testing Tradesports, he was impressed by how different it was from Intrade.

“It’s more like a chess tournament or a road race where you pay to enter - or bingo, really,” he said. “Except in bingo, there’s no skill involved.”

Mr. Bernstein, a former trader, said that while he had consulted legal counsel about the new site, he had not spoken with regulators about it. But he said he was confident that the data-rich nature of sports helped ensure the contests would be based on skill.

A spokesman for the trading commission declined to comment.

In the future, Mr. Bernstein said, he could imagine Tradesports expanding to include predicting the outcome of the Oscars or “anything that can be answered with a yes or no question.”

But the scope will be far more limited than that of Intrade, which ran into trouble with the trading commission by offering contracts on whether certain events, including specific acts of war, would occur by a certain date. Political elections, for example, will probably not be a feature of Tradesports.

The trading commission’s action against Intrade has not yet been resolved. And Mr. Bernstein is hoping to avoid having to deal with the agency again. “Different rules for different regulatory environments that have to be complied with,” he said.