Profitable Until Deemed Illegal(codinghorror.com)
codinghorror.com
Profitable Until Deemed Illegal
http://www.codinghorror.com/blog/archives/001196.html
134 comments
I realised that my email wasn't in my hacker news account, so if you want to email, its markelhinney at gmail dot com.
feel free to email me - jameskmcdowall at gmail dot com
Wow. This is both genius, and despicable. It's amazing what kind of profit they drive, yet it seems like they're really taking advantage of people with gambling addictions, or poor money management skills.
I don't see why it's despicable. The format of the auction seems to be clearly available to all participants. It's all consenting adults, who have all of the information needed to make their own informed decision as to whether or not to participate.
If people want to gamble, why not let them? How is this any different than operating a casino? It's not wrong to provide a service that many people deem enjoyable just because a small portion of them can't exert the self-control to use it responsibly.
If people want to gamble, why not let them? How is this any different than operating a casino? It's not wrong to provide a service that many people deem enjoyable just because a small portion of them can't exert the self-control to use it responsibly.
I'm not sure it's despicable, but the difference to gambling is that gambling is sold as purely entertainment. The fun _is_ the product. Swoopo mentions entertainment as well, but they also make people believe that they are buying a product for a good price, which is clearly not the case.
So as a (potential) customer I'm taking note that this company is using deceptive tactics, claiming one thing and structuring their system to do something else. Yes they do it openly, so it's up to everyone to not buy from them and to remember not to buy from this company and the people behind it ever again.
So as a (potential) customer I'm taking note that this company is using deceptive tactics, claiming one thing and structuring their system to do something else. Yes they do it openly, so it's up to everyone to not buy from them and to remember not to buy from this company and the people behind it ever again.
Some people are buying the product at a good price though.
Yes, but if you try to buy several products in this way you're not always winning, so the average price each individual pays per successfully purchased product will be awful, or the business model wouldn't work.
Right. Which is fine because that's the entertainment aspect of it. You're playing a game where the goal is to get a product for the best price, and you know it. And if you don't succeed, you lose some money, and you know that too.
Seems like a fun game to me, I'm already thinking about how I might be able to take advantage of it.
Seems like a fun game to me, I'm already thinking about how I might be able to take advantage of it.
"How is this any different than operating a casino?"
Operating a casino requires a license for a start afaik, and there are checks to ensure things are fair.
How do we know the winning bidders actually exist? I agree people should be able to make their own minds up in the main, but they should be doing that safe in the knowledge that they are being treated fairly.
Operating a casino requires a license for a start afaik, and there are checks to ensure things are fair.
How do we know the winning bidders actually exist? I agree people should be able to make their own minds up in the main, but they should be doing that safe in the knowledge that they are being treated fairly.
Isn't that endemic to any auction site? eBay knows your max bid and could easily have bots forcing up the incremental bids to earn themselves more fees. Perhaps all auction sites should be audited, but I don't see how this one is any worse than the rest.
And sadly the licensing requirements for online casinos are a joke. Read up on the Kahnawakee Gaming Commission some time, you'll get a kick out of it. Until we legalize and regulate them, they'll never improve.
And sadly the licensing requirements for online casinos are a joke. Read up on the Kahnawakee Gaming Commission some time, you'll get a kick out of it. Until we legalize and regulate them, they'll never improve.
This is actually a really good point. Why does anyone entrust eBay with knowledge of their maximum bid? A hypothetical shill-bot 9000 could easily bid up auctions without ever having to worry about accidentally having to own the item. It seems like it would be far better to have your own bidbot handle things for you...
People have speculated about this on eBay from day 1. Personally I tend to believe its untrue only because they're a large company and certainly someone would have blown a whistle by now. The bot would have to be in-house to know people's maximum bids, and no individual employee would have incentive to create such a thing, so it would have to be a top-down directive.
Fred Allen's dictum: "No one ever went broke underestimating the intelligence of the American Public."
http://www.bewilderingstories.com/issue147/ed.html
http://www.bewilderingstories.com/issue147/ed.html
So does the government and many charities, the entire city of Las Vegas and churches on Saturday nights across the country, every major sports league (not often directly), etc etc etc.
Pretty much every business takes advantage of the fact that the consumer is lacking something, whether that's knowledge, time, money or material. It's the way capitalism works.
Pretty much every business takes advantage of the fact that the consumer is lacking something, whether that's knowledge, time, money or material. It's the way capitalism works.
No. Capitalism is a system of decentralised decision making on resource allocation, ultimately leading to increased productivity and innovation.
I have no idea how a ponzi scheme that makes "simple" people overpay fits this description as it leads to incredibly bad resource allocation.
You could argue that such failures are part of capitalism and I would agree. But they are still failures. Capitalism depends on such failures being fewer than those cases where funds go where value is being created.
I have no idea how a ponzi scheme that makes "simple" people overpay fits this description as it leads to incredibly bad resource allocation.
You could argue that such failures are part of capitalism and I would agree. But they are still failures. Capitalism depends on such failures being fewer than those cases where funds go where value is being created.
You said: Capitalism is a system of decentralised decision making on resource allocation, ultimately leading to increased productivity and innovation.
You cannot insert a result into a definition. P may or may not imply Q.
You cannot insert a result into a definition. P may or may not imply Q.
I can do it because I'm using natural language not formal logic and I'm mixing definition and factual observation. Granted, it's a little sloppy ;-)
Good point; it's like a stupid people tax.
Unfortunately it's tricky for even smart people to avoid some of them.
Unfortunately it's tricky for even smart people to avoid some of them.
Stupidity is not binary.
No one said it was.
Yes. I just wanted to second that you can be stupid to a certain a degree in one area and to another degree in another one.
Isn't that what most businesses do?
An annoying attitude. I spend 2 dollars on a box of crackers. Here's the rough process:
1. Farmer takes out a loan at Wells Fargo.
2. Loan clears, Farmer buys seed, etc.
3. Farmer grows 2000 acres of wheat.
4. Summer passes, farmer harvests wheat, and it travels 1000 miles to be processed.
5. Nabisco (Altria) buys wheat for a pre-agreed price (determined months ago by the Chicago futures exchange--a bunch of speculators who took risk on themselves so Nabisco and Joe Farmer could get to business.)
6. Nabisco puts the wheat (plus 10 other commodities) into its industrial mixers, ovens, packaging machines, fleet, etc, until it winds up at Walmart.
7. Walmart (which did 1001 separate things in order to make the deal go down) puts a $2.00 electronic price on the crackers.
8. I show up, put some plastic through a device, some digital numbers go through 2 thousand miles of wire to 5 different financial institutions, and then I get a box of crackers. Game over.
I've participated in 500 billion dollars worth of business without even realizing it, getting a day's worth of calories for a tiny percentage of my daily income. That's "evil" somehow?
1. Farmer takes out a loan at Wells Fargo.
2. Loan clears, Farmer buys seed, etc.
3. Farmer grows 2000 acres of wheat.
4. Summer passes, farmer harvests wheat, and it travels 1000 miles to be processed.
5. Nabisco (Altria) buys wheat for a pre-agreed price (determined months ago by the Chicago futures exchange--a bunch of speculators who took risk on themselves so Nabisco and Joe Farmer could get to business.)
6. Nabisco puts the wheat (plus 10 other commodities) into its industrial mixers, ovens, packaging machines, fleet, etc, until it winds up at Walmart.
7. Walmart (which did 1001 separate things in order to make the deal go down) puts a $2.00 electronic price on the crackers.
8. I show up, put some plastic through a device, some digital numbers go through 2 thousand miles of wire to 5 different financial institutions, and then I get a box of crackers. Game over.
I've participated in 500 billion dollars worth of business without even realizing it, getting a day's worth of calories for a tiny percentage of my daily income. That's "evil" somehow?
Where exactly did I say anything about evil? The goal of business is to fleece its customers of their money. Some do it in nicer ways than others but they all do it, poor money management skills on the customers part is always good for business. Our entire consumer economy is based on that fact; we spend all of our excess money rather than saving it like we should.
Why should you save all your money?
I didn't directly say you should save all of your money, I said you shouldn't spend all of your excess money. You should be saving for an emergency fund, retirement, kids college, things you want to buy in cash rather than putting everything on credit. American are horrible at this, they live right at the edge of, or above their means rather than below it as they should.
>That's "evil" somehow?
The farmer is farms land stolen from Native Americans.
If we go by the odds it isn't some farmer taking out a small loan at Wells Fargo, most wheat is grown by big agribusiness.
The yield on the wheat is so high largely because of government funded fundamental research into agriculture and biology, including genetic modification, which has revolutionized things. Much of this publicly funded research is done by universities under grants from the NSF and such, and they are allowed turn around and sell the resulting patents to the agribusiness conglomerates. Not exactly a free-market miracle.
Wal-mart often demands public subsidies from small towns in order to put their store there, leveraging their massive outside scope and bargaining power with suppliers to be able to make their case to the municipalities.
The farmer is farms land stolen from Native Americans.
If we go by the odds it isn't some farmer taking out a small loan at Wells Fargo, most wheat is grown by big agribusiness.
The yield on the wheat is so high largely because of government funded fundamental research into agriculture and biology, including genetic modification, which has revolutionized things. Much of this publicly funded research is done by universities under grants from the NSF and such, and they are allowed turn around and sell the resulting patents to the agribusiness conglomerates. Not exactly a free-market miracle.
Wal-mart often demands public subsidies from small towns in order to put their store there, leveraging their massive outside scope and bargaining power with suppliers to be able to make their case to the municipalities.
Generalisation.
Making money and creating value are independent of one another.
Good businesses do both.
Making money and creating value are independent of one another.
Good businesses do both.
Actually, good businesses only do the former. Great/exceptional businesses do both.
Sorry for my improper adjective use, apparently.
I think it's more that you two have different opinions on percentages.
That shouldn't be downmodded. The guy is technically correct.
It's actually humorous to me how many people here are expressing firm opinions about whether or not this is legal despite the fact that they clearly have no understanding of the complexities of gaming law in the United States. This is why I always tell people "ask a lawyer". Non-lawyers think they know far more than they really do.
As someone whose startup has spent huge amounts of time and money on online gaming legal advice, my guess is that this is legal in at least 44 states, and possibly the other 6 as well. It's certainly not gambling, since there appears to be no random selection of the winner, but it may fall under the sweepstakes header. It may merely be an auction (legally, though maybe not morally).
As someone whose startup has spent huge amounts of time and money on online gaming legal advice, my guess is that this is legal in at least 44 states, and possibly the other 6 as well. It's certainly not gambling, since there appears to be no random selection of the winner, but it may fall under the sweepstakes header. It may merely be an auction (legally, though maybe not morally).
Yeah, it's been a while since I've boned up on my online gaming/online poker stuff, but I would consider myself an expert on marketplace dynamics and structures (as we invented our own structure for Dawdle.com). This meets all the requirements of an auction site, and by a country mile.
Are auctions universally legal?
What they're doing is most probably not illegal. What they are doing is leveraging a lot of little things to make themselves good cash.
Let's be very clear - they use auctions. This is not a lottery. At the end of the day, the high bidder "wins" and pays the amount of the high bid to win the auction. Then Swoopo adds the (.75 * number of bids placed) to that figure. It's not inconceivable that that sum is less than MSRP.
At the end of the day, you can ensure that you win by placing the last (and highest) bid. Because there's certainty of winning - it's not random - it's not a lottery, and as such, doesn't need to be state-sponsored (as is the case with lotteries in most jurisdictions).
What's fascinating about that is that very few retailers use auctions to sell goods that they own/control/are obligated to ship. Auctions historically have only really been done by venues - eBay doesn't sell their own goods on the site; neither does eBid; and neither did Yahoo Auctions or Amazon Auctions (remember those?).
So Swoopo reinforces online marketplace psychology and eBay-style dynamics by having auctions. This is even though Swoopo is the retailer and has to ship the good (whether Swoopo's dropshipping or not is irrelevant; they still make sure the high bidder gets the item or its nearest equivalent).
On Dawdle, we initially launched with a structure that eliminates the "sniping" problem that you have with eBay. We had a structure where you could name your own price and any seller that had what you wanted could sell to you. However, your offer was blind to the seller and the seller's minimum price was blind to the buyer. It was very similar to the Priceline model, except that on Dawdle, the selling price was limited to the amount of the next highest offer + a bid increment. So when the listing ended, the price that the item sold for was the 2nd highest amount + bid increment. (On Priceline, whatever the offer is is the selling price; we wanted to give the impression to the buyer that they were getting a deal as they were paying less than what they had offered.)
I bring this up only to show the difference between having a different kind of auction structure (like Dawdle did, and we retain in a limited fashion with our StandingOffer technology) and what Swoopo is doing. All Swoopo is doing is charging people to bid, setting the bid increment, and being a retailer disgused as a venue.
The question is, can this last? Given the limited amount of differences between Swoopo and eBay, my guess is probably. They'll have a branding issue if people keep attacking them, but at the end of the day, it's transparent.
Let's be very clear - they use auctions. This is not a lottery. At the end of the day, the high bidder "wins" and pays the amount of the high bid to win the auction. Then Swoopo adds the (.75 * number of bids placed) to that figure. It's not inconceivable that that sum is less than MSRP.
At the end of the day, you can ensure that you win by placing the last (and highest) bid. Because there's certainty of winning - it's not random - it's not a lottery, and as such, doesn't need to be state-sponsored (as is the case with lotteries in most jurisdictions).
What's fascinating about that is that very few retailers use auctions to sell goods that they own/control/are obligated to ship. Auctions historically have only really been done by venues - eBay doesn't sell their own goods on the site; neither does eBid; and neither did Yahoo Auctions or Amazon Auctions (remember those?).
So Swoopo reinforces online marketplace psychology and eBay-style dynamics by having auctions. This is even though Swoopo is the retailer and has to ship the good (whether Swoopo's dropshipping or not is irrelevant; they still make sure the high bidder gets the item or its nearest equivalent).
On Dawdle, we initially launched with a structure that eliminates the "sniping" problem that you have with eBay. We had a structure where you could name your own price and any seller that had what you wanted could sell to you. However, your offer was blind to the seller and the seller's minimum price was blind to the buyer. It was very similar to the Priceline model, except that on Dawdle, the selling price was limited to the amount of the next highest offer + a bid increment. So when the listing ended, the price that the item sold for was the 2nd highest amount + bid increment. (On Priceline, whatever the offer is is the selling price; we wanted to give the impression to the buyer that they were getting a deal as they were paying less than what they had offered.)
I bring this up only to show the difference between having a different kind of auction structure (like Dawdle did, and we retain in a limited fashion with our StandingOffer technology) and what Swoopo is doing. All Swoopo is doing is charging people to bid, setting the bid increment, and being a retailer disgused as a venue.
The question is, can this last? Given the limited amount of differences between Swoopo and eBay, my guess is probably. They'll have a branding issue if people keep attacking them, but at the end of the day, it's transparent.
Its not an auction if bidding costs money regardless if you win or not. Its more of a raffle.
"Its not an auction if bidding costs money regardless if you win or not. Its more of a raffle."
Show me the law that says this and I might begin to believe that you have a point here ... but right now I do not. I don't know much about auction laws, but I've never heard of it being illegal to charge for participation, and if it is in fact illegal then there must be someone online who has complained about it or files a case somewhere ...
Show me the law that says this and I might begin to believe that you have a point here ... but right now I do not. I don't know much about auction laws, but I've never heard of it being illegal to charge for participation, and if it is in fact illegal then there must be someone online who has complained about it or files a case somewhere ...
Demonstrate how it is different from a raffle.
But you are buying the right to bid. One could argue that it's a separate service altogether, like a costco membership that's graded on how much you buy.
Have you seen their 100% Off auctions? You're buying the right to bid, to buy something for $0 regardless of the final price?
Come on, this is going to get slapped down so hard it isn't even funny.
Come on, this is going to get slapped down so hard it isn't even funny.
But it's no more stochastic than chess.
Except you CANT guarantee yourself a win, and you certainly can't guarantee yourself a win at any price. It IS essentially random what the bidders competing with you do in response to your "last" bid.
>Except you CANT guarantee yourself a win, and you certainly can't guarantee yourself a win at any price.
Of course you can. Every time you bid you extend the auction, therefore if you're willing to pay the most you will win. (Now, that amount may be worth more than buying the item in a store somewhere, but that's beside the point really)
Of course you can. Every time you bid you extend the auction, therefore if you're willing to pay the most you will win. (Now, that amount may be worth more than buying the item in a store somewhere, but that's beside the point really)
Suppose both sides 'decide to win'. Now it is a game of chance based on who happens to have the highest bankroll is it not?
Yes, the same way two people bidding at auction on a famous painting is.
I'm not sure how this is different from any auction at eBay, Christie's, Philips, or your local car auction.
For the purposes of this message, I define "pay" as "money out of your pocket, including the money spent 'purchasing' 'bids'."
In a real auction, if you are willing to pay twice the market price, you are almost (but not quite) guaranteed to win, and you will almost (but not quite) certainly be paying less than 2x market value. The only person who can beat you is someone willing to pay 2x+change. (When you lose, you don't have to pay anything, but that's not directly related to your point.)
In a Swoopo auction, if you are willing to pay twice the market price, you are only slightly more likely to win, rather than reasonably assured, and you can be beaten by anybody willing to put up $1+current bid, which, if you've poured twice market value into the bids, is still fairly low. (And when you lose, you still pay.)
An auction has a rational mechanism for manipulating the probability of your winning in proportion to your desire to win, as expressed by the money you're willing to pay. Swoopo's system is far, far less rational, and you can pour massive resources into an "auction" and be beaten at the end by somebody paying a mere fraction of what you are paying, even though they end up with the product.
It's a night-and-day difference. One system is rational and what most would consider mostly fair. One is crazy and what most would consider a scam.
In a real auction, if you are willing to pay twice the market price, you are almost (but not quite) guaranteed to win, and you will almost (but not quite) certainly be paying less than 2x market value. The only person who can beat you is someone willing to pay 2x+change. (When you lose, you don't have to pay anything, but that's not directly related to your point.)
In a Swoopo auction, if you are willing to pay twice the market price, you are only slightly more likely to win, rather than reasonably assured, and you can be beaten by anybody willing to put up $1+current bid, which, if you've poured twice market value into the bids, is still fairly low. (And when you lose, you still pay.)
An auction has a rational mechanism for manipulating the probability of your winning in proportion to your desire to win, as expressed by the money you're willing to pay. Swoopo's system is far, far less rational, and you can pour massive resources into an "auction" and be beaten at the end by somebody paying a mere fraction of what you are paying, even though they end up with the product.
It's a night-and-day difference. One system is rational and what most would consider mostly fair. One is crazy and what most would consider a scam.
"One system is rational and what most would consider mostly fair. One is crazy and what most would consider a scam."
The term "scam" requires that the person being scammed was not given the facts upfront. This is not a scam by any stretch of the imagination since the company posts the technical details plainly and clearly on their website. You may not like the way the business is structured, but it is certainly no scam.
The term "scam" requires that the person being scammed was not given the facts upfront. This is not a scam by any stretch of the imagination since the company posts the technical details plainly and clearly on their website. You may not like the way the business is structured, but it is certainly no scam.
Well, there's two aspects to that. One is that they tell you exactly how it works. The other is the marketing, where they all but promise you cheap goods.
Is it a scam? Is an advertisement for a beer a scam when it promises you women will throw themselves at you if you drink their product? You can play the internet "difference minimization through copious verbiage" game all you like, but I still think there's a qualitative difference.
Is it a scam? Is an advertisement for a beer a scam when it promises you women will throw themselves at you if you drink their product? You can play the internet "difference minimization through copious verbiage" game all you like, but I still think there's a qualitative difference.
Why is guaranteeing a win a requisite for being an auction site?
It is not, but it is a flaw in the argument of the post i was responding to.
I don't see the difference between this and playing the slots in Vegas. In both cases the house has the advantage; in both cases more is paid for the final prize than what it's worth; in both cases the winner likely gets a good deal on the prize and the losers lose their investment.
There's nothing random involved in this, whereas there is with slot machines. Legally that makes a world of difference.
Someone who can see the slot machine's internals and understands how it works will be able to predict the outcome, so in that sense it's not "truly" random. The reason it's still legally random is that it's as good as random from the point of view of the player. Same applies here. No?
No. This auction system is no more random than chess. In chess, your opponent can just blunder and give you a win. Bobby Fisher once lost to a newspaper reporter. But just as in chess, this auction system determines a result based solely on the actions of the participant. There is no roll of a die, turn of a card, or reading of a number from an RNG. Legally you need something like that to be considered gambling.
You're right of course that slot machines aren't truly random in the sense that they use a pseudo random number generator. I don't think they have any hardware in them that reads thermal noise or anything like that. But that's sufficiently close to the roll of a die to qualify.
Philosophically I tend to agree with you since I believe the universe is deterministic, and nothing is truly random. But I'm pretty sure that legally this would not be gambling or sweepstakes in at least most states.
You're right of course that slot machines aren't truly random in the sense that they use a pseudo random number generator. I don't think they have any hardware in them that reads thermal noise or anything like that. But that's sufficiently close to the roll of a die to qualify.
Philosophically I tend to agree with you since I believe the universe is deterministic, and nothing is truly random. But I'm pretty sure that legally this would not be gambling or sweepstakes in at least most states.
So if the outcome of the slot machine is determined by the outcomes of other slot machines in the casino, then the slot machine ceases to be a game of chance?
It seems to me that if you define randomness in any way besides "involves no skill, or almost no skill", but instead by explicitly describing the mechanism of "randomness", then all sorts of loopholes open up.
In any case, big kudos to these guys for coming up with it. My day was completely ruined by envy.
It seems to me that if you define randomness in any way besides "involves no skill, or almost no skill", but instead by explicitly describing the mechanism of "randomness", then all sorts of loopholes open up.
In any case, big kudos to these guys for coming up with it. My day was completely ruined by envy.
Each slot machine has its own independent RNG. Even if they shared one, it's still an RNG. Many forms of gambling involve skill. For instance, I can achieve a higher return (though still negative) at a craps table than your average Vegas gambler because I know which bets pay the best odds. That doesn't make them any less gambling.
How much skill vs. chance constitutes gambling varies from state to state. But no state would define a system in which there is no random element as gambling. If the outcome is 100% the result of the actions of the "betters" it's clearly a game of skill. (If it's based on the actions of third party humans and contests, it's usually illegal, such as betting on sports or elections).
Interestingly, in many states instant bingo machines are legal games of skill due to that very reason. They look and feel just like a slot machine, but the payouts are predetermined, just like a box of instant bingo cards, so there's no element of chance, even though the person playing them has no idea what the next payout will be. States have been/are closing that loophole fast.
How much skill vs. chance constitutes gambling varies from state to state. But no state would define a system in which there is no random element as gambling. If the outcome is 100% the result of the actions of the "betters" it's clearly a game of skill. (If it's based on the actions of third party humans and contests, it's usually illegal, such as betting on sports or elections).
Interestingly, in many states instant bingo machines are legal games of skill due to that very reason. They look and feel just like a slot machine, but the payouts are predetermined, just like a box of instant bingo cards, so there's no element of chance, even though the person playing them has no idea what the next payout will be. States have been/are closing that loophole fast.
On a related note, I've been interviewed a number of times about poker and am always asked whether it's a game of chance or skill. I always tell them both, which people just don't want to accept as an answer. I don't know why people think all games are one or the other.
Sure, some games you can be +EV, some you can't without cheating, but that doesn't mean it's binary.
Sure, some games you can be +EV, some you can't without cheating, but that doesn't mean it's binary.
[deleted]
Pardon my ignorance...
Why does the author call this website illegal? I'm not sure what laws they are violating.
Why does the author call this website illegal? I'm not sure what laws they are violating.
The expression "profitable until deemed illegal" is used when what the business is doing is so obviously despicable and evil that if it continues the government will probably pass a law against it. (This is basically an offshore gambling site we're talking about, though, no more and no less. Therefore, I'm not sure how apt the expression is to what's actually going to happen.)
Or, to put it another way, it's so fiendish that no one though to ban it before.
Or, to put it another way, it's so fiendish that no one though to ban it before.
Legally I suspect it's quite distinctly not a gambling site. I would guess this to be legal in at least 44 states here, and I think it's fine in the other 6 too, though their contest laws are fairly convoluted.
It will likely be called a raffle because buying the "tickets" costs money and you will very likely get nothing for it.
In almost all states in the USA, raffles are illegal as part of the private lottery statutes. In practice, enforcement agents usually look the other way for small non-profit raffles like the kind held in church basements for pies and such.
They are extremely unlikely to look the other way in this case!
In almost all states in the USA, raffles are illegal as part of the private lottery statutes. In practice, enforcement agents usually look the other way for small non-profit raffles like the kind held in church basements for pies and such.
They are extremely unlikely to look the other way in this case!
You're wrong on both accounts. For one, it's clearly not a raffle because there is no random selection method. It's most definitely an auction. Exact laws on raffles and other forms of sweepstakes vary from state to state, but all require some sort of random selection method. Some merely require any randomness to exist, some require it to be primarily random (more luck than skill) and many fall in between. But none would consider something a sweepstakes that has no randomness at all.
For another, state Attorneys General are hesitant to try internet-related cases that violate sweepstakes laws unless it's more or less in the bag. It's a giant legal gray area and they don't want to set an unfavorable precedent.
For another, state Attorneys General are hesitant to try internet-related cases that violate sweepstakes laws unless it's more or less in the bag. It's a giant legal gray area and they don't want to set an unfavorable precedent.
"It will likely be called a raffle because buying the "tickets" costs money and you will very likely get nothing for it."
It is NOT a raffle because a raffle winner is selected 100% by chance whereas at swoopo the winner is the person who bids the highest price -- and bidding the highest price is not based on chance.
It is NOT a raffle because a raffle winner is selected 100% by chance whereas at swoopo the winner is the person who bids the highest price -- and bidding the highest price is not based on chance.
Right, it's clearly not a raffle or a lottery. It's an auction. I don't think it would violate the sweepstakes laws of any state, though there are 6 I wouldn't push it in if I were running it.
Matt, you seem to know more about the legal framework than most other posters here. Which 6 states would you avoid? I have an important reason for asking since I'm working on a startup that uses a similar system -- very different in some respects, but certainly similar enough in others that your insights are valuable to me. You can email me privately if you prefer, my email is owkaye at gmail dot com.
Arizona, Iowa, Louisiana, Maryland, Montana, and Vermont all have very restrictive gaming/sweepstakes laws. You'll notice nobody who does fantasy sports or skill games for money (cbssportsline.com, worldwinner.com, etc.) allows customers from those states.
I'm really not sure if this auction system would qualify. I would really check with a lawyer versed in online gaming and sweepstakes if I were doing something like this. If you need, I can recommend the firm that almost every American who runs a casino or poker site uses.
I'm really not sure if this auction system would qualify. I would really check with a lawyer versed in online gaming and sweepstakes if I were doing something like this. If you need, I can recommend the firm that almost every American who runs a casino or poker site uses.
If they reduce the charge per-bid enough, then it does become an auction site. (And if it's large enough by that point, they'll still be raking it in.) They could also invite others with goods to sell and share the per-bid fee. If both of those things happen in a timely fashion, then it will be difficult for the authorities to argue that it's not an auction site.
A lottery ticket for $0.01 is still a for-profit lottery, which comes under a truckload of independent oversight (for good reason).
If they are not charging for the bid (chance to win) but for the bandwidth when submitting a bid from the web page, then they get around this. They can demonstrate that by having another channel for bids, like email messages formatted Majordomo command-style.
Make this easily accessible, and it will be hard to argue that they are not an auction site. However, it can still be arcane (and slow) enough that the majority of the public still won't use it. Again, no one's gone broke underestimating the intelligence of the American public.
Make this easily accessible, and it will be hard to argue that they are not an auction site. However, it can still be arcane (and slow) enough that the majority of the public still won't use it. Again, no one's gone broke underestimating the intelligence of the American public.
If they were smart they'd be selling "memberships".
Not sure, but I'm pretty sure these guys are not licensed by any state gaming boards to operate as a legal gambling establishment.
So I guess the author thinks this qualifies as gambling (and it probably does) and therefore these guys are in violation of said laws. Remember, when you're a legal gaming establishment there is a mountain of red tape and paperwork to stay legal... and this company is probably engaged in enough shenanigans that it would be considered a Bad Thing.
So I guess the author thinks this qualifies as gambling (and it probably does) and therefore these guys are in violation of said laws. Remember, when you're a legal gaming establishment there is a mountain of red tape and paperwork to stay legal... and this company is probably engaged in enough shenanigans that it would be considered a Bad Thing.
He doesn't say that it is illegal, only that it's so shady that it's likely someone will make a law against it. It could fall under gambling laws, since you're basically buying chances to win the opportunity to buy something at a low price.
Oh, I don't think they'll need a new law in most jurisdictions as soon as they find out about the "Auctions for money".
"Wait, so let me get this straight, people routinely 'buy' $100 for $20 on your service, and you profit $300 from the transaction from selling the 'bidding rights' to 'non-winning bidders'?"
"Yes."
"Oh, thanks. What determines who wins?"
"Final bid price."
"But paying $20 for $100, why, anybody should offer to pay $21.15 right?"
"Yep, you have to pick when to make your bid though, so you are not outbid."
"That sounds totally random, like a lottery."
"No, it takes some skill."
"Ah, thank you for clearing that up. Now, in your copy of the state code, look up 'games of skill' which offer a monetary prize."
"Wait, so let me get this straight, people routinely 'buy' $100 for $20 on your service, and you profit $300 from the transaction from selling the 'bidding rights' to 'non-winning bidders'?"
"Yes."
"Oh, thanks. What determines who wins?"
"Final bid price."
"But paying $20 for $100, why, anybody should offer to pay $21.15 right?"
"Yep, you have to pick when to make your bid though, so you are not outbid."
"That sounds totally random, like a lottery."
"No, it takes some skill."
"Ah, thank you for clearing that up. Now, in your copy of the state code, look up 'games of skill' which offer a monetary prize."
Games of skill with monetary prizes are legal in all states. How you define a game of skill vs. a game of chance varies, but with no random element here, I doubt this would be considered gambling in any.
There are 6 where they may run into some sweepstakes laws though, I'm not sure. There are states where it is actually illegal to have a contest that is free to enter but awards a prize.
There are 6 where they may run into some sweepstakes laws though, I'm not sure. There are states where it is actually illegal to have a contest that is free to enter but awards a prize.
>>
Games of skill with monetary prizes are legal in all states
>>
That's just false. First law I checked (for my home state):
"A person commits [the offense of] gambling when he :
1) Plays a game of chance or skill for money or other thing of value, unless excepted in subsection (b) of this Section"
That's just false. First law I checked (for my home state):
"A person commits [the offense of] gambling when he :
1) Plays a game of chance or skill for money or other thing of value, unless excepted in subsection (b) of this Section"
Hmm, seems I was wrong, organized games of skill for money (i.e. chess tournaments) are legal only by permit in some states. Yet WorldWinner.com operates in some of those.
See, that's why you ask a lawyer. And not me.
See, that's why you ask a lawyer. And not me.
Which state and what's in subsection b?
"Ah, thank you for clearing that up. Now, in your copy of the state code, look up 'games of skill' which offer a monetary prize."
At which point they say "Don't be ridiculous. Every thrift store is a 'game of skill' with a 'monetary prize' by your standard. Have fun shutting down Aunt Ruth's House of Lamps and Doilies, pal."
At which point they say "Don't be ridiculous. Every thrift store is a 'game of skill' with a 'monetary prize' by your standard. Have fun shutting down Aunt Ruth's House of Lamps and Doilies, pal."
Good article, but the author is a little rusty on his behavioral economics. The anomaly he refers to is not the endowment effect but the sunk cost fallacy:
http://en.wikipedia.org/wiki/Sunk_cost#Loss_aversion_and_the...
http://en.wikipedia.org/wiki/Endowment_effect
http://en.wikipedia.org/wiki/Sunk_cost#Loss_aversion_and_the...
http://en.wikipedia.org/wiki/Endowment_effect
It's both. You're told you own the item, then suddenly that you don't own it any more.
"Entertainment Shopping" is their slogan. I wonder if that's going to be their legal defense. "You're paying for the entertainment..not the item"
Sounds like gambling...
Even if it's gambling it still should be legal.
I can't believe this company is offering a scenario where you pay an upfront cost to try to get something for less than it usually sells for.
I haven't seen anybody get away with that since basically every retail outlet in America charged an upfront cost -- time and inconvenience -- for the chance to buy stuff at a discount, on Black Friday. Unprecedented.
I have no idea why measuring certain things in dollars rather than hours or oranges or whatever else throws people off so. If this business freaks you out, and regular retail stores don't, you haven't been thinking hard enough about the latter.
I haven't seen anybody get away with that since basically every retail outlet in America charged an upfront cost -- time and inconvenience -- for the chance to buy stuff at a discount, on Black Friday. Unprecedented.
I have no idea why measuring certain things in dollars rather than hours or oranges or whatever else throws people off so. If this business freaks you out, and regular retail stores don't, you haven't been thinking hard enough about the latter.
I agree 100%. this is essentially a sucker tax. why does everyone spend so much time worrying about suckers? Oh right, because we all subsidize suckers with taxpayer dollars in socialism. poor people are good at wasting money, that's why they're poor. giving them the money of non-suckers fixes NOTHING.
That's a great argument that I haven't heard before. Thanks.
Just did some napkin math for this site (please bare with me, there are a few assumptions based off the figures I could actually find)
They say they have 50k users, and in 2008 their revenue was $28.3 million USD (from wikipedia).
Theres also a comment on a related Crunchgear article from the "CEO of the company" (linked at the end), which states he is shipping about $1.5 million (presumably) USD in value of goods each month which totals $18 mil for the year.
So thats around $10.3 mil a year profit (roughly) making around $26 per user.
Although, I'm wondering how many of their users are actual active users.
so they're making about $26 per user (roughly)
http://www.crunchgear.com/2008/09/24/swoopo-entertainment-sh...
EDIT - actually on quick reflection, I wonder if the value the CEO stated was retail or wholesale value of the goods (I expect retail) and if the value listed on Wikipedia is correct (which it might not be) then that number may be higher.
These also don't take into account their advertising budget, but I wouldn't think they'd spend close to $10 mil a year in advertising.
These guys are definitely making a tidy profit thats for sure.
They say they have 50k users, and in 2008 their revenue was $28.3 million USD (from wikipedia).
Theres also a comment on a related Crunchgear article from the "CEO of the company" (linked at the end), which states he is shipping about $1.5 million (presumably) USD in value of goods each month which totals $18 mil for the year.
So thats around $10.3 mil a year profit (roughly) making around $26 per user.
Although, I'm wondering how many of their users are actual active users.
so they're making about $26 per user (roughly)
http://www.crunchgear.com/2008/09/24/swoopo-entertainment-sh...
EDIT - actually on quick reflection, I wonder if the value the CEO stated was retail or wholesale value of the goods (I expect retail) and if the value listed on Wikipedia is correct (which it might not be) then that number may be higher.
These also don't take into account their advertising budget, but I wouldn't think they'd spend close to $10 mil a year in advertising.
These guys are definitely making a tidy profit thats for sure.
I was contacted last week by a headhunter for this company. At first I was very uncomfortable about their business plan. But I talked to them and they seemed on the legit side of the law, at least over here in Germany. To sum it up: pure Faustian brilliance. I guess they're still looking for devs, so if you want an inside look, get yourself invited to an interview.
I was in a game theory class and we were learning about auctions. Just don't ask me how much I paid for his $5 bill in his "all-pay" auction - it would have been evil if it didn't go to charity. (http://en.wikipedia.org/wiki/All-pay_auction)
I've always thought this would make a great game show.
There are tons of sites with this concept, or at least the variant of "least unique bid wins". The most evil part is how they manage to get so much media attention, now even our beloved Coding Horror has been reeled in.
It's a really well-written and well-researched article.... been a while since I've been this impressed by a Coding Horror article's fleshing out the details and stuff! :)
Very interesting read... and ingenious idea.
Very interesting read... and ingenious idea.
Very evil, but I'd love to see the data that comes out of it.
I've always been fascinated with the game theory, math, and psychology behind these schemes. There's a bunch of variations of the auction model that can guarantee or nearly guarantee a profit. One of the more popular auction models is to make the winner the person with the lowest unique bid, but it costs to place bids.
The lowest bid game is equivalent to simply giving it to the last person who bid isn't it?
Actually, no. In those games, its the lowest unique bid. check out http://www.bidster.com/ . This way, if more than one person choose the lowest bid, then those cancel eachother out, and the next lowest, but non-duplicated bid wins. There's a large number of these sites out there actually, but none-the-less a very profitable business. Might be less of a lottery though, because one could claim its a game of skill.
Good point, I forgot to mention that it is a timed silent auction.
This is awesome. They must be raking it in.
Here somebody who claims to be the CEO of Swoopo tells:
"We are currently shipping items totaling about $1.5 million to our winners every month."
http://www.crunchgear.com/2008/09/24/swoopo-entertainment-sh...
(Sorry for no permalink to comment, couldn't find one)
Also Wikipedia entry on Swoopo has unsourced revenue 20 million Euro in 2008.
http://en.wikipedia.org/wiki/Swoopo
"We are currently shipping items totaling about $1.5 million to our winners every month."
http://www.crunchgear.com/2008/09/24/swoopo-entertainment-sh...
(Sorry for no permalink to comment, couldn't find one)
Also Wikipedia entry on Swoopo has unsourced revenue 20 million Euro in 2008.
http://en.wikipedia.org/wiki/Swoopo
This is like running a casino. People that play know the odds are against them. They still play. It's about the fun/excitment, the possibility that YOU could beat the odds.
trading the stock market has negative expectancy as well, if you count in trading costs (against just owning the index like the S&P 500 or the MSCI world, with almost no trading costs) Is running the NYSE immoral?
trading the stock market has negative expectancy as well, if you count in trading costs (against just owning the index like the S&P 500 or the MSCI world, with almost no trading costs) Is running the NYSE immoral?
They are passing some of their earnings on to Google in the form of advertising buys. I just saw an ad for them in my Gmail account.
So one step that could be taken would be for Google to ban them from their advertising network. Would Google do this? I don't know, but the answer would be revealing.
So one step that could be taken would be for Google to ban them from their advertising network. Would Google do this? I don't know, but the answer would be revealing.
[deleted]
This won't last long. Eventually people will realize they'll have more fun buying the iPod and playing craps instead.
This is online gambling. Isn't that already legally problematic?
I wonder if there's a correlation between using Swoopo and winning one of these awards:
http://www.darwinawards.com/
http://www.darwinawards.com/
Reminds me of the old party game, Dollar Auction. Bidding's in 10-cent increments, and the prize is $1. The twist is that the top two bidders pay their bids, but only #1 gets the prize.
Bidding will go far past $1 because, even though it's a loss to pay $1.10 for $1, the 90-cent bidder would rather lose 10 cents than 90. I've heard of bidding going up into the $20 range.
Bidding will go far past $1 because, even though it's a loss to pay $1.10 for $1, the 90-cent bidder would rather lose 10 cents than 90. I've heard of bidding going up into the $20 range.
I suppose most businesses face the same problem, at least if they are in a "winner takes all" market? You invest to outperform the competition, and if they win, you basically lose your investments.
Wow. I need to play poker with those people.
After hearing about the outcome of this game you'd think that you'd have to be an idiot to get sucked in, but you'd be mistaken. We once did a dollar auction in an auditorium at Canada/USA Mathcamp -- not exactly a dimwitted group -- and bidding went up to $5.
Canada/USA Mathcamp: What year?
What's despicable about offering a service people want to use?
Isn't this just like offering poker games and other gambling, or selling beer (you pay for something that harms your health, and the only saving grace is that people enjoy it)?
Isn't this just like offering poker games and other gambling, or selling beer (you pay for something that harms your health, and the only saving grace is that people enjoy it)?
Nothing is inherently despicable about the model. What is despicable is that it is advertised as an auction site, not a gambling game. Also, a lot of these sites (there are many like it) don't have very much transparency, and it would be easy for them to not award a prize at all while still collecting the bidding fees.
"What is despicable is that it is advertised as an auction site, not a gambling game."
If the winner becomes the winner because he bid the highest price, then it's an auction. Since when are auctions considered to be games? Sure, it's an auction in which bidders must pay to bid, but are there laws that ban the charging of fees for participation in an auction?
If the winner becomes the winner because he bid the highest price, then it's an auction. Since when are auctions considered to be games? Sure, it's an auction in which bidders must pay to bid, but are there laws that ban the charging of fees for participation in an auction?
In many (popular) moral systems, nothing is wrong with this business model.
In our legal system however, something is probably wrong with it.
In our legal system however, something is probably wrong with it.
I was working remotely for a company at the time, so gave them 2 months notice and started developing, with the intention of launching a similar company in Canada in 6 months time. I had another Canadian partner, and started looking into all facets of the idea. The site development went fairly straight forward and allowed me the chance to return to web development after 5 years of Mac and Windows application development.
We had contacted the best law firm we could find with experience in gaming and intellectual property. After spending a fairly large sum of money to get a risk assessment, it was clear that the idea was definitely illegal. Because many people were paying for the chance to win a product, it was online gaming and illegal in Canada. We had a few options, none of which were very reassuring.
I am rambling now, but I just wanted to mention that I paid nearly $10K to have this looked into by lawyers, quit my job to implement it, and moved back to Canada from Finland to go ahead with the project. I am stunned that this is being done in the US, and am no going to be surprised at all when it goes bad for them. If it doesn't, then I made the wrong bet of calling it quits.
On a side note, if anyone wants to buy a nearly completed site with the same idea as this, feel free to contact me.