(Bloomberg) -- Michael Schwimer knows what most people think of tout services, sellers of sports-gambling picks. And even though he’s getting into the business himself, he agrees with them.

“I will use the harshest language possible: The industry is disgusting, it’s heartbreaking, it’s just awful,” Schwimer said.

Touting is rife with corruption and often outright fraud, with scant oversight (the Al Pacino movie “Two for the Money” portrays a lot of this with typical Hollywood flair). But as sports betting climbs out of the shadows across the U.S., Schwimer is hoping there’s room for touts who do the same.

“We set out to create a system where, everything they’re doing, we do the opposite,” said the former major-league pitcher, whose first business was investing in young minor-league players.

The new venture, called Jambos Picks, is built on a predictive algorithm, much like the ones professional gamblers use to find their edge. To combat the skepticism associated with touts, Schwimer says he’s committing to a level of transparency rarely seen in the industry, and offering bettors their money back if the picks don’t win.

No Estimates

There are no good estimates for the size of the tout industry nationally, but they exist wherever gambling is present, legal or otherwise. You see them advertising in race pamphlets, online and even at baseball games. In recent years, people have begun soliciting payment for picks on Twitter.

”A majority of touts are not legitimate -- they’re really not experts in what they’re doing, but they sell themselves as experts and they use unethical methodologies to try to get people to pay them,” said Anthony Cabot, distinguished fellow in gaming law at the University of Nevada, Las Vegas. “But are some legit? Sure.”

The genesis of Jambos traces back to the 33-year-old Schwimer’s days in baseball. A pitcher with what he calls “below average stuff,” Schwimer carved out a brief MLB career by building a pitch-sequencing algorithm tailored to each specific hitter’s tendencies.

After a 2013 shoulder injury, Schwimer stopped playing baseball and started investing in it, building on the interest that once had him interning at hedge fund PAW Capital Partners. Knowing firsthand the financial struggles of minor-league players, and sitting on an algorithm that he believed could be honed to predict future success, he raised $26 million and launched Big League Advance.

The company gives money to young players in exchange for a percentage of their MLB earnings, if they make it that far. Big League Advance invested that money in 77 players -- including Rookie of the Year candidate Fernando Tatis Jr. -- and according to Schwimer, 38 are already in the big leagues, with a further dozen likely to follow. He won’t see any real return on his investment until those players reach arbitration or free agency, but early results are encouraging.

When Schwimer raised $130 million more from a group that includes hedge fund manager Bill Miller and former Goldman Sachs partner Steve Duncker, he took the management fees and assembled a small team of sports-analytics experts. They explored a few business opportunities -- a predictive horse-racing algorithm, something similar for golf -- but chose to get into sports betting first.

“I watched analytics completely change Wall Street during my time as a partner at Goldman Sachs, and Michael and his Jambos team are far ahead of this same trend in sports betting,” said Duncker, who’s also a board member at the New York Racing Association.

An Edge

In equities investing, if you think you have an edge, you raise money and start your own fund. In gambling, it’s not always that easy.

That was Schwimer’s original plan, so he went to Las Vegas in December to test the algorithm’s college basketball picks. He says he was there for 16 days, and up a few hundred thousand dollars, before the sports books reduced his maximum wager to $300 per game.

“So I had this realization. I can’t bet $300,000 a game, but a thousand people can bet $300 a game,” Schwimer said. “And that’s when the subscription service came about.”

Jambos’s service isn’t for casual bettors. It’s designed for those willing to put $300 on each game, a big enough stake to offset the cost of the picks.

It also recently completed a beta test in which it charged $1,500 for 300 college basketball picks. Schwimer said subscribers ended up with profits of more than $5,000.

Wouldn’t Sell

UNLV’s Cabot, who practiced gaming law for 37 years, is skeptical about the tout model in general. “The best bettors I’ve ever seen would not sell their picks,” he said. “If you’re hitting at that rate, you can set up offices in five different countries, and you can go to places that take higher bets than Nevada and do quite well.”

Schwimer, who is a contributor to ESPN’s gambling show “Daily Wager,” is ready for criticism. He faced it recently with his baseball investing -- Big League Advance was briefly sued by a player who claimed he was deceived -- and he knows that a lot of touts make similar promises about breaking from the industry norms.

That’s why he’s heavily promoting his refund policy. The discounts vary depending on how long you subscribe, but the full 17-week plan, which costs $3,000, carries a $10,000 refund if the picks don’t make money overall.

“We’re actually giving people that are skeptical the opportunity to short,” he said. “If you think, ‘There’s no way they can do this,’ then you’re the No. 1 person that should buy our package. If you’re right, you win $10,000. If you’re wrong, you only lose $3,000.”

To contact the reporter on this story: Eben Novy-Williams in New York at enovywilliam@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, John J. Edwards III, Rob Golum

©2019 Bloomberg L.P.