I'm appalled that someone with a HBS MBA and so many claimed executive positions held would dismiss something as important as the legality of this business model with something so cavalier as, "I would point out here that I have not looked at the gambling aspects of this."

Perhaps he should have. The Unlawful Internet Gambling Enforcement Act of 2006 would make paying with credit cards nearly impossible since this would clearly be defined as illegal gambling (a game whose outcome is dictated by chance). Especially because you are dealing with physical goods/services that have to be delivered on US soil, this bill makes this business model nearly impossible to do.

In addition, because you are dealing with physical goods, you are leaving the winner with a tax burden (that can't be paid by a portion of the winnings when dealing with non-cash). So that Ferrari F430 Spider becomes a $30,000 tax bill. So long as the winnings are taxed, a bettor's expected value will always be diminished significantly.