First-time entrepreneur Jeremy Levine thinks he’s found a loophole that allows online betting on sporting events, and he’s using March Madness to roll the dice and see if his hunch pans out.

The Cambridge, Massachusetts, native’s startup, StarStreet Inc., is treating pro sports like a stock market. Gamers place bets with real cash by buying shares in a team or an individual player. If the team or player does well, those share prices may go up, and the gamer wins.

Levine swears it’s legal. He has the online game in a private beta test at StarStreetSports.com with about 150 users betting cash on teams in this year’s NCAA Men's Basketball Tournament. He hopes to have the site ready for public unveiling in time for the 2010 professional football season.

“The real simple reason it’s legal is because it’s a game of skill, not chance, that doesn’t depend on the outcome of any single event,” he said.

StarStreet has its own legal advisers, Levine said, but Franklin "Biff" Levy, a former Las Vegas corporate counsel who recently became a partner in the Boston office of Duane Morris LLP, expressed a little skepticism about the company’s founding logic.

“I can’t imagine this could be legal,” said Levy, who has no affiliation with Levine or StarStreet. “How is this more skill-based than (Texas) Hold ’em?”

Legal skeptics aside, Levine won’t be the first to try making sports into an online stock market. At least three Web startups have tried—and failed. The first to attempt it was E-Global Sports Network Inc., operators of Oneseason.com. Founded in 2007, the San Francisco startup took $3.5 million from investors including Charles River Ventures, a Boston venture capital firm, before it folded last December. Founder Michael Sroka couldn’t be reached, and Charles River partner George Zachary declined to comment.

Another San Francisco startup, ProTrade Sports Inc., had venture capitalists betting far more heavily—taking in at least $12 million before it abandoned the sports stock market model in 2008, and rebranded itself. Now known as Citizen Sports Network, the company develops applications for fantasy sports leagues on Facebook.com and Apple Inc.’s iPhone. On March 17, Citizen Sports was acquired by Yahoo Inc. for undisclosed terms.

ProTrade co-founder Jeff Ma said the idea of a sports stock market was compelling, but difficult to execute. “It’s just too difficult a concept to make understandable,” Ma said. “I know that sounds weird because everyone says, ‘Sports stock market, yeah, sure, I get it,’ but somehow that doesn’t translate well into a lot of users.”

Levine thinks he can do better—by making StarStreet’s sports stock trading system a zero-sum market, where each entity trading on the market is worth no more or less than the number of shares, times the trading share price. If it works, StarStreet will take a cut of the sell side of every trade.

At least a handful of tech luminaries think Levine’s idea may work. Palle Pedersen and Doug Levin, directors at Black Duck Software Inc., are advisers, and StarStreet was accepted into the Techstars Boston incubator program, which invests small seed rounds and provides mentors for early-stage startups.

Now 23 years old, Levine said he’d been nursing the idea since he was a kid collecting baseball cards. “Rather than the gimmicky cards with the jerseys, I always wanted the rookie cards,” he said. “I was always playing with my friends, trading cards, trying to get the next big thing.”

His eyes set on entrepreneurship as early as high school, Levine never thought his best idea, letting online players invest in players like rookie-card buyers, could be legal—until Oneseason launched. He worked with his high-school math teacher, Rob MacDonald, to come up with a spreadsheet pricing model that formed the basis of StarStreetSports.com.