Sports Betting Conversations. Sharp Alpha Advisors: The Future of Sports Betting
How can startups succeed in the competitive entertainment industry and unlock new audiences? DataArt met with Lloyd Danzig, Managing Partner at Sharp Alpha Advisors, to talk about the current sports betting climate, emerging business opportunities for startups, and Fanatics’ potential breakthrough in the market. Lloyd also shares insights into Sharp Alpha Advisors’ approach to new collaborations and the key role of personalization in the future of sports betting.
Speakers
Russell Karp, Senior Vice President in the DataArt Media and Entertainment practice, focusing on sports betting.
Lloyd Danzig, Managing Partner at Sharp Alpha Advisors. Sharp Alpha Advisors is a venture capital firm founded in 2019 and based in New York that specializes in sports, gaming, and entertainment.
Kevin Twitchell, advisor in the DataArt Media and Entertainment practice.
Watch the full video or read a shortened text version below.
Russell Karp: Within your portfolio or companies you’re looking to invest in, where do you see the most traction? Is it around sports betting or operators or other companies within the sports betting industry?
Lloyd Danzig: It is quite challenging in the US to launch a B2C startup that is eventually going to compete with DraftKings and FanDuel directly for market share by offering a fixed odds recreational-focused sportsbook. It is incredibly capital-intensive, incredibly regulatory, and burdensome. DraftKings and FanDuel spend enormous amounts of money on customer acquisition and leverage economies of scale that are quite difficult to compete with if you are a small startup. So, that is perhaps the one thing we specifically do not invest in as these companies directly trying to compete with DraftKings and FanDuel for market share.
Now, there are other areas of the B2C universe in the US that are quite interesting and that FanDuel, DraftKings, and the like do not necessarily focus on, at least not yet. Those include forms of skill-based gaming, online lottery, and online casino forms of gambling that maybe don’t feel like gambling, or at least don’t feel like it yet, but in an underlying capacity they truly are. And then, also on the B2C side, there are opportunities to unlock audiences that historically have been underserved by the fantasy and betting industries.
And there are new geographies. Just as the UK and Australia have been mature markets, whereas the US opened up more recently, there are markets that have not yet had their PASPA (Professional and Amateur Sports Protection Act) moment, whether they be Brazil, India, potentially Japan, where MGM just announced the first integrated resort that will contain a casino in Osaka. So those are, I think, some of the opportunities on the B2C side.
The B2B side is also quite interesting as you guys and most listeners will undoubtedly know, the sports betting and iGaming industries heavily rely on B2B back-end platforms that power a front-end consumer-focusing website that is more like a PR firm and a customer acquisition engine perhaps than an actual sportsbook in terms of its underlying infrastructure.
A lot of the platforms and technology that currently power the US real money gaming industry or developed 10 or 15 years ago in Europe for a completely different audience that watches a different set of sports and is not nearly as mobile native and instant gratification seeking as the young Gen Z audience in the US is today. So, there are a lot of exciting B2B applications that are providing multibillion-dollar real-money gaming operators with turnkey access to new functionality, innovation, and white-label features.
Russell Karp: And in terms of your outreach, are you focusing on the domestic companies or are you global?
Lloyd Danzig: Fortunately, although we do outreach, we get the majority of our high-quality deal flow from inbound interest relationships. Other VCs (venture capitals) that we invest in, our LPs (limited partners) who are members and executives at most of the major sports betting gaming media companies around the world for various regulatory reasons. And due to some of the sensitivities of our investors, we have a very strong preference for companies domiciled in the US, in particular those that are Delaware C Corp’s.
But that doesn’t necessarily have anything to do with where the majority of those companies’ revenue generation takes place. So, we have more like probably a 65–35 split when it comes to US revenues versus non-US across the portfolio, despite the fact that the overwhelming majority are Delaware, C Corp, and US domiciled entities.
Russell Karp: What is your opinion about Fanatics making a dent in FanDuel, DraftKings, Caesars, and MGM?
Lloyd Danzig: Market share has increasingly concentrated among the big four.
In New York where I am based, FanDuel, DraftKings, MGM, and Caesars make up 96% of the market share. They make up at least 90% in most geographies where all four of them are active. Even a company like Penn Gaming that has had the benefit of the momentum of the Barstool audience tends to not have even a 5% market share in any of the states in which they operate.
Lloyd Danzig
Managing Partner at Sharp Alpha Advisors
You point out PointsBet that has engaged Moelis to sell its US business, perhaps even more notably Fubo Gaming and MaximBet that have officially shut their doors, and potentially some other subscale operators that may meet a similar fate. There are only a handful, probably less than five groups of engineers, investors, entrepreneurs on earth that can successfully compete with DraftKings and FanDuel and MGM, and Caesars for market share.
Fanatics is certainly one of them. They have the domain expertise, the capital, and the war chest. The company is worth $32 billion and just raised 750 million almost exclusively to focus on their sports betting business. They have the benefit of an incredibly lucrative merchandise and collectibles business without the pressure of public investors breathing down their necks regarding new projects.
So, they can certainly weather the storm. Operate sports betting as a loss leader or at least a loss maker for an unspecified period without feeling financial pressure and worrying about the ability to continue making payroll. In addition, they have an 80 or 90 million fan database. They have a presence at most major sporting venues through their operations out of the gift shops or the merchandise stores at those locations.
Certainly, you have to think if anyone has a chance, it has to be Fanatics or that Fanatics has to be on that short list of groups that have a real chance here. But that isn’t necessarily a guarantee of success. As you had alluded to, Fanatics previously announced they were going to launch a few sportsbooks in different states in Q1 of this year, and they were going to be live in every state that offers sports betting by the start of the NFL season.
They have since more recently come out and backtracked on those projections and those timelines. Not an enormous amount, but they have modified their expectations and others’ expectations, and the rumor floating around in the rumor mill is that they’re having a bit of trouble getting the product to the state that they would like it to be. And perhaps the amount of source code atop that is being built wasn’t as amenable to the high-quality product that they certainly want to put forth.
Now, with all that said, the real excitement over a potential Fanatic sportsbook, I think, is that perhaps they can offer a differentiated sports betting product, but much more likely they offer a unified experience where a sports fan can get all of their digital needs in one place.
Lloyd Danzig
Managing Partner at Sharp Alpha Advisor
One of the things that has now become public through circulated screenshots of the Fanatics sportsbook beta is that every time you place a bet on the Fanatics sportsbook, 1% of the value of that wager and 5% of it if you’re doing a parlay, will be credited to your account in what they call fan cash.
So, you place a $100 parlay, you get $5 in fan cash, and that fan cash can be used to buy anything that Fanatics sells: jerseys, merchandise, collectibles, and potentially ticketing. And so perhaps people will start saying, “If I’m going to place this bet anyway and get the same odds anyway, I might as well get a free Aaron Judge authentic jersey” or whatever it is, because Fanatics has these extra bells and whistles that they provide.
And in theory, there’s a whole flywheel experience that they can enable. And so, I think that is the big question mark that everyone is looking to see resolved to answer the question of whether will Fanatics make a loud splash but ultimately die out as we’ve seen other subscale operators? Or will they have more staying power and use this flywheel, this one-stop-shop experience to do what very few others have been able to do in terms of carving out market share and wallet share in the B2C real-money gaming space?
Kevin Twitchell: In places you’re investing and looking at, and from your gaming background, where do you see it as far as technology and making these platforms more robust and more media platforms than just strictly sports betting?
Lloyd Danzig: My view is that in the not-too-distant future, our entire lives will be dictated by recommendation engines. Your smart alarm clock will figure out the optimal time to wake you up. Your smart closet will recommend the optimal outfit based on what clothes are clean, and your smart fridge will present you exactly the right breakfast based on how much you ate yesterday and how much energy you need.
And then hopefully your smart sportsbook or casino will serve you exactly the right player prop parlay or slot machine promotion or whatever it is without you having to navigate the app or spend any time discovering the right betting opportunity. I definitely think we’re moving in that direction. Market leaders, incumbents, and large companies in the space are particularly ill-equipped to innovate organically and in-house for the most part, and that is doubly or triply the case when it comes to implementing sophisticated AI solutions.
So, most of the major companies in the space are looking toward third parties that have turnkey personalization solutions or leverage AI to enhance or enforce responsible gaming measures and things of that nature.
I expect one of the major trends of the next 3 to 5 years in the space to be a decrease in decision fatigue and decision friction and the number of steps or clicks or apps to place a bet and a dramatic increase in a more TikTok or Tinder style of user experience where you’re just being fed almost an infinite short duration list of opportunities and you’re swiping up or down or left or right fairly quickly and easily to pursue the opportunities and engage as you wish.
To the other questions, we are seeing on the heels of Penn and Barstool other brands looking to replicate or pursue similar types of relationships better. In the Jake Paul-Joey Leavey outfit, a lot of their value prop is based on what Joey refers to as low to no CAC, referring to the minimization of customer acquisition costs that they feel they can attain by having their own owned media platforms.
DraftKings bought VSIN, they have investments in Meadowlark and are exploring other opportunities in the space as well. FanDuel recently repurposed TVG as FanDuel TV and is going to have, if they haven’t launched already, a 24/7 network of FanDuel programming and sports programming that dovetails with their product offering. Bet MGM did a deal with a company we’re involved with called Almost Friday Media, which is the parent company to Friday Beers and a bunch of other similar Barstool brands that they’re partnering with.
And there are all sorts of other interesting collaborations and partnerships that we’re seeing because at the end of the day, this is an industry where the lifetime value of a customer is higher than in almost any other industry, and having and holding and engaging and retaining that user is the gold standard. It is the lifeblood of long-term profitability.
So, questions as to leveraging AI for personalization or marrying a sportsbook with a media company to create a more integrated customer journey, all are in the service of driving that lifetime value and retaining customers without allowing for leakage to competitors and other areas of wallet allocation.
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By Russell Karp,
Vice President of Media and Entertainment Practice at DataArt
Originally published at https://www.dataart.com/.
