What Does the Future of Sports Betting Look Like in the U.S.? - 7investing
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What Does the Future of Sports Betting Look Like in the U.S.?

October 27, 2021

Sports betting has attracted a lot of investment money and it’s an area with huge potential. It’s also a space that has done things the same way for a really long time. Some emerging players in the space have partially disrupted those models, but some parts of how sports betting works have not changed even as more digital options are launching. James Seils and Greg Kajewsk, the founders of BettorEdge, a unique sports betting platform, join 7investing Now to discuss where they see opportunities in the space and what they see as some business practices that are ready to be disrupted.

Transcript

Sam Bailey  0:11  Welcome to 7Investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.

Dan Kline  0:22  Good afternoon and welcome to 7Investing Now. we’re doing something a little different today. My name, of course, is Daniel Brooks Kline. I’m the host of the program. But instead of having some 7Investing advisors on it’s near the first of the month, we are all getting our reports ready all the things we do for our members. Instead, we are going to have the founders of a company called BettorEdge. What do they do? We will talk about that momentarily. So I’m going to recommend, recommend, I am going to introduce James Seiles and Greg Kajewski. Guys, welcome to the program. Thank you for doing this.

Greg Kajewski  1:00  Thanks, Dan, appreciate you taking time out of your busy day. I always love the first of the month, you guys kind of make it like Christmas recommendation. Check them out. So

Dan Kline  1:11  I’m always happy to have someone on who knows who we are. We have a huge, you know, a devoted audience, people who are really excited about us. But I am not naive enough to think that we have quite hit those like CNBC levels yet where, you know, look, I might walk down the street and get recognized, but it’s not happening on a daily basis. But let’s talk a little bit about BettorEdge. We’re going to talk about sports gambling today. And this has been a huge topic on the show. Everyone knows I like to gamble. But I’m a bit skeptical of a lot of the publicly traded companies in this space. So before we get into that, why don’t we set the table and talk a little bit – what is BettorEdge and why did you start it?

James Seils  1:53  Yeah, I can take that. So when you look at, you know, sports betting as an industry, you think of the MGM the big sports books, right. So we are actually sort of a sub industry of that. And if you look back, you know, six, seven years ago, Daily Fantasy started to come along, we’re DraftKings, FanDuel and they created this industry called daily fantasy sports. We are calling it a social betting exchange or social betting marketplace. And so really the way we are different is your traditional sports betting, you go to your book, you pay them 10 bucks, they take it, they tell you what the prices. So they tell you the Vikings are even money today. They hold the risk, they may offload risk, they do all of that management have all of that overhead. And then they eventually pay you back if you win minus the fee that they take.

We operate a little differently, we take that book portion out of that process. And if you Dan, like the Vikings on Sunday, someone else in the world likes the Packers, just like a stock market.

If you want to buy the Vikings, someone else wants to buy the other side or sell the Vikings. You place your orders out there and exchanges just like a stock market. And then you guys get your bet positions you can sell them you can buy more just like you would with the stock. And we do all of that while taking all of the fees out. So we do not charge what’s known in the industry as a big. And the reason we don’t is because we don’t hold any risk. We don’t manage, you know pricing, we don’t tell you what the prices are we don’t have any of that overhead. So we don’t charge any big. We don’t charge any commissions on trades. And we operate just in the exchanging of orders amongst people.

Dan Kline  3:37  So basically, you’re creating a platform, that’s the equivalent of like me calling up my buddy. By the way, nobody’s taking the Vikings, that’s no fun. But the equivalent of me calling up my buddy and saying, Hey, I think the Astros are going to beat the Braves. I’ll bet $500 versus your, you know, I don’t know what the line is and that but if you, you give me 500 If I when you give, I’ll give you 400 of you win because your team is favored. And we’re sort of negotiating all of that. So is that fully legal? Is what you’re doing legal on a national basis? Because you’re not actually operating as a traditional book?

Greg Kajewski  4:14  Yep, definitely. And I think one of the things you just described was that interaction between you and your friend is a very social experience. So when you think about social betting marketplace, the category we’re creating is new, innovative, or we’re just connecting users. We’re not actually engaged in the bet. Therefore we spent about two years really focusing on the product, getting that up in two years on legal positioning and saying, Hey, here’s how our product works. Here’s the laws that are relevant, talking to different states and making sure they understand our business model so that we can operate accordingly.

James Seils  4:47  It’s really based on our revenue model as well. I mean, we don’t make any money on any of the betting amongst people, right? We make money in different ways. Just like a social media platform. We sell ads We do that on the ancillary from the social side of our platform and not on the actual marketplace.

Dan Kline  5:07  So your platform is dependent, of course, on there being an audience, so I probably could get a bet on that Packers Vikings game, but maybe not a bet on minor league hockey in Edmonton, or whatever it might be. So obviously, you need to get it. This is true of daily fantasy as well, you need to get to a critical mass. But let’s segue a little bit into talking about the broader gambling market, because you mentioned Daily Fantasy. You mentioned MGM.

These are all companies dealing with, like, really ridiculous level of legality and trying to figure out like, if you’ve ever heard of like Bill Simmons do like his, you know, his little tag at the beginning of the show, we have to list out like the 17 states, you can gamble and then give you all the phone numbers, you can call it like the rules here are really tricky, and in my opinion, a little silly. But how do you see the state of sports betting in the US right now? Like the way I look at it, and I might be wrong, is you’ve got these two giants in Caesars and MGM that have this like massive loyalty program. And I know like, if I have a choice to bet, and I’m going to get tier points at Caesars, I’m gonna bet at Caesars I don’t care what they do at DraftKings. And that’s why I’ve been very skeptical of anyone, but I’m gonna stop talking. I want to hear what you guys think of the marketplace.

Greg Kajewski  6:20  Yeah, definitely. I think it’s interesting how that, you know, history has come to be. So, you know, before the online kind of world, you go to an actual sports book, you’d have that interaction, it would be really fun as part of it. And then, you know, as they move that to online, as COVID occurred, it accelerated the opportunity for people to have that online platform. And I think a lot of those large companies have just lifted that, you know, transactional type experience to an online and whether you sign in at Caesars or if you sign in a different place, you’re placing that transaction as part of it.

And we took a step back and said, let’s think about this entire experience. What can an online opportunity look like? And it comes down to you’re collecting information. I look at it very similar to financial markets, for me to start making a position a stock, I tuned into 7Investing, I go read stuff on Twitter, I go do all these things. And our platform allows for you to get that information about sports betting, so that you can therefore place the transaction and you have that kind of end to end experience. And we’ll give you data analytics as well to say, here’s how you’re doing as part of that. I think the overall industry and kind of state of sports betting is what does the consumer want at the end of the day? And are they going to keep going to those loyalty programs because they get room upgrades, things like that? Or do they want to look at better products to say, Hey, I’m actually winning more money, I’m getting a better price, all those types of things as well. So it’ll be interesting to see how that plays out. But obviously, there’s a you know, to your point, there’s a lot of money being poured into this space kind of around user acquisition and things like that.

James Seils  7:52  Yeah, from the loyalty standpoint, I mean, our biggest one of our biggest challenges is we need to lead with an education campaign. At the end of the day, you’re getting those loyalty points because they’re making money off of and they’re doing that because they’re charging enormous fees on bets and you look at even like the some of the newer innovative books that are coming out and pushing macro influencer parlays where they’re even reporting 25% Hold on those bets in their you know, financial statements saying that we are pushing these out, people are buying them and we’re taking 25% fee from them. And so bringing that education to people and saying you know, you need to actually win 53% of the time to make any money on these old books.

On a platform like ours you win 50.01% of the time you make money because we don’t take any fees in the process and so like Greg said, I think you know once people realize that it’s aligned with their you know, thought process and just like when you look at the financial services industry and what Robinhood did and taking away commission’s on online trades I think the industry is gonna eventually need to go that way and these big books have very large overhead it’s going to be very hard for them to shift the revenue model as fast as what I think consumers will shift their behaviors

Dan Kline  9:13  That’s an interesting point because so it’s it’s also interesting that Robinhood gets credit for that when they were like the 15th platform to do that and they’re by far the worst of all the platform. I still can’t I tried to set up an account cannot link my bank account to it just just simply doesn’t work. But in the sports betting world that that’s interesting, because I don’t know that the average my level of gambler like and I’m much more of a blackjack player than I am a sports bettor.

But if I’m in Vegas, I’m absolutely putting 100 bucks in the Patriots or whatever team I happen to be following. I don’t give a ton of thought to what that take is. Do you think like some of the disruptors whether it be you guys who I think are really operating in a different space, you know, than say a DraftKings or FanDuel or any of these other sort of disruptors. Do you think part of that is just going to be you can offset the traditional by just taking less like is that, that that’s worked with stocks, but I think the stock market investors may be a little more sophisticated than the guy who’s putting 50 bucks on, you know, the Panthers to win or your God, the person who makes a bet in favor the Jets.

James Seils  10:20  Yeah, I think that’s where I said, it’s a challenge. We need to lead with an education campaign and show people that they are losing this money, and that they are getting taken seats, because it’s, it’s brilliantly done in the sports betting space, right. Like talking about a hidden fee, where you literally have no idea unless you understand the low detail level of numbers around American odds to understand how you’re getting charged this fee. And so in our platform, we definitely show you what you’re being charged and other books. And then we actually allow our users to donate that saved fee to a charity that we partner with as well. So if you’re on our platform, you definitely know that there’s a big out there and other places. And I think as you know, new companies in the space come on and do similar things, the education is just going to start having a groundswell and people are going to notice that, hey, my $10 Bet is going to win 10 Here, or it’s going to win $9. Here, I’ll take the extra dollar, as long as the friction to sign up is low.

Greg Kajewski  11:23  And to double click on that, you know, we did a lot of surveys, early users and a lot of different demographics. We said, Hey, what are your thoughts on this, etc. And multiple people came back right away and said, If I’m not going to charge a fee here, why would I go back and get charged a fee elsewhere? I think consumers are used to that trend. They’re used to lower fees. And that’s, you know, been set in a lot of industries, Venmo, the financial industry, all that type of stuff. So we expect that to continue to play out as well here.

Dan Kline  11:50  So do we think so I like in sports betting often to cannabis, where there was just a lot of investment money, where people went, Oh, my God, cannabis is going to be legal. Everyone threw money at it. Almost all of those companies are bad investments. It’s a there’s a very small percentage of cannabis companies that have been good investments. If you’re a 7Investing member I have I have recommended two so go look, and one of them hasn’t done so well.

But it’s still actually my most steady investment. I put money into it every month. But do you think sports betting is like that? Because I sort of felt like when DraftKings went public, nobody read the S1 day well, it wasn’t an S1. It was a SPAC. Nobody read the documents, nobody looks at their quarterly earnings call. They’re just like really focused on this idea of opportunity. If you’re telling me that fees are going to come down, that makes it again a lot more like cannabis where it’s really easy to grow and the margins just aren’t there. So it really is doing something different that makes you money. Is this actually an industry that’s maybe not what people think it’s gonna be in terms of like, incredibly lucrative across just because so many people gamble. They always look at that number, like illegal gambling in the US is 30 billion or whatever it is. But it’s again, there’s a lot of illegal pot to and those companies haven’t made a lot of money.

Greg Kajewski  13:03  Yeah, it’s interesting parallel. I mean, you mentioned 30 billion, if you look at the, you know, some of the forecasts that if all 50 states were legal, you’re looking at a total handle about 280 billion. So I mean, I think the

Dan Kline  13:17  Oh, wow, I thought I was high.

Greg Kajewski  13:18  I also, I mean, I’m talking about handle. So we look at very much how much money is being handled by individuals, we can, you know, that obviously drives volume on our platform. So you can look at a lot of different, you know, numbers, with that to see. And I think that’s why you’re seeing such a large marketing push right now. You see signup, bonuses for X, Y with, you know, three, five, you know, 20 times rollover type stuff. And people are trying to obtain users, what I find really interesting about that is, typical betters have multiple accounts, different places to have, you know, to be able to get the best price to be able to, you know, get that sign up, bonus, all those types of things.

So it’ll be interesting to see that when the dust settles, and the marketing funds kind of, you know, dry up, where people are going to gravitate towards. And I think our focus is huge on the best product when at the end of the day. About that experience with that best price, you’re going to keep coming back to the brands that you believe in that are kind of doing the right kind of charity type things and that type of stuff. So, it’s been a fun to kind of watch and I think it’ll be cool to see what happens in the next three to five years as well.

James Seils  14:23  Yeah, and I think for us, you know, we’re very lean. We’re gonna be lean and be strategic about how we use money and how we gain a market share. I think where do you see some other companies that are like cannabis, you’re just throwing a ton of money at it, you’re throwing marketing without a ton of strategy behind it. And so that’s been our strategy is as we grow in this space, and so, you know, if you’re looking at what’s good money, I think that’s a good way to look at it. Make sure that we’re getting the right market fit, and then we’re scaling. And from a product standpoint, we’re ready to scale.

We’re, you know, We’re all set on that standpoint, it’s really now like, let’s find the fit. Let’s find the right marketing waves. Let’s do that on a low CAC. Because I mean, like Greg said, some of these big companies they’re doing, you know, $1,000 risk free bet. And like, what is their cat going up to? It’s kind of insane. So, you know, we’re taking a little bit of a different strategy from that standpoint. So that’s where I think, you know, the winners will come. But yeah, you’re right. There’s a lot of money going at this pace right now.

Dan Kline  15:28  Is some of that just that public companies have to grow at all costs? We’ve seen this in streaming. Now, if you’re Apple, if you’re Disney, you can throw an endless amount of money, you don’t have an immediate pressure to make money. But if you’re anybody else, you’re throwing away hundreds of millions of dollars and even throwing Apple in. Nobody watches the Morning Show. Like maybe some people are watching Ted Lasso now, but even that I think is probably very overhyped. That’s kind of what’s happening gambling, right, like Caesars just throwing money at like Trey Wingo and, and Kenny Mayne and, and who knows, you know, probably you’ll get Adam Schefter over there at some point. And then you have all those big bonuses. Is this just a gold rush? A little bit like, remember all the poker advertising? Like, I don’t know, what was that like, a decade ago? Is this just destined to burnout?

Greg Kajewski  16:13 We’ve debated that a lot. I think, you know, the reality is, I had the chance to live in London for a couple years and see the betting landscape there. And I think the way that they’ve allowed for it to be kind of ingrained into their sports and ingrained to the community in a healthy way, which I think is really cool with our platform, as well as we want every user on our platform to win. It can’t actually occur, but we don’t have a financial risk against them, like other, you know, items in the industry.

So I think when you look at the community aspect, you look at kind of those I forsee, when you go to a game, you know, you’re going to be able to, you know, place a bet on your phone, you can look at that first quarter opportunity. And then obviously, you can take your winnings, and you can, you know, do different interactions at the game that I think will be very innovative and very cool in the future. So there’ll be some a little bit of burn, but I think it’ll be here to stay to kind of change the way that people game and experience, the environment.

Dan Kline  17:09  Let me ask a follow up question. Because the gaming experience in England is incredibly different. You can bet basically everywhere. And you can bet on really silly things, albeit at pretty small amounts, like you know, what color laces will so and so wear. Do you think that’s what got where we’re going in the US that at least in a lot of states, it’s like seven elevens have betting kiosks or it’s ubiquitous on our phone, because that feels dangerous to me as someone who likes to gamble.

James Seils  17:33  Yeah, I mean, I think so. Right? Like, you’re gonna, if you have success in one spot, you’re going to, you know, given an inch, take a mile. So we will probably get to those points, I think, you know, we have at least the ability to look and see what happened over there and learn from it and do it probably better. Especially with responsible gaming and social responsibility behind it. Just to give you an example, our biggest one of our biggest core values is around social responsibility and responsible gaming. So even in our platform, we set limits, you can set your own limits, you can do all of those things that help you keep yourself in check. And I think as the industry grows, that side of it will grow as well. And I think you know, it will be pretty pervasive in those spaces. But hopefully we do it in a responsible way.

Dan Kline  18:29  So one of the dark secrets is that Vegas doesn’t make a lot of money in gambling on someone like me. Somebody who goes and plays a few hundred bucks a night of blackjack, maybe throw some money in a slot machine places, a sports bet or two. They make money for me when I go to the steakhouse, or when I think I need a sweatshirt and I buy an $80 sweatshirt at the Cosmopolitan. I’m not saying I did that. But I absolutely did that. So what is the future of companies like yours and maybe the sort of commoditize world of betting everywhere? Is it the five and $10 bet? Is it just the person who just like, is really treating it as fun as opposed to the guy like me who actually thinks he knows something? Which history would say I don’t but I still think I know something.

James Seils  19:11  If you if you take our revenue model, right, It’s not about how much you bet. It’s about how often you come back. And it’s very similar to Vegas, right? Like, you can go there about five bucks. But as long as you’re coming back every year, year after year, you’re you know, you’re at the restaurants, you’re doing that. It’s the same as us. We’re selling advertising on our platform, we’re partnering with influencers, that one eyes want, you know, clicks and all of that. And so, you know, if our revenue model is the one that continues to take off, and yeah, I think you’re right, it’s not really, it doesn’t really matter if you’re a pro better versus a casual better, as long as you’re coming back day after day, then we’re making money in the industry.

Greg Kajewski  19:52  And with that as well. The fact that you don’t have the fees, you’re now able to win it 50% of the time. It is essentially a coin flip that you’re able to keep coming back more frequently you’re not, you know – you place 20 bets, you’re down 5% at a whole unit, a whole bet. But with our platform, you’re obviously still at 50% If you can pick that. So those casual betters they keep coming back more and be able to, you know, have a better experience.

Dan Kline  20:18  How do you protect your audience from let’s call them sharks. We saw this in the daily fantasy space where I go in I I’m having fun, I put my 10 bucks in, and I’m actually playing against a guy with like an algorithm and a supercomputer. How do you stop me from like making my $50 bet and coming up against like a super villain who’s gamed the system?

Greg Kajewski  20:38  You want that one or should I take that.

James Seils  20:38  Yeah, I guess Sure. So. So the daily fantasy stuff is more light for that type of model, right? Because when you look at you know, you’re drafting whatever 10 players and there’s a lot more going into the one individual competition. From our end number one, we only allow, so we do KYC procedures. So you can’t sign up with a bot, you can’t sign up with two different people. So at the end of the day, the prices are very transparent. And so if you look at MGM got minus 110, and ours is minus 100.

I mean, you may be competing against a Todd Furman or pro better, but you know, the price is competitive. So it’s not like you’re doing some of this dark algorithmic logic behind the scenes to create a lineup. You’re buying the Vikings at minus 110, you’re picking them to win. So it’s less right for that I we do have controls in place around market activity, and whether you’re doing things like the house or something to stop people from doing that. And that also helps with that, as well.

Greg Kajewski  21:47  And the sharks really drive market activity, too. So if you think about a stock market, if I’m buying from a large investment firm, and my stock comes from there, that’s okay, then, you know, we have different opinions on what’s going to happen. But it’s very healthy to make an efficient market. With that.

Dan Kline  22:02  We’ve also learned in the past couple of years that the stock market can be manipulated. I mean, we, you know, I’m not going to debate the merits of AMC, or GameStop. But there was some clear manipulations going on with those stock prices, which obviously can happen in the sort of shady corners of the sports betting world. It’s not happening when you walk up to Caesars and put your, your 100 bucks down. Last question for each of you. And Greg, you can go first, what are people getting wrong about sports betting as an opportunity in the US?

Greg Kajewski  22:31  Yes, so I think there’s really a couple different, you know, sides to this. And I think I’ll take the first one, I think James probably has a different spin on it. But when you look at the companies that are you know, out there, from a sports betting standpoint I touched on a little bit earlier, is really sit back and think about the user experience and make sure that as you look at online experiences, re envision what that can look like and allow for opportunities for users to have that social environment to allow for you to follow.

So if I’m, you know, following 7Investing picks or recommendations, I have that social interaction. I can see in your guys’s emails, when I log in what that is. Our platform allows me to do that all within one place. So if I’m following Dan, who’s really good at sports betting, I can say hey, I like Dan, I want to back what he’s doing. I want to be doing and create that completely different environment. I think that very few companies have looked at that experience yet and said, How can we reinvent that? How can we do that? I think it’d be cool to see as we continue to grow, how people take that and use that for the next level.

James Seils  23:34  Yeah, and I hinted on it before, I think, you know, it’s an industry that’s made money in the individual way. And it’s continuing to double down and bet on that way of making money. And that’s through, you know, risk management positions. And that big that hole, right. And so, as you’re looking at where the industry’s going where all this money is pouring out, it’s doubling down on that. Where I think it should be going is more on how do we benefit the consumer with education, give them money back, but then when it 50.01% of the time versus 54.

And then make money in different ways innovate revenue around how, you know, financial services companies are, how retail companies are, how social media companies are, and we’re not seeing that as much in the sports betting space. And I think we will, but you know, money’s still pouring into those giant signup bonuses and giant marketing budgets and in getting the 25% Hold on these parlays. So that’s where I think you know, where our platform will help maybe steer the ship to a better platform for consumers.

Dan Kline  24:43  Let me ask a quick follow up here James, are the Caesars and MGM and really everybody in the current space I guess this includes the Daily Fantasy guys because there’s they are using that model. Are they being disrupted and they don’t know it? Like is this a case of like the cable industry which did not take streaming seriously, you know and acted like a monopoly for a really long time. Like, I see Caesars as a customer taking perks away. That doesn’t do great thing for me when it comes to like not looking for other platforms. Like there’s a point where Oh, wait, you’re not reopening the lounges in Vegas like, well, maybe I don’t care about earning my loyalty status, like, is there just like sort of a blindness because we’ve seen that in a lot of industries?

James Seils  25:24  I think it’s possible. I don’t think it’d be nice for me to say that they’re not seeing this. But I do think it’s possible, right? You look at, like how much, you know, operating costs, and all of the things that they’re blowing up from marketing and everything, it’s going to be very hard for them to all of a sudden, turn off a major revenue driver and compete with someone who’s doing it in a different way and as long as the education comes and consumers realize that. So I think maybe it’s not blindness, maybe a blind spot, but I do think it will cause them to ship and it likely will be pretty expensive.

Dan Kline  26:04  Greg and James, thank you. I really hope my Caesars host is not watching this. I will be in Vegas November 7 through 11th. And my room is dropped and I’m pretty sure I have a suite so I hit if you’re watching this. No, I’m kidding a little bit. I think we’re at a big time of disruption. I’m looking forward to seeing it. I’m looking forward to see how you guys do because it’s a really interesting idea. If you would like to get in touch with us it was very easy to do that is info@7investing.com.

If you want to follow us on social media, that is @7, that is the number seven, Investing. We were on social media on Twitter quite a bit. We’re always happy to talk to you. And of course if you’d like to become a member, it is 7investing.com/subscribe. Thank you to JT Street behind the scenes. Thank you to Sam Bailey who set this up. Thank you Greg, thank you James. We will be back on Friday.

 

 

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