Seeking to raise the game for sports betting
It’s officially time for the Consumer Electronics Show (CES) to kick off in Las Vegas this week, which means we’ve all made it through the holiday season and are ready to sprint into 2020. I’ve found that attending CES is an amazing way to begin the new calendar year. If you haven’t attended before, I’d highly encourage you to do so in the future. CES hits on so many critical themes that interest me. Every year, consumer brands debut their highly-anticipated electronic products to the masses, while also showcasing cutting-edge streaming applications, self-driving technologies, esports competitions, new video game titles, and much more. It’s a great glimpse at what’s coming next and a perfect place to discuss emerging trends in technology and media. If you’re attending for the first time, you must spend an afternoon walking the convention floor to truly understand the scale of the event. Hundreds of thousands of industry professionals attend looking to network with new business partners and potential clients. I love how increasingly relevant professional sports are at CES too. This will be my fifth straight year attending CES, but my first time speaking at the conference. I am looking forward to participating on a panel titled ‘Tech has Changed the Live Sports Experience’ on January 7th from 9:30am to 10:15am PST at the Aria. The panel will be moderated by Taylor Bloom, CEO of SportTechie, and will also feature participants including Skarpi Hedinsson, CTO of Sofi Stadium and Hollywood Park, Gayatri Sarkar, a Partner at Hype Capital, and Karri Zaremba, Founder & COO of Venuetize. Hopefully we’ll see you there.
With Las Vegas as a backdrop, I am reminded of an experience that touches on one of the hottest topics across the entire sports, technology, and media worlds: sports betting. Right around this same time last year, myself and other colleagues from Monumental Sports & Entertainment were meeting with potential partner companies that could build out a future sportsbook operation within Capital One Arena by 2020. Our visit to William Hill’s U.S. headquarters was an eye opening one. As we walked into their offices, it became increasingly obvious how buttoned-up and professional of a business William Hill operated in the desert. This did not feel like a stereotypical sportsbook. This felt more like a trading floor that you might find in an eighty-story skyscraper that overlooks Wall Street in New York City. Nearly all employees wore suits with ties and featured job titles like ‘Managing Director of Sports Trading’ or ‘Chief Compliance Officer’ or ‘Director of Information Security.’ The office featured rows upon rows of desks, each equipped with nearly a dozen screens that varied from green and yellow numbers scrolling across a black background to actual live sporting events that were taking place live across the globe. These desks looked like Bloomberg terminals. Suddenly, we heard about a large bet that had come through one of their physical sports books. The trader in charge of this desk confirmed the identity of the bettor using previously produced registration documents (and sometimes facial recognition), reviewed their previous betting behavior and customer profile, went through a final compliance check, and then approved the transaction. Frankly, the experience was yet another data point that confirmed what we had already learned: legal sports betting operations are far more professionalized than most people would think. They are tremendously sophisticated businesses, operating under highly-regulated conditions, leveraging big-data to create world-class product offerings to casual fans and hardcore bettors alike. Operators like William Hill manage tremendous databases where they closely monitor individual betting activity and lockout problem gamblers. This high-end and secure approach is part of what will power the William Hill Sportsbook within Capital One Arena in the not-so-distant future. None of this happened overnight though.
We were first exposed to the world of sports betting in 2015 when Revolution Growth, where my father is a founding partner, made a significant investment in Sportradar, the leading data provider of real-time sports data to media networks, sports leagues, daily fantasy platforms, sportsbooks, and more. Sportradar is an impressive business to say the least. Founded and headquartered internationally in Switzerland, but now also with a U.S. based headquarters in Minneapolis, Sportradar prides itself on several defining characteristics that were shaped by both the needs of European regulators and bookmakers. To start, Sportradar provides its customers with zero-latency data feeds that feature the utmost accuracy possible. The founders and c-suite at Sportradar are obsessive over this because it is so critical for satisfying bookmakers as they issue payouts to customers, offer in-play (real time) betting opportunities, or pre-game betting products. Once you’re in the business of handling and processing real currency, there is very little margin for error before you run into real legal trouble. Unlike other data providers that might have a couple minutes of lag time between when a scoring change actually occurs and when it appears on your data feed, Sportradar cannot tolerate anything less than a few seconds of lag because the European betting markets are just that demanding.
The other impressive feature that Sportradar can truly pride itself on is its integrity services where the company leverages hundreds of millions, if not billions, of data points to spot potential match fixing and other illegal activities, in coordination with local authorities. Impressively, Sportradar can compare individual data points from specific plays with historical performances from the same or similar players, teams, and leagues. The company then layers this data on top of real time activity in the betting markets to spot potential illicit practices, illegally coordinated betting patterns, and other anomalies that the data points out as a red flag worth investigating. Sportradar has literally worked with leagues and local authorities to prosecute and jail criminals that think they can cheat the system. They are a remarkable company and an amazing business that we are proud to associate with as investors particularly as sports betting comes online in parts of the United States. Ultimately, the integrity of our sport is what matters most. Sportradar taught us that it makes no more sense for an ostrich to stick its head in the sand when it fears it’s in danger than it does for the United States to not regulate a domestic black market worth hundreds of billions of dollars annually run by unsophisticated criminals that certainly don’t pay taxes and have little care for the well-being of American citizens.
Without Sportradar, my father and I likely wouldn’t have thought much about European betting markets. My sister now lives in London, so we have made numerous trips over to the United Kingdom to visit her. During a few of our previous visits, my father and I made a concerted effort to learn more about how the British felt about sports betting. Did they feel like sports betting was a problem for British society? Did they feel like it was appropriately presented? Did sports betting improve their fan experience? Was it a market that was manageable for leagues, teams, players, and fans alike? What we discovered was incredibly instructive as to how sports betting can appropriately fit within the modern sports experience. Not only was the idea of sports betting not taboo the way it has been here in the United States for decades, it was a totally normalized and regulated component of the game day experience.
I was amazed one time as I walked into a Starbucks in London and started reading the front page of that day’s issue of The Guardian while waiting in line to purchase my morning coffee. While we had been visiting, Prince Harry had proposed to Meghan Markle. As you can imagine, a royal engagement is an enormous point of pride for the British and joyous celebrations accompanied the headline news. As I read the article, I was stunned to notice that the third paragraph featured a line that I’ll now paraphrase: ‘Bookmakers officially closed betting opportunities on when Prince Harry might be engaged at 3:47pm in the afternoon, only minutes after the news was officially confirmed by representatives of the Royal Family.’ ‘Wow,’ I thought. ‘Did I really just read about a betting opportunity within the first three paragraphs of a headline story, written in one of the most respected newspapers in the U.K., and on a story that involves the highest cultural office in the land?’ I couldn’t believe it! It was a moment of realization for me however. Betting was mainstream and culturally acceptable in the U.K. because European regulations worked. These regulations carefully and effectively preserved the integrity of betting opportunities, while also managing issues that can arise from problem gaming. Again, betting wasn’t treated like a bogeyman. Sports betting was treated as a sophisticated platform for trading. It was a platform that drove incredible engagement and enhanced the fan experience in stadiums and in sports bars alike.
When you visit a European football stadium, you’ll be amazed by how integrated sports betting is within the larger fan experience. If you’re sitting in a suite, you may be approached by a betting analyst and asked if you’d like to place a bet on the match before a waiter stops by to ask what your drink order might be. Betting kiosks are easy to find and you may even find some with a view of the action so you can more easily place an in-play bet and watch how things play out in real time. In this mature betting market, roughly 80% of betting activity is based on in-play opportunities as opposed to pregame opportunities. In the United States, this ratio is roughly flipped in the opposite direction. I predict that as sports betting comes online in over thirty states across the U.S., and as the American market becomes more familiar with how sports betting works, we will see in-play grow closer to the European gaming ratio.
If you watch matches on television in the U.K., you’ll likely come across Sky Sports which features services like Sky Bet that easily facilitate transactions from the comfort of your couch at home. The importance of ease of accessibility to legal betting transactions is of critical importance as U.S. regulators seek to take away market share from the current black market. If legal betting channels are more challenging for customers to use than illegal betting channels, then you can bet that the bad guys are going to win. U.S. regulators need to develop regulatory frameworks that capture as much of the market as possible so that they can protect more American consumers, drive more tax revenue to fund education systems and other programs, and build an appropriate system that keeps the market under control. We can debate whether the U.K. approach is too aggressive or not — I can tell you that I personally don’t agree with all of it — but I think it is quite clear that a legal and regulated market is still better than an illegal and unregulated market. We can use the U.K. model as an example to build an even better model here in the U.S.
It’s now been over five full years since Adam Silver penned his now famous op-ed in The New York Times titled ‘Legalize and Regulate Sports Betting.’ It was a landmark moment for the industry and an enormous statement made from one of the most influential people in all of sports. The commissioner was direct but eloquent when he wrote that ‘despite legal restrictions, sports betting is widespread. It is a thriving underground business that operates free from regulation or oversight. Because there are few legal options available, those who wish to bet resort to illicit bookmaking operations and shady offshore websites…times have change since Paspa was enacted. Gambling has increasingly become a popular and accepted form of entertainment in the United States…’ Prior to the Supreme Court’s repeal of the Professional and Amateur Sports Protection Act of 1992, better known by its acronym PASPA for short, the U.S. market had quickly grown accustomed to gamified experiences tied to live sporting events. Even though sports betting, described as a ‘game of chance’ was still illegal in forty-eight states, ‘games of skill’ like fantasy sports were legal in mostly all states. The rise of season-long and daily fantasy sports did not happen overnight either, but companies like DraftKings and FanDuel took the market to new heights. These fantasy sports titans drew immense criticism as they flooded the market with advertisements as they battled over online market share. Revolution invested in DraftKings in 2016 because even though the fantasy market had faced some down times, these companies had effectively lobbied for laws that defined their operations as a legal game of skill as opposed to an illegal game of chance in most of the fifty states. That was an impressive feat that provided those firms with a crash course in American state-by-state civics, while also allowing them to build an impressive database of customers and build an incredibly consumer friendly brand. Since PASPA’s repeal, DraftKings has obviously emerged as a leader in online sports betting now too. They’ve worked on a state-by-state basis to apply for official sports betting licenses where applicable, most notably in New Jersey. Two weeks ago, DraftKings announced that they will merge with SBTech, a notable sports betting technology firm, and together will sell to Diamond Eagle Acquisition Corp., a publically traded SPAC. It is an incredibly exciting time for DraftKings.
In 2017, we invested in a real time game of skill platform called WinView. Having already had exposure to sports data, daily fantasy, and sports betting, we believed that making a venture capital investment in a start up like WinView would strategically broaden our reach in the space. WinView holds an impressive 65 patents and counting that relate to real-time synchronization of questions to live sports and entertainment events shown on television. Shortly after Thanksgiving, WinView announced that it was part of a three-way merger with Frankly Media and Torque Esports that would combine to create a new company called ENGINE Media, a new network focused on esports, news, and gaming. We’re very excited to watch ENGINE Media grow and leverage its real time gaming functionality.
That brings us to today, where we are excited to help chart the future of sports betting in the United States. Today, nearly twenty states have introduced or passed bills to legalize sports betting. It is projected that another ten to fifteen states will do the same in 2020 and 2021. Leaving the future of sports betting in the hands of individual states as outlined in the Supreme Court’s repeal of PASPA makes things complicated as each and every state has their own distinct nuances and various constituencies it needs to satisfy. We are fortunate that the District of Columbia is one of these first movers. D.C. has officially voted to legalize sports betting. Is the legislation that passed D.C.’s city council perfect? Of course not, but few things are and this is still certainly a step in the right direction. D.C. deserves credit for introducing and passing a bill prior to its neighbors in Virginia and Maryland as it will most definitely attract increased tax revenues from Virginia and Maryland customers who travel into the District to place a legal sports bet. We expect that our official sportsbook partner, William Hill, will be the very first sportsbook operator to operate a restaurant and sportsbook concept within an arena in the United States. That’s an incredibly exciting proposition for us to drive towards at Monumental.
In terms of the in-arena experience, we will ensure that sports betting is presented in a professional and appropriate manner. We understand that not all customers or families will want sports betting to be a front-and-center experience for them. That is absolutely fine and we don’t need you to incorporate sports betting into your game day routine if you don’t want it to be. Our hope is that this sports book will provide an upscale experience. It will not feel like a hokey sports bar. This will be a more refined venue with a premium food & beverage experience complimented by betting analysts who can educate you on how to play if you choose to do so. For those who are interested in checking out the sportsbook, the sportsbook will be an electric venue that comes alive during live games at Capital One Arena and during live events played outside of our venue as well. We imagine testing opportunities to open the arena for large viewing parties on NFL Sundays or EPL Saturday mornings. Perhaps you’d like to enjoy a PPV boxing or UFC match in a communal environment that feeds off the energy of hundreds or thousands of sports fans. There are so many possibilities that we are excited to experiment with in search of delivering the best experiences possible for our fans. Apart from full-time employees working out of our offices, our arena is mostly empty outside of live game windows. Opening our building during what would otherwise be ‘dark hours’ or ‘dark nights’ will bring new life to the arena and downtown Washington. That’s an exciting prospect for Washingtonians.
Like the European model, we will look to compliment the in-person experience with an immersive digital and linear content experience. This is why we are so proud of the fantastic work being accomplished by NBC Sports Washington, led by Damon Phillips. Damon and the NBC Sports Washington team recognized an opportunity to be a first-mover in the RSN world by rolling out alternate broadcasts on NBC Sports Washington’s otherwise dormant plus channel that focus on a ‘Predict the Game’ format. While watching twenty select Washington Wizards games this NBA season, you can channel up to NBCSW+ where you’ll see the same game feed but with additive features that include real time statistical updates on the right side of the screen and in-play questions that appear at the bottom of the screen. Viewers are encouraged to sign on to an online portal where they can play these games for free and compete in a friendly game against their friends. The ‘Predict the Game’ feed features separate on-air talent that help compliment the gaming experience. This is cutting-edge work for linear broadcasts in the United States and we’re going to continue to see more of it. For example, I was mesmerized by the data that Fox Sports was presenting during this past season’s MLB playoffs. Learning about the launch angle and exit velocity of a baseball flying off a batter’s bat when he hits a home run? Very cool. You can imagine that this will lead to more and more in-play betting opportunities with data provided to networks and bookmakers by companies like Sportradar. The NHL is actively experimenting with placing a chip in a hockey puck to gather proprietary data like distance traveled during a full game, how many times the puck is struck during a game, how fast the puck moves on average during a period, and more. The possibilities are nearly endless and data used as content within broadcasts is only going to improve the programming. These are incredible data points for developing over/under betting opportunities too. As in-play betting opportunities grow in popularity, this data will become more valuable.
Shortly before the holiday season, I wrote an article about the cable bundle and how the bundle may evolve in the future. I think there’s an important place for sports betting within a newly assembled bundle for fans to subscribe to in the future. Esports has taught us that media is not always best monetized by selling video on a PPV or recurring subscription basis. Instead, esports video is monetized via new ad technology and by selling what I’d call an ‘unorthodox bundle of add-ons’ via a one-time or monthly paid subscription. This bundle might include special keyboard enhancements, new emotes, a unique badge, a shout out from your favorite streamer, and more. Amazon Prime has proven that the most valuable bundles are often multi-faceted, featuring multiple categories of products or services. I don’t see why an alternate betting broadcast, or exclusive video with expert advice, or free play tokens, or zero-latency streaming feeds couldn’t be sold as a separate package for interested fans & bettors. At Monumental Sports Network, we are developing new original programming to rollout alongside the opening of the physical sports book. The NBC Sports RSN family has already rolled out a nationwide program called The Daily Line filmed out of NBC Sports Washington’s D.C. studios. Barstool Sports, the Action Network, ESPN, and more are also seeking to capitalize on the emerging need for expert commentary. We’re heading towards a day when sports networks will feature shows that feel more like programming found on CNBC and less like ESPN’s Sportscenter.
Speaking of esports, sports betting will become more and more relevant is this world too. DraftKings already has a daily fantasy game for Riot’s League of Legends. In a digital world, data tracking and measurement should be easier, so in-play opportunities will be outstanding. Activate Consulting recently published their annual technology and media outlook for 2020 and wrote that ‘because of the participatory nature of esports, betting is the fastest growing segment — sports related titles and games with highly complex gameplay will be well positioned for betting success.’ They go on to project that betting and fantasy esports will be the fastest growing revenue stream for the world of esports.
We aren’t blind to the fact that there will be hiccups along the way. Again, nothing is perfect and we’re certainly no exception. I truly do believe however that the U.S. market is heading in the right direction. A regulated market for sports betting is a safer market for American customers, a more favorable outcome for leagues and teams, a greater impact on individual states’ tax revenues, and a more engaging experience for our fans. I’m looking forward to discussing this and much more at CES and at future events to come this year. 2020 should be fun.
