today gaming america will be speaking with lloyd dantig the managing partner at sharp alpha advisors he runs a venture capital firm that is involved in the sports betting industry so we hope to learn about this vital segment of sports betting thank you for speaking with us today mr danzig thanks a lot for having me happy to be here quite all right uh first question i want to know sort of about your background and how you wound up in venture capital in the sports betting sphere please so i have a background both in finance and in engineering spent most of my career either as an investment professional on wall street and also a bit as a data scientist personally i've always loved and been enamored by the business of casino gaming and sports betting first of all the math uh that allows the industry to work the way in which the law of large numbers ensures that the house wins over the long run without any certainty as to day-to-day outcomes was always something that enamored me and then personally to this day i owe most of the richest social relationships that i have in my life to fantasy sports leagues march madness brackets master's pools uh people that i bet against bet with on sports on video games things like that and so uh the repeal of passport uh i was a bit in the right place at the right time to find a space that really allows my passions and and skills to overlap quite nicely so uh a bit of good luck uh and a lot of uh uh a lot of experience personally with sports betting fantasy sports and online gaming is what brought me here cool cool uh i'd like to ask about a bit about sharp outside advisors would you say what would you say is the sort of mission of the uh of the company yeah i think you know the one-liner is is that we specialize in in sports betting and real money online gaming uh overarchingly my macro thesis has been based on what i perceive to be a convergence of all the things under this umbrella that i refer to as competitive entertainment competitive entertainment is any form of fun where winning and having skin in the game is what you derive the utility from and so that can be playing sports watching sports betting on sports playing video games betting on those video games betting on professional video game players peloton races peloton races for money every sort of you know iteration of things under the sun and also and adjacently collectibles merchandise ticketing um and so especially since the repeal of pass but my view was that there was a great opportunity for early stage companies to bridge the innovation gap uh that would need to be bridged in order to allow the interoperability of all of these different currently adjacent revenue streams and sectors and fortunately since passport in the last roughly four years that has been validated to a degree by the plans of companies like draftkings which are rolling out nfts and tokenized experiences fanatics which is trying to offer a one-stop shop for betting and ticketing in merchandise uh and we continue to invest in the companies and founders that we believe are are building the infrastructure uh the picks and shovels of the competitive entertainment gold rush if you will sure sure uh i had a quick follow-up question so in one of these interviews before i talked to a man who was convinced that uh esports betting was going to overtake traditional sports betting in a matter of years two years uh what would your response to that sentiment be i don't know about overtaking uh traditional sports betting perhaps overtaking the handle of some individual uh sports uh certainly i don't think you know nfl nba mlb nhl combined would be would be easy to overtake and undoubtedly right now esports betting is is a lot more popular overseas than it is in the us and so adoption has not been quite as fast here but this is absolutely something that i am extremely extremely bullish on uh there's a long-standing mantra among people who focus on technology and venture capital investing where you look at what the youngest possible cohort of users is doing every day and what type of content they're consuming in games they're playing and especially if you're investing with a five to ten or longer year time horizon you project that forward and so what are most kids doing now they're growing up playing roblox and minecraft and watching video game streamers rather than you know conventional linear tv broadcasts and so i absolutely think that esports betting including in the us where adoption has not been quite as steep as perhaps in europe and even more so asia there's no doubt that is on the rise but i would pause before going as far as to say i think it will completely overtake traditional sports betting and the other thing i would add on is that there also was a lot of interest in adjacent or similar types of betting users recreational video gamers being able to bet on themselves being able to bet against their friends being able to bet on the outcome of games being played by popular streamers that aren't necessarily in professional tournaments and i think if you add all those categories if you encapsulate all of that that is something that i could perhaps see starting to rival the handle level seen by traditional sports betting interesting interesting um okay well back to sharp alpha advisors thank you for that um my next question is about the sort of companies you choose to invest in i was wondering by what criteria you uh you sussed them out and how do you you know how do you choose where you're gonna where you're gonna invest your money into you know especially at the early stages um what you're really doing is making a bet on the team and the founders more than anything the original netflix pitch deck talked about delivering dvds in the mail and certainly that's not the product that actually made those investors their money and so really you're looking for billion dollar founders more than billion dollar companies per se now of course part of what it means at least in my view to signal that you are a billion dollar founder is being able to articulate the compelling solution to an important problem that you are uniquely qualified to monetize at scale and also why now is the best possible time to solve this problem um and so i think those are some of the core things we looked for along with the founders vision being parallel and congruent to our macro thesis for how things are unfolding uh and then lastly because of where we're positioned in the industry i'd say it's a good time to be a strategic value-add investor in the space there's a handful of us that fit that criteria uh we really try to be very selective and do deals where we have the opportunity to add a ton of value and can help de-risk the company ourselves because of that and because of we will we expect and we do have such close relationships with the founders and founding team we also uh you know look for people who we enjoy spending time with and uh and can you know see ourselves in a 10 plus year day-to-day working relationship with um on the slack channels uh of a lot of the portfolio companies i invested and so all of those things uh but really the the core commonality to all those answers i just gave is uh it's about the founder uh and the team but of course part of what inspires confidence in a founder and team is the way they articulate their business model and the traction that they've had to date mm-hmm sure sure uh and i was hoping you could tell us a few of the uh successes you've had in terms of companies you've worked with so far yeah um you know uh i've had a number of successes that that came at least in part from being in the right place at the right time uh betcha is a company that was just acquired by vivid seats at the end of last year i mentioned that our macro thesis is a convergence among things like ticketing and sports betting vivid seats is a ticketing company betcha was a sport is a sports betting fantasy sports company they have now combined and so not only was that a financial success it was a great validation that companies would be exiting for exactly the reasons that that we expected them to uh another great success that that we've had is along the lines i was describing in regards to other forms of esports betting there's a company called players lounge that has raised money from all fantastic investors y combinator samsung comcast courtside ventures griffin gaming partners and they are i believe the number one platform for peer-to-peer esports betting for video game way drink me playing against you in fifa or nba 2k for money uh and now are the pioneers of peerless wagering betting against the house on your own video game performance and so they have some pretty big announcements including their series a announcement coming up soon uh and that has been just a tremendous success on the traction side really i'd say what what the the biggest success for us has been has been steering our brand as sharp alpha into a position where all the top entrepreneurs and companies want to work with us come to us first often before they're even raising money and allow me to structure my day where i'm spending my time talking to people i enjoy talking to having conversations where i come out of them with more energy than i had going in and if you could set up your whole day with only conversations that you actually result in in increase of your energy and capacity uh it kind of makes all those calls almost like something you're getting paid for even if you're not because you're you're paid in the energy that you then have to go work on whatever else is needed but you know as mentioned betcha was an early exit and success for us uh and players lounge has been one on the traction side we have a whole host of portfolio companies listed on our website all of them are moving up in a very northeasterly up and to the right uh direction on their core traction metrics so fortunately uh we've been good at picking so far and and the market has treated uh the companies that we've invested in quite well today super to here um next sort of moving on uh to picking your brain about the industry less about uh sharp alpha i was wondering uh if if in sports betting you sort of detected any macro trends that are currently affecting uh you know how the whole industry looks at the moment yeah uh a number of important trends are at play certainly in the last six months or so not just in sports betting but in all high growth areas valuations have pulled back uh revenue multiples have compressed significantly in part due to sentiment in part due to rising interest rates in the background economic environment and in part due to specific concerns over customer acquisition spending and what the path profitability for these companies looks like and that certainly has ricocheted threw the public companies back into the private markets but within that trend i think what is also happening is we're noticing a dispersion a widening gap especially in the u.s between what you might call that the haves and the have-nots there are relatively few number of operators that command the overwhelming majority of the market share in the industry and not only that they tend to have the best most easy to use products with the largest menu of betting options and and the best rewards programs and the most satisfied customers whereas the companies with less market share tend to be on the other end of that spectrum and from there you get this self-fulfilling prophecy where companies that have significant market share use their resources to build the best products those products attract more and more customers which increases their market share which increases the resources they have to put back into the product and acquire more customers whereas the flip side is the case for those on the other end of the spectrum and so although there probably are a few select operators that will find their way into a niche sort of regional local non-national or international presence uh and figure out the best way to monetize maybe a combination of online and brick and mortar assets i think we are starting to see a real separation between the brands that will be around for quite a while uh and those that you might not hear from uh so much anymore going forward and i think those are uh some of the key trends that i see from a macro perspective in the space interesting interesting uh what about uh specs the special purpose acquisition companies do you see do you see that do you think that they will continue to be a force in the industry in the coming years so specs are especially well suited for high-growth forward-looking high-margin companies that maybe haven't had as much traction as they would like in the past or are relatively new and nascent companies and therefore didn't have the time to generate that traction and the reason for this is that when you raise money for a spec you primarily raise as you do with startup based on forward-looking projections and pro-forma revenue for the next three to five years whereas in a traditional ipo you're generally looking more at historical data and so that's one of the reasons why the sports betting industry attracted so many specs that raised capital specifically to target the space because it's a nascent industry with companies that have the majority of their growth trajectory ahead of them in the recent let's say six month pullback in public company one of the impacts has been that it is much harder today to go out and raise a stack for the first time and say i need x dollars to fund a blank check acquisition in the sports betting or sports media and entertainment space in part that's because of the state of public capital markets and in part it's because a lot of the specs that excuse me people have heard of and have heard announced have yet to find their target and consummate that business combination and so my answer is that i don't know if it's the best time to be going out and raising a brand new spec targeting sports betting there are a number that have the money in the bank and have been looking at and are continuing to look at various prospects what likely will happen is at least some of them will pursue what you might call non-traditional business combinations the typical spac deal is essentially taking one maybe two in the case of let's say draftkings and sp tech companies public but really it's just a route to an ipo you're usually selecting one company and taking that company public through the spec what i think you will see is at least some of these sports betting specific specs will take more of a roll-up strategy where they buy five or ten smaller assets combine them together use management team experience to realize synergies and sort of repackage some of the core competencies of those five or ten businesses and then combine that with now public liquidity to grow the company a bit more and eventually package it either for a sale or for for something of that nature so i think it's an interesting time uh specs unquestionably were disproportionately magnetized toward the sports betting space and i think for some a good reason but a number of them now are in a bit of a precarious position because of how valuations have moved compared to the time when their investors gave them that money for that blank check acquisition well speaking of that precarious position and what you talked about before uh about operators sort of consolidating or you know getting getting their smaller number of operators getting a bigger share of the pie uh i was wondering about the possibilities for future uh companies coming into the coming into the uh industry do you see uh i guess two questions here do you see uh a new kind of company a new a new area that needs to be filled uh that hasn't been filled yet and if so because you're in venture capital uh are there any companies that you think will be you know exploding in the next year that perhaps aren't as well known right now yeah so i think on the b2b side there's a there's a ton of opportunity we're talking about esports betting well obviously in order to have esports betting you need to have esports odds providers and risk and trading teams and data providers and providers of data visualizations that show people who don't have a live view of the match what's going on in that match infrastructure that has been well developed for traditional sports but not so much so for esports there's a handful of companies that are pursuing uh exactly that grid bays uh odin and panda score are the four that come to mind that are in the sort of sport radar genius sports of esports kind of category and and i think there's a there's a litany of examples of gaps in the market that draftkings fanduel bet365 are not going to solve themselves but we'll rely on back-end providers for the b2c answer to your question it's a lot more difficult uh for a new entrant to compete with fking's fanduel mgm caesars especially on customer acquisition spending on navigating and dealing with regulatory burden on paying and achieving and securing market access and proper licenses but the prize is so significant the end customer is so valuable the ltv of the end users is so large that it incentivizes a number of companies to try this i think uh you are going to see a number of specialty b2c operators fantasy sports and sports betting just for motorsports fans for mixed martial arts fans for esports fans perhaps over time those end up getting rolled up under a multi-brand strategy which is something we've seen the europeans do uh quite well and then you will have a few companies that are going directly after draftkings and fanduel's market share and trying to have a more intuitive curated customized personalized interface uh i expect that you will see at least a few attempts uh on the b to c side at something like a micro betting only sports book or micro betting and player prop only sportsbook that really caters to that sort of entertainment seeking and social better and maybe is built more natively and interoperably with other media experiences and social experiences so it's it's a really exciting time even though the existing market leading apps certainly have come a long way in the past four years since passport they still very closely resemble the products that you see in the uk in europe and in australia where we imported all this technology from but the u.s betting populace the core customer here is is quite different from other places in the world and has a number of really unmet needs and preferences that perhaps it will be up and coming startups and growth companies uh that figure out how to solve what would you say are some of those uh us specific needs i i think yeah so i think that the biggest difference between us the average u.s sports bettor consumer uh and let's say that of the uk or europe where we have imported technology from is the emphasis on entertainment value and often social value your average draftkings customer is psychologically whether they realize it or not classifying their deposits as entertainment expenses not from capital not as capital investment from which to earn an roi whether they realize it or not your average draftkings customer never expects to make a withdrawal from their account and that's because what they really are doing is paying for a shortcut to having something to root for tonight and some skin in the game they're paying for instant membership in the fraternity of people who place that same bet and can all complain together if it loses at the last second in some terrible bad beat or who can rejoice together uh if that if that bet wins and uh are paying for the social camaraderie and competition that comes from betting with and among people you're in the same physical location as or engaged with socially uh and if you i think you know really want some evidence of this look at a william hill or i guess now they'll be run by 888 betting parlor in even the nicest part of london and it's kind of you know similar to an atm vestibule which is very transactional in nature they're meant to get in place your bet and get out whereas a las vegas sports book is a place where for many customers the odds are the least important facet of the entire user experience because it's a party it's a place to see and be seen it's a place to hang out with your friends to socialize to to experience the ultimate sports bar that a sports fan could ever experience and so i think the big unmet consumer needs and preferences that in many cases early stage companies are better equipped to address are exactly these removing friction from the process removing decision fatigue from the process enabling people to more efficiently and intuitively figure out and use these apps to enhance their social and entertainment focused sports fan experiences sure yeah it's pretty interesting insights there um i just have one more question which is uh back to sharp alpha where do you want us where do you want to be as a managing partner of sharp alpha advisors where do you want to be in about 18 months time would you say yeah hopefully in relatively the same place but with companies in the portfolio uh having been marked up to be worth a lot more because they have you know raised future financing at higher valuations and gone on to develop and secure the traction needed to justify those uh and you know we had to turn away uh quite a bit uh of money quite a lot of investors we had a hard cap that we set on the size of our fund once we hit that uh you know we did not admit any new investors of course the irony and psychology of fundraising is that the moment you tell people you're not taking any more money that's when everyone wants to give you money suddenly uh and that's just investor psychology for you uh but we're now at a point where we have so much deal flow uh and there's there are so many prospective limited partners uh that that want us to manage their capital uh that will be opening up another vehicle in the coming months to take on some of that capital and probably announcing it roughly let's say 18 months from now if i just look at typical fundraising timelines so hopefully if we talk again 18 months from now the companies i mentioned today and the companies on our website today uh are all doing quite well and a number have exited uh and we're well into the process of of getting our next fund up and running and out the door well happy trails i wish you luck on that all right thanks a lot thanks for having me yeah this has been lloyd danzig speaking to gaming america he's the managing partner of sharp alpha advisors thank you you