welcome to the latest episode of the jai huddle today we're joined for the first time on the huddle by matt davey tech corp digital ceo and former nyx gaming ceo hi matt thank you for taking the time to speak with us again great to catch up tim absolutely yes it's great to have you on and i say again because it's the first time we've appeared on the huddle but we of course recently spoke for the seo special for gaming insider magazine that's right now you guys put together a great article i enjoyed it oh thanks but we appreciate the feedback and yeah it was great to have featured you there as well to start off with today um i think it would be great if you could tell us uh tell our viewers about your current ventures uh techcorp digital and techcool capital and what it is specifically they do at the moment yeah so um i i had had the luck and pleasure of building a business called nyx gaming group over a 15-year period which culminated in the sale to scientific games back in january 2018 and uh and so along fast forward to january 2019 i fully integrated the company within scientific games and then it set up my own investment vehicle and the view being how do we deploy capital into this expanding online sports betting and i gaming market with a particular focus to the dynamics of what's happening here in the u.s and that's been a fascinating experience along the way we also saw the big arbitrage between the private based investment type opportunities versus public investment opportunities and so to help kind of capture that and bridge bridge this gap we launched a special purpose acquisition company called tech or digital acquisition corp and we raised 250 million dollars in trust and we've been actively in the market now talking to private companies about going public uh our focus there is in the one to two billion dollar type enterprise valuation range and we've had a marvelous time um going through that process now so we've been actively investing we've also through techcorp capital which is my private vehicle i made a number of investments um more in the the growth equity side of things in both public and private companies and it's just been incredible to look at how many entrepreneurs are coming into the market with great creative ideas looking to solve real problems that we have here in in the us and internationally yeah certainly so it's a busy time certainly for you guys and for the online us industry overall when we spoke uh for the ceo special you told us any firms you're looking to invest in must have some kind of nexus with the us market and as you just said you kind of described sort of briefly the profile of firm you're looking at can you maybe expand a little bit on the type of profile of company you kind of might already be working with or maybe looking to work with in the future yes so um the the nexus to the us is particularly relevant for our public vehicle the special purpose acquisition company the the thinking there is you know there are a large number of fast-growing and highly innovative gaming operators and suppliers in in the global market um not all of those uh would make sense in terms of bringing public here in the us what the u.s market is looking for is yeah you might have great economics and a great business and you might have a great team but why is it relevant to me why should i as a us investor be thinking about investing in your business um and so we are looking specifically for companies that that do meet those those growth metrics that have great management great technology great intellectual property but also have a really clear reason as to why they would need to be public on a u.s exchange and typically that relates to actually running operations here in the us the good news is the the u.s market is probably the most attractive emerging market in the world for sports many operators and suppliers and gaming operators etc so we don't have much of a challenge in finding that nexus but it's important to us that it logically makes sense to put you know this kind of private company on a us exchange we're listed on nasdaq um and so our investors while they can invest in international companies they'll be looking uh for what the u.s story is um which we obviously don't think is a problem given it's got such a great great story behind it absolutely yeah that profile you you just kind of described um would you say that's something kind of all u.s investors are looking for and how different is kind of maybe that the profile of a firm investors are looking at for the u.s compared to other markets in the world yeah so i think um when we look at just the companies themselves um what we're seeing are you know two different types of businesses um really here in the u.s market we're seeing home-grown opportunities where entrepreneurial businesses or great technology companies that have been in and around the space are now looking to really tap into the sports betting market of the igami market either through supply of data and analytics or core software or even get into the operations side but we're also seeing a lot of the more mature operators out of the european markets that you know that built their businesses over the last 20 years or so look to expand into the u.s market and bring their technology and operations and skill set and experience uh into this market so we're seeing a range of different types of businesses um the the ones that probably don't make as much sense for instance let's say you're focused purely on you know the the african subcontinent for instance um you're not as relevant to the us market um as as you know perhaps a european business that has you know set up operations in 10 states here in the us so there are some limits to that but by and large and most internationally scaled operators will have some form of presence here in the us and we're certainly finding uh some very strong nexuses and you know narratives behind the u.s expansion yeah and going back to the the pre your previous answer where you mentioned kind of going public because that is obviously a key opportunity for a number of firms at the moment and obviously has been in the past uh given as you said tech digital is a special purpose acquisition company um a spac which is you know quite a common term these days but perhaps in the gaming industry a couple years back it wasn't so common um for the ceo special we spoke about the benefits of a spac against an ipo um is it fair to say a spec is ideal for a fast-growing technological company with a lot of future value whereas an ipo perhaps and this is sort of my thought so please do tell me if i'm wrong is better suited for maybe more legacy firms yeah there's an interesting quirk um in in the listing process so if you're a private company and you want to go public in the us you've got three real direct racks you've got an ipo you can do a direct listing or you can merge into a spac and the ipo the main difference in the ipo and the spac is that in in an ipo you can only talk about past revenue performance you can't describe future revenue performance and we find that most investors while they appreciate the past and it gives you some indication of the quality of the business they're really focused on what the future growth rate looks like particularly in an environment where interest rates are almost at zero investors are really looking for high quality businesses with a rapid growth rate and a great trajectory so the the stack process allows companies to merge into this backed vehicle and describe in very clear terms what their growth strategy looks like and we're seeing projections go out three to five years so that investors get a good sense as to how this business is developing from where it is today to where it can go in the future so we find um that component allows investors to make more informed decisions the second component to us back is typically alongside the actual investment of the funds inside the space so in aspect for instance we have 250 million quite often you'll find a pipe investment go alongside in parallel and that's where you bring additional investors in and that put up some additional capital and you know that could be you know another 100 million 250 million 500 million for instance those investors have qualified the uh the target as well they've gone and kicked the tires they've come to terms with the valuation and they've effectively underwritten that valuation and so that gives a secondary indication to public investors that that this business has the quality that they're looking for so we find the spac structure allows investors to make more informed decisions and get more comfort with what the future prospects of that company is and ultimately that's what all investing is it's about uh identifying the future growth rate and the quality of that business as it grows not not you know really in terms of what it's done in the past in your view does that make a spec um perhaps kind of the the optimum solution universally or are there still kind of examples and situations where you think uh spec is better suited for for this company but that company in this situation you know uh one of the other options yeah i think um it's not it's not the the vehicle for every business i think it particularly suits uh fast-growing companies that know that the majority of their growth is is in the future and that they have perhaps a limited um past um in terms of you know u.s driven results um the u.s market itself just specifically talking about the sports in our gaming market lends itself to companies looking for a spac type environment because the whole industry itself really is only two years old um and we're finding new states opening up and quarter by quarter so the market is rapidly changing and and that obviously is is putting a fire under the growth rates and because of that we're finding companies uh that have no operating history in the us for instance two years ago now have you know a trajectory of you know 200 300 400 million of revenue coming from the market so this industry in particular within the current state of the us market lends itself specifically to companies that would find spax highly attractive so we we think that's a great dynamic for us sure yeah that definitely answers the question makes a lot of sense and as you've mentioned there's been plenty of going on from a from an investment point of view and from an m a point of view in gaming in recent years um draftkings obviously went went public virus back we had fanduel being acquired by flutter caesar's purchasing william hill and um a bit more speculative but there's you know las vegas sans perhaps looking online now and people suggesting again speculation that perhaps 88 could be a good target for them um without asking you obviously to comment on specific deals like that or rumors um how do you currently assess the the makeup of the the online market right now in the us and kind of the the top players are not winners and losers but how it's forming i think i think it um to be honest a really fascinating time yeah intellectually it's it's quite the process and i find it very stimulating to think through the possible permutations and combinations so just to paint the context for you we we have an industry that didn't exist basically two years ago we now have an opportunity on a state-by-state rollout uh where we have you know north of 20 states that are licensed for online and gaming and sports betting and we think that market you know effectively drives an industry from zero to a billion dollars in gross gaming revenue today to potentially 20 billion in gross gaming revenue over the next you know four or five years so the market's rapidly growing um and that allows for a whole number of entrants into the market you know operators which have a different bank a different nuance to their approach to go to market different brand cachet for instance and different approach to how they want to run their business and and the whole ecosystem feeds a whole range of different businesses within that you know you've got geolocation businesses you've got kyc businesses you've got platform and content along with sports betting operators that are specialists in in-game betting for instance versus pre-game betting so there's a whole range with inside that ecosystem and because the market's growing so rapidly it supports a range of businesses and then the public markets are also prepared to fund those businesses knowing that the outcome is uncertain but that the the future looks pretty rosy given the size of the market so you've got that expansion you've got all of the different businesses that can fit within that ecosystem but at the same time we know that all online e-commerce orientated companies lend themselves to scale we know that the the world doesn't need to have 500 different amazons for instance there are three or four companies in the world that that effectively offer the same kind of service that amazon does so we know that that these businesses ultimately will consolidate we know they consolidate because the the larger you are the more powerful you can be the bigger your marketing budget can be the greater you can control your your advertising across a nationwide environment so we know that this expansion this massive proliferation of businesses ultimately consolidates and the funny thing is you're not going to see it in just one straight curve you're going to see it cycle through that so you're going to see large operators consolidate smaller operators right now in the next year or two and you'll continue to see that in the next you know two or three decades so we're watching that happen at the moment in this case we've seen two examples of us dominant operators look to acquire european uh partners but what my guess is we'll also see some of the larger kind of digital only us operators also start to tuck in some of the smaller operators if only for market access as well as some technology and operational skill sets so this is very dynamic it's fun to watch it's great as an intellectual process to think through and i think it will stay in a very dynamic environment for the next couple of years certainly as you say it's absolutely fascinating and you've actually touched on a question i was going to ask later so i think it's the perfect time to to jump to that one and then i'll you know rearrange your a little bit um something we spoke about during the ceo special was um was uh retail versus digital and you said you can see uh retail very much becoming the secondary channel in the long term and uh digital gaming becoming the primary channel and what you just mentioned there i was i was going to ask um long term would you say that shifts the balance of power within the industry or will land based chains still be kind of the leading players because they've either partnered with or bought the the major online businesses and you saw you started talking about that there so yeah i'll be keen to get your thoughts on that question yeah i think um i think it's a great question i think i think there's a few things let's unpack within that so first of all my operating thesis is the digital channel is a a higher quality better experience than the retail channel um it's not for every product but for the gaming for the sports betting and i gaming industry i think it is i just think that if you deliver something over the mobile phone or ipad for instance the experience itself actually is better than what you can get going to a physical casino not for every product but in the whole so and not all not all products lend themselves to that but just so happens we're in an industry where you can digitize the product and the actual experience the convenience and the quality of what you can get is better so that's step one right i think digital wins over retail from experience step two though is um historically within the gaming industry the the land-based gaming operators have had stronger influences over of regulations um as well as they are bigger contributors typically in terms of employment and that matters a lot to the policy makers within each state so they hold a strong political sway and and i don't see that changing we've seen that uh scenario play out in australia the uk europe uh continental europe and i think we're seeing it play out here in the us as well in some states for instance you cannot get a license for an online digital offering it's retail only um and and i think that there are some strong reasons from the local regulators and policy makers to kind of protect the the larger employers so i think land-based operators will have significant political clout um and i think that won't change um but that said we know that the digital suppliers and operators will have a more efficient business model they can grow more rapidly and they can be ultimately more profitable so i think from an economic perspective you'll find some of the larger pure play digital operators may be the ones that consume the land-based operators as opposed to the other way around right now we're seeing the land based operators you know do most of the the consumption in in that respect so it's dynamic again and it's nuanced and and you know i think we have to separate between the quality of delivering the the value proposition the entertainment proposition which i think lends itself to digital versus the reality of where each company sits within each state absolutely yeah very interesting again fascinating like you say how do you balance achieving the scale you're talking about versus perhaps operating uh maybe more independently and and having advantages where you're not necessarily under the umbrella of a large organization or uh so to to add on to that question uh based on what you're saying actually will will everyone kind of be consolidated anyway in the future look i think um i think um in the igaming space you can have a whole range of operators the igami model has an inbuilt profit margin um which lends itself to a whole range of different sized operators um performing really well and and having a great business sports betting doesn't sports betting is different sports betting you typically find the top three or four operands within any kind of core defined market segment as being profitable and everybody else underneath not being profitable and that's really a function of the marketing and and how specifically tied in sports wagering years to each you know market segment and so in the us perhaps i think of it in regions you know maybe super regions you've got east coast central and west coast and maybe there's some sub-regions within that and we might find half a dozen or so leaders within each of those regions that are profitable um but we will find in markets like that there will be 30 or 40 operators you know and if six are profitable you're going to have 24 or so that will be losing money so i think you'll see consolidation driven by that and i think you'll see a limited number of winners um and then typically if you if you are a market leader in your region um you you probably have a good uh bench to go and acquire market leaders in the other regions so i think then you'll see national uh type consolidation as well just because of those functions absolutely yeah um i have one more sort of uh topic to to pitch at you but just before i ask that you know the last question i'd like to thank you for your analysis so far because i think from what we've discussed uh it it's fair to say that the the us sports bank market has certainly lived up to being one of the hottest topics in the industry um so as i say my final sort of question was um what what's your take on how online uh sports betting uh and the market is is currently shaping and performing with so many new states recently launching do you think it's it's still as you say it's only two years old or so is it too early to tell long-term winners or do you think there's a lot of there's a lot of market share being gained by the kind of first mover advantage at the moment uh look i think that's a wonderful question i think um it's very easy um for people to overestimate um the strength of the current market leaders and it's very uh easy for people to underestimate um how that can change over a period of five or ten years um experience tells us that um markets take decades to evolve and that the leadership can change quite dramatically over that period of time the us is further complicated by the highly fragmented nature of the markets so you have very different rule sets very different market incumbents within each of the states um so again i think there's a lot of settling out there i don't think we have seen the top six uh today that will be the top six in ten years from now i think there will be significant changes if only from mergers and acquisitions but i think we'll see new market entrance that will also really move the dial so i think it's very early days um in terms of the adoption of sports spending you know certainly americans have taken to it with with quite a degree of force um but there is still a huge market out there that still doesn't understand what's available either thinks online gaming and sports spending is illegal doesn't know how to install you know apps on their phones haven't used their you know credit cards debit cards for instance to fund these things so there's an enormous education phase as well and i think that's going to be a tailwind with all operators in the us market um you know there were statistics in new jersey for instance after the market was operational for three or four years where 60 70 percent of citizens there still felt online game was illegal even though it's been you know legitimately licensed by the department of gaming enforcement for many years there so there's a huge educational phase to go through um and i think you know even though we're seeing great numbers being posted today that's nothing compared to what we're seeing five or ten years from now as the overall market grows and matures into this uh into this position so leadership i think will change i think what we're seeing right now is a great start and certainly got some really strong contenders between mgm and draftkings and the flutter team with fanduel etc i mean they're amazing powerful businesses but i also think we'll see additional entrants come through with with very strong and forceful positions that they can establish in the marketplace so we're to watch out for a lot of growth and a lot of change absolutely yeah that i mean yeah can't wait to see that the results of what's going to happen there's um you know you you've made it sound fascinating but not for nothing it is a very interesting topic at the moment so so might like to thank you for taking the time to give us your thoughts on this and i'm sure our viewers will will find it very very interesting thanks tim great to catch up no problem thanks again for more from matt davey you can find his in-depth ceo special interview on his life and career in gaming on gaming insider.com in the january february edition of gaming insider [Music] magazine you