John Culver, the Founder and CEO of Fanvest Wagering Exchange, speaks to USBettingReport.com about the background behind “the stockmarket of sports”, Pythagorean expectation (!), and their own fictitious currency.
John V. Culver, Co-Founder and CEO of the Fanvest Wagering Exchange, Inc.
What gave you the idea for Fanvest and how did you and your team of fellow Fanvest employees find one another?
Culver. When I quit my private banking job in late May 2017 to pursue my dream of starting a company situated at the intersection of sports and investment, I made two initial bets.
The first was that I had enough of what it takes to create, lead, and ultimately introduce a new product to a paradoxically old market; and the second was that it was more likely than not that the federal Professional and Amateur Sports Protection Act of 1992 (PASPA) — a law which putatively prohibited states outside of Nevada from legalizing gambling — would be overturned by the U.S. Supreme Court a year later.
By May of 2018, Fanvest Wagering Exchange was incorporated, and the Supremes overturned PASPA, returning the power to legalize sports gambling to the states.
After years of studying the economics, incentives, infrastructure and esoteric instruments and lexicon of the Las Vegas sports gambling ecosystem, I concluded that a more democratic, free-market oriented system had to be established outside of the ways and means of the sportsbooks in the desert. To wit, a new way to invest in sports without reliance or association with the bookmaking modus operandi.
The idea came about five years ago, when I started to apply some of the methods used in traditional security analysis to sports betting. Essentially, I began analyzing NFL teams in the same way that a financial analyst would evaluate companies in the stock market. Simultaneously, I began to break down the economics of the sports betting industry, the incentives of bookmakers, and some of the structural inefficiencies of the sports gambling market in general.
Our goal is to revolutionize the sports investment market by creating products which incorporate elements of the sports betting, daily fantasy and traditional investment markets
After defining the problem statement, I set out to create a sports derivative product, where the value of the asset would move as a result of team performance and market demand. This product would also cater to people who want to go long on a specific team, in the same way an investor goes long on a stock. Ultimately, down the road, our aim is to build a self-contained marketplace (supported by its own logic), that would allow users to trade teams like stocks (across multiple professional sports leagues) on liquid market.
I created a blog called The Intelligent Sports Wagerer (The ISW.) in August 2018. Primarily focused on the NFL, I wanted to provide weekly odds and data forecasts as well as run investment simulations, and data-driven analysis using formulae like the Kelly growth criteria.
The publication is not aimed towards the casual bettor or sports fan, but the goal was to connect with people who shared my passion for handicapping and a value-based approach to sports gambling markets. In early 2019, one reader reached out asking to walk through one of my models and potentially collaborate. That reader, Fern Murias, would eventually become my co-founder.
More from ISW:
- A New Gold Rush: Why the Vegas plutocracy is sweating in the desert
- The Stock Market of Sports is Here
- The Stock Market of Sports
- Introducing the March Madness Portfolio Challenge (our first product release)
George William James (Bill James) was a pioneer in the employment of empirical and statistical analysis to explain baseball. His multifaceted quantitative evaluation of America’s pastime culminated in a new field, sabermetrics, which James defined as “the search for objective knowledge about baseball” through the analysis of the statistical record.
At its core, sabermetrics and sports analytics in general seek to utilize mathematics and data to answer questions like what makes a team win? Other statisticians and sabermetricians have extrapolated James’ contributions to other sports like basketball, hockey, and football.
One of James’ key contributions was Pythagorean expectation, a formula originally derived to estimate how many games a baseball team should have won based on the squared ratio of the number of runs a team scored to the sum of runs scored and runs allowed scored. Luck or randomness is attributed to the variation between a team’s actual or observed winning percentage and its Pythagorean winning percentage. While other sabermetricians have made additional modifications and different iterations of the formula, its basic expression is as follows:
The win ratio was adopted and termed by the analytical sports website, Football Outsiders, as the “Pythagorean projection.” Unlike baseball’s win ratio, the Pythagorean projection for pro football often uses a modified exponent of 2.37 as opposed to squaring its variables.
Among other differences, the relatively small sample size of 16 games in pro football’s regular season, as well as the higher variance in outcomes (more randomness per game), make the Pythagorean projection historically less predictive for pro football than for baseball. Nonetheless, it is useful for predicting year-over-year improvements and regressions.
Over years of research, I sought to discover and incorporate relevant predictive statistical data to intelligently and analytically evaluate American football — what variable(s) is/(are) most responsible for team wins? More precisely, how do I economize or translate relevant statistical data into financial logic?
Is the technology for the Fanvest platform proprietary? Do you expect to see other fantasy sports exchanges popping up in competition?
Culver. Yes. Our goal is to revolutionize the sports investment market by creating products which incorporate elements of the sports betting, daily fantasy and traditional investment markets. We have years of back-tested data which underpin the pricing for our current and future products, but we do not rely on one proprietary algorithm as our “secret sauce”.
We are not the first fantasy sports exchange and we likely won’t be the last. Our goal is to provide the optimal user experience and we believe that is achieved through intuitive products and superior design. The companies who achieve long term success are the ones who understand the needs of the industry and adapt to customer feedback.
What is your vision for Fanvest to succeed as a digital exchange and mobile brokerage platform whereby users can invest and trade sports teams like stocks?
Culver. The key to running a successful exchange is a deep understanding of the importance of liquidity, clearing/settlement of trades, and for traditional exchanges, capital.
In the future, in addition to our proprietary algorithms, products, and features, we will leverage our own fictitious currency: fanbucks ($FBX) to assist in the provision of liquidity (via an exchange rate) to mitigate the traditional requirements of capital. Furthermore, we will trade alongside assigned market makers and bots to help with liquidity and clearing. We plan to create our own ecosystem whereby prices float primarily according to supply and demand.
How is your free offering, The Pro-Football Portfolio Challenge, performing so far? What do you estimate your growth potential to be in 2020 and over the next coming years?
Culver. Our decision to make our beta free was driven principally by the desire to maximize our opportunity to identify and retain qualified weekly active users (WAUs). We believe that having 2,000 WAUs, the majority of whom are returning users, is far more valuable than 10,000 sign-ups. The latter is a static number whereas the former describes engagement. In other words, while an endless supply of money would fetch us an endless supply of users, the real value lies in identifying and retaining those people who enjoy and frequently use our product.
Thanks to our early access advertising campaign, we accumulated a solid bench of prospective users. We have been extremely pleased with the engagement levels through our first few weeks of trading. We have a loyal group of users logging in multiple times throughout the week to make trades and reallocate their portfolios.
We have also implemented a referral system, where users can earn $100 additional fanbucks to use in every weekly contest throughout the season for each friend that signs up using their referral code. So our strongest users are not only engaged themselves, but they are driving engagement by inviting friends and colleagues to join the beta Pro-Football Portfolio Challenge.
How is Fanvest’s approach to fantasy sports wagering different to Smarkets’ betting exchange approach to legal sports wagering? Are Fanvest customers able to legally conduct financial interactions with other Fanvest members in other U.S. states, just as stocks are traded on NASDAQ or the NYSE?
Culver. We neither trade with, nor in traditional wagering instruments and markets, respectively. We’re not operationally defined as gaming company either. Today, we’re more similar to a daily fantasy company in terms of our business model and legality.
Our business model will evolve with our expanding product mix from contest/fee-based daily fantasy towards a hybrid broker-dealer.
As far as the legal sports wagering industry, do you envision a future in which the U.S. federal and individual state governments seek to pass legislation allowing legal inter-state sports gambling?
Culver. Yes. I’d also add that there will likely be a lot of changes in the coming years between the securities industry and gaming industry regulations, respectively.