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Lloyd Danzig: “Betting apps surge is reflective of unmet consumer needs”

What better way to start the new year than chatting about sports betting with one of the industry’s leading investors, Lloyd Danzig?

Lloyd is the Founder of Sharp Alpha Advisors, a firm that focuses on sports betting startups, venture capital, M&A, and technology. You may have seen this graph below that Sharp Alpha Advisors put together, showing post-PASPA handles by state:

We sent over a few quick questions about US betting in 2021 and his plans for the future.

What are the plans for Sharp Alpha Advisors for 2021 and has COVID affected your investment strategy?

Danzig. Sharp Alpha Advisors will be announcing a number of exciting investments and strategic partnerships during 2021.

At a thematic level, world events have accelerated many trends that function as tailwinds for the sports betting industry. For example, the shift in discretionary spending attributable to COVID-related restrictions and behavioral modifications is expected to directly benefit gaming companies.

COVID has also amplified the emphasis that investors are placing on the validation of unit economics and capital efficiency, even at the earliest stages of startup development.

As more states regulate betting (and perhaps 5-6 more states will do so this year) what do sportsbooks need to do in order to turn sports fans into bettors?

Danzig. Gaining a first-mover advantage is critical amidst the current sports betting customer acquisition gold rush.

DraftKings and FanDuel operate Daily Fantasy Sports in many states that currently prohibit single-game wagering, allowing them to capture demand and acquire users far earlier and more efficiently than most competitors.

In response, operators are increasingly seeking to acquire early-stage companies that offer products that contain betting-like features or substitute functionalities, but mechanically and legally fall under the DFS safe harbor.

Offshore books are still front-of-mind for seasoned bettors in the US. What needs to happen for the regulated, domestic market to start bringing over players onshore?

Danzig. Many seasoned sports bettors in the US exhibit loyalty to the offshore book or pay-per-head platform that they have grown accustomed to. However, this loyalty typically derives from familiarity, accessibility, and ease of use as opposed to an affinity for the product or UX. As such, acquiring entrenched customers at scale will require a path of least resistance to the onshore books.

There is also a pervasive notion that regulated operators can attract these users by offering superior pricing, transparency, and dispute resolution when compared to offshore counterparts, though more data will be required to validate this thesis.

In any case, it is important to remember that many unregulated entities have not only developed deep relationships built on trust with their customers but also permit them to wager on credit. Assuredly, some non-trivial portion of the user base will be extremely difficult to convert into post-up bettors.

On our website, readers crave informational content around where betting is legal and how to bet online. Who is ultimately responsible for educating the American public about what options they have as bettors, and what can be done better today in media?

Danzig. The US market is witnessing a major evolution in the mechanisms that draw users into and then down the sports betting conversion funnel. Users in the core sports betting demographic are accustomed to expertly-crafted, highly-intuitive interfaces that offer customized experiences that are optimized according to robust behavioral data analysis.

The most successful affiliates in this industry will be those that offer something unique, non-obvious, and of genuine value to prospective customers. Especially as the market matures and grows increasingly saturated, a critical challenge for affiliates that operate purely on a CPA basis will be the provision of content and tools that appeal to a sports betting audience that has not yet signed up and deposited at the affiliate partner sportsbooks.

In 2020, there were a number of social betting apps popping up and more are in the pipeline. What are bettors really asking for at this stage of US betting? What app/experience has been the best so far?

Danzig. At the present stage of US sports betting, social functionality and connectivity is not yet a key differentiator in the customer acquisition pipeline.

Operators in the US currently compete across many of the same dimensions as those in other geographies – pricing, market breadth, bonuses, promotions, and user interface. This is, at least in part, due to the commoditized and undifferentiated product landscape. The surge in social betting apps is reflective of the unmet consumer demand for offerings that cater to the true betting behaviors and preferences exhibited in this market.

Some of the most exciting functionality, which offers a glimpse into the future of the industry, comes from startups that are building disruptive technology, which will likely be acquired by larger operators over the coming years.

Examples include Players’ Lounge that allows people to win money playing video games against anyone in the world, Betcha which provides odds boosts to friends who bet on the same game, and BookIt Sports, a social platform for the sports betting community.

You talk about a sports betting unicorn that has yet not been found. What do you think the sports betting industry is missing as of today?

Danzig. On the front-end, there is an enormous opportunity to make sports betting more accessible, intuitive, and social. The technologies that accomplish this may ultimately reach the mass market under a DraftKings or FanDuel logo, but they will originate in startups that are currently iterating and reaching product market fit as the ecosystem’s foundation is being formed.

On the back-end, there is a direct need to overhaul and streamline the technological infrastructure that supports the sports betting industry. Existing platforms were built for an entirely different market and user base, and since have grown laden with technical debt and reliant on manual processes.

Finally, what is your biggest hope for the next 3-4 years when it comes to the growth and expansion of the US betting industry?

Danzig. Fidelity and eTrade, similar to DraftKings and FanDuel, succeeded in transforming an opaque, hand-operated activity enjoyed by few into an accessible, digital activity enjoyed by many. Then, Acorns and Robinhood provided the product innovation and UI/UX development that launched retail stock trading to new heights. Over the next 3-4 years, I am excited to see a similar transformation that brings competitive entertainment products to the mass market.

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