Edition 16: The Fuzzy Line between Gambling, Investment, and Integrity
Athletes, Owners, Media and Gambling: Should it still be oil and water?
Good morning and welcome to the 16th edition of The Handle! This week, we’re going to analyze the emergence of the gambling world and the role athletes, owners and reporters are playing in the space. Everything from legislation, to innovative tech, to M&A has exploded in the space in recent years and this edition breaks down the the recent mixing of athletes and gambling.
Before The Sentiment Flipped
In the pre-PAPSA repeal era, athletes, owners (for the most part), and reporters in major American sports stayed away from any all things gambling and avoided the industry with a ten foot pole. The NFL even refused to stage a fantasy football convention in Las Vegas due to its association with gambling as recently as 2015!
Listening to NFL broadcasts as recently as three years ago, Al Michaels made the most covert references to gambling and there was a deep sense that he was being careful to avoid a call from Roger Goodell over at the NFL central offices in NYC.
In other sports, the idea of discussing was gambling would have been tantamount to endorsing hard drug use on the broadcast. Of course, this doesn’t mean gambling wasn’t happening. It simply just did not exist in the public sphere for athletes and the media, aside from Scott Van Pelt’s uber-popular bad beats segment.
Without a doubt, between locals and offshore books, billions of dollars were still being waged on American football each year and many fans had some action on the games, but for years the leagues very much embraced a “pretend gambling doesn’t exist” mentality. The leagues all claimed serious concern about “the integrity of the game” and vocally opposed gambling legalization.
Now that gambling is storming the landscape of American sports, everybody is looking to cash in and snatch up a piece of the pie. With the old guard loosening up and a tidal wave of change on the horizon, the uptick in spending from all angles has caught our eye as we’re attempting to help you all understand the ebbs and flows of various stakeholders' involvement in the market.
The Wild Wild West
Now, we aren’t delving into the legal implications, nor are we going to rattle off every investment that would have led to a black ball and condemnation five years ago. If we did that, it would be a 25 page article that you wouldn’t read. That being said, the post-PASPA involvement both in terms of partnerships, investments, and involvement in mainstream media have been heating up with many notable examples.
Sportradar, a sports betting and broadcast solutions data company, went public on Nasdaq on September 14th. Sports industry investors & advisors include:
Team Owners -- Michael Jordan (Charlotte Hornets), Ted Leonsis (Washington Wizards, Mystics), Mark Cuban (Dallas Mavericks)
Leagues -- The NFL became an equity investor in 2015.
Underdog Fantasy, a best ball fantasy platform founded by in 2020, has a cap table that includes the likes of:
Team Owners -- Mark Cuban (Dallas Mavericks), Harris Blitzer Sports & Entertainment (New Jersey Devils, Philadelphia 76ers).
Current & Former Athletes -- Kevin Durant, Trae Young, Odell Beckham Jr., Jared Goff, Wilson Chandler, Matthew Dellavedova, Shane Battier.
Media -- Adam Schefter (ESPN), The Action Network, Austin Rief (Morning Brew), etc.
Boom Entertainment is a technology platform developing real-money games for US sports betting and online casino partners. Investors include:
Team Owner -- Robert Kraft (New England Patriots)
Media -- Adam Schefter (ESPN)
Sleeper is a fantasy sports startup with a $400 million valuation after raising a $40 million round led by Andreesen Horowitz. Investors include:
Athletes: Klay Thompson, Byron Jones, Shane Battier, Baron Davis, Kevin Durant.
What makes the investment and involvement of these parties so interesting to us is the fact that these brands are leveraging the athlete and their brand presence, on top of financial investment, to establish a presence in the market. The list of celebs invested in the aforementioned startups includes people within the music, tech, and entertainment space as well with combined social media followings totaling in the billions.
Not Boring creator Packy McCormick wrote a piece in February titled Power to the Person, in which he detailed the concept that people follow people, not companies. We think this philosophy directly applies to consumer interest and the growth + adoption of new sports betting and fantasy options. Athletes, owners, and reporters are all seen as stakeholders by fans (customers), which is enticing and attractive when looking for places to deploy their time and money for an entertaining sweat. It also gets the products directly in front of consumer eyeballs through social channels and the unparalleled levels of access we have today. Beyond that, when athletes join the cap table, that in itself is often news and brings attention to the company without any direct action required. The athletes bring a level of legitimacy and publicity to the company that another seed investor might not, and the athletes get a chance to garner outsize returns. It’s a win-win for the company and the athlete!
For example, every other week we hear about another investment success of Rich Kleiman and Kevin Durant’s Thirty Five Ventures. Their involvement in Underdog Fantasy’s Series A is what actually led to them being on our radar and our eventual partnership with UD (sign up with promo code “HANDLE” 😉). While most sports fans might be privy to the investing success of Durant and others like Andre Iguodala, Baron Davis, and more, younger athletes are joining cap tables of prominent up and coming companies in the space such as Trae Young (Underdog Fantasy). The synergistic opportunities out there will continue to grow and evolve in the coming years for gaming companies and the intertwining of their brands with athlete partners.
What Do We Think?
Honestly, we are thrilled to see athletes, reporters, and team owners get in the mix and onto these cap tables. That being said, a lot of these companies will struggle to find a place in the market. On the bright side, most of the athletes haven’t been cutting large checks, which we can deduce this pretty easily by looking at a company like Sleeper. If A16z is involved and it is only a $40 million check, it’s unlikely that any individual athlete is coughing up a significant portion of their net worth (A16z’s average check size is closer to 60 million). We think the more pressing concerns are on the moral side.
Is an athlete who’s invested in one of these companies going to encourage bettors to wager on how that individual athlete performs? In an individual sport, is a basketball player more likely to take shots if they know that the platform they invested in has offered a promotion based on their performance that evening? Obviously, we haven’t seen anything that egregious, and really hope we don’t.
At the same time, we are seeing increasing public awareness from athletes about the existence of the gambling world.
One of the worst kept secrets is that some big college football schools try to cover the spread in cakewalk games (Saban doesn’t do this, but think Alabama vs the Technical Institute of Birmingham type of games) By itself, this isn’t too concerning.
With athletes, owners, and reporters embracing gambling, the potential for wrong, both in perception and reality, goes up significantly. There is a difference between the league accepting money from a sportsbook for advertising dollars and an owner having a vested stake in the profitability of a gambling company. With Adam Schefter invested in both Underdog Fantasy and Boom Entertainment, will his insider information potentially have any impact on an oddsmaking process?
While we don’t have all the answers and there are likely heavy protections in place, we just want to express our concern (and also provide a reminder to everyone that a lot of these companies will fail!).
We encourage all actors to get involved in their own way to make the gambling ecosystem an innovative and exciting space. At the same time, we implore executives to not put sports figures in positions that could compromise their integrity and to emphasize the importance of making sure that the gambling is NOT directly influencing outcomes in games.
Miscellaneous Recent Consumption
Press
Endeavor purchased OpenBet (Don Best parent company) on Monday for $1.2 billion in cash-and stock from Scientific Games ($1 billion in cash, $200 million of Endeavor’s Class A common stock). This acquisition signals the birth of a new division within CEO Ari Emanuel’s company, aiming to deliver end-to-end solutions for sportsbooks, leagues, and federations worldwide. The transaction is expected to close in the second quarter of next year, with potentially interesting implications in line for another Endeavor subsidiary, the UFC. Matt Rybaltowski from Sports Handle with more.
Another great piece from Plus EV Analytics, this time on the different ways a centralized sportsbook can be run including setting odds and managing risk. Read “Sharp Books, Soft Books: Inside the Sportsbook Ecosystem” here.
Knights of Degen is a really interesting NFT project coming out with strong ties to sports betting (DISCLAIMER Spencer owns 3). Co-founders including Jack Settleman of Snapback Sports mentioned future goals of partnering with sportsbooks, fantasy companies, and gaming companies. NFT owners share a portion of “The King’s Purse”, a portfolio of NFTs like NBA Top Shot Moments and ZED Run digital horses as well as unlock liquidity with a $DEGEN token soon-to-come. The Gameday has more here.
Retail wagering launched Thursday in CT. Sports Handle with more here. Digital platforms are expected to go live next week.
Silver Lake invested about $50 million in Cris Collinsworth’s Pro Football Focus for a minority stake at a 9-figure valuation. PFF will move into soccer and rugby, Bloomberg with more here.
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