{audio:0:00:00} Max, a pleasure to have you with us today. Can we start by walking through how market access partnerships work?

{audio:0:00:12} In each state, in any jurisdiction, any online operator needs access to the market. The United States is fairly unique, in that respect. Typically, how access is given out, in these jurisdictions, is through a local regulator, at the state level. In New Jersey, they have a regulator, Pennsylvania has one – their own unique regulator. As such, there is existing land-based operators, in these jurisdictions, that are already conducting business on their properties, within the state, for casino, which is table games and slots. In some cases, it’s called a master license. There is different terminology and nomenclature for wherever it is. But they hold the master license.

{audio:0:01:08} As such, they’re the ones who are able to distribute market access. Market access is, basically, the ability and the privilege to do business and really hold commerce, in a state. If you take New Jersey, for example, each one of those master licenses has three different sub-licenses, that they are able to sell out to whoever they choose, who will then be able to get licensed as a sports betting or casino operator.

{audio:0:01:46} The difference between New Jersey and Pennsylvania, for example, is for the existing land-based casinos, there are different metrics to which the gaming commissions give out these licenses. In Pennsylvania, there’s only one license they’re able to give out. Per each land-based operator, in Pennsylvania, there’s only one opportunity for someone to do business, as a sports betting operator. There’s about 12 to 15 of casino operators in Pennsylvania, but that correlates, one to one, to how many sports betting operators there can be.

{audio:0:02:24} Whereas in New Jersey, I believe that there are 13 land-based operators and each one of them has three market access avenues. So you would have about 39 options for market access, in that state. That’s really the composition of what market access looks like. It’s dictated in the statutes that get passed by the local policy makers, in that given state. It really varies from state to state. In New Jersey, you have a lot of market access. In Pennsylvania, you have limited market access and then there’s states, such as Colorado, which has a lot of market access because the regulator and the policy maker there, allowed for three market access positions there. These market access positions, in the industry, are called skins. So there’s a number of different skins that are available. When you hear people say they have skins for sale or they just purchased a skin, it really is synonymous with market access.

{audio:0:03:32} Even further than that, is a state like Tennessee, who does not have existing gaming or an existing gaming commission. They have no casinos in the state, but they will be permitting sports betting, fairly shortly, and they have unlimited market access. Anyone who is a sports betting operator, who could apply for a license, secure a license, will be able to go into that market. Whereas it’s a little bit more stringent and, frankly, there’s just scarcity in some of these states.

{audio:0:03:59} Another good example is Michigan. I believe there are 15 land-based casino operators. So the maximum amount of sports betting operators in Michigan, will only be 15. That drives competition, it drives pricing. It just makes the market much more competitive, in comparison to a state like Tennessee.

{audio:0:04:24} If I’m a land-based casino, selling a skin, do I just choose the online operator with the largest scale or the most efficient customer acquisition channel?

{audio:0:04:39} It’s a case by case basis. In some cases, it’s almost as if the land-based casinos are courting the online operators, because they may be the ones who generate the most revenue. The complexity, within the commercials, is really that the devil is in the detail. Someone like DraftKings or FanDuel or Rush Street or a larger, more household name, in comparison to a smaller, regional, European player that wants to enter the US market, they attract different prices. There is no set rate for market access and they are purely negotiated. In most respects, the commercial structure is that the land-based operator receives a portion of the revenue, generated by the online sports betting operator. In some cases, there is an upfront cost, each year, which is, effectively, just a flat rate and there is, sometimes, a monthly or yearly minimum guarantee of what revenue would be.

{audio:0:05:48} You may have one operator say that they will give you 5% of the revenue, but someone who is much more anxious and may be, potentially, desperate to get in the market, they may release 10% of revenue. It really just depends on how much each online operator wants to give up. The competition is dictated, first, by the market access landscape, of how much scarcity there is, which affects the elasticity of demand of how the pricing gets affected. As a result, online operators in each state, may pay a significantly different fee, greater or lesser, depending on what the climate of the economics looks like.

{audio:0:06:32} So DraftKings and FanDuel can likely bargain for much better rates than the smaller players?

{audio:0:06:40} Yes, they certainly can get in the scarce markets. But what you’re seeing and public knowledge is, companies like DraftKings and FanDuel specifically, doing deals with other organizations. FanDuel did a deal with Boyd, who has access in multiple states, so they are able to, collectively, group these assets together and derive market access from just one player. Then they only have to do one market access deal to cover 13 or 14 states, or wherever Boyd does business. This is similar to DraftKings with Penn National and DraftKings with Caesars. It’s basically like going to Costco and being able to buy in bulk, versus having to do an individual deal, which works out well for both parties. I think it’s mutually beneficial because the land-based license holder only has to do a deal with one person and the sports betting operator only has to do a deal with one entity. So there are some economies of scale there, as well, where there’s less negotiation and it’s more about, let’s move forward.

{audio:0:07:46} In terms of the commercials of the deal, if we take the Caesars and DraftKings deal, I think there were terms in there that enabled Caesars to have the right to launch their own sportsbook or iGaming, as well as having the partnership with DraftKings. How do the land-based operators look at these deals?

{audio:0:08:07} Again, a lot of it is dictated by the market access structure. If it’s a land-based operator, who wants to have an online interactive sports betting product, they’re very likely going to reserve that first skin for themselves. You start to see, in the news, that DraftKings has access to the second skin in Indiana, but the third skin in Colorado or first skin in Michigan. A good example of that would be Penn National, where they maintain the right to the first skin, in every state. Effectively, what that does is, it guarantees themselves a spot which is predicated upon what the policy makers – and voters, in some states – will be able to pass. It’s, basically, giving them the right and protecting them to be able to offer sports betting, in a given jurisdiction.

{audio:0:09:00} If there’s already sports betting legislation approved or if it’s upcoming or even if there’s no thought of sports betting, in a given jurisdiction, it’s really helping them gain market access, potentially, if that case does arise. To answer your question, they want to make sure that there is a competitive market and they don’t want to have someone just purchase all of the market access, to limit the market. The big land-based players, like Eldorado or Caesars or Penn or even Rush Street, those large, multi-state operators are the ones who are dictating the terms, in most cases.

{audio:0:09:41} Who do you think is the best online player, at market access?

{audio:0:09:48} A lot of the deals are confidential but, clearly, if you are able to strike a deal with someone who has multi-state access, like Penn – PointsBet has done deals with Penn – then in terms of the breadth of the states available, I think DraftKings and FanDuel are getting ahead of the curve, in most cases. They’re doing deals in states that don’t have legislation yet or the legislation hasn’t been approved. But that’s not to say that other players won’t be getting into the market. I guarantee you that there are guys at DraftKings, FanDuel and almost every online operator, looking at market access deals in states where we don’t even, necessarily, anticipate legislation this year or next year. It’s really a front-running game, where you’re constantly trying to find out where the ball is going to land and not necessarily where it is, right now.

{audio:0:10:46} Who’s the best at it? It’s hard to say, without knowing the definitive commercials. But everyone works towards it and it’s a very results-oriented binary. You either have market access or you don’t. In that respect, it’s pretty clear who has market access.

{audio:0:11:07} When you’re looking at some of the deals that have been announced and the partnerships, how do you look at the players that are going to capture the economics, online?

{audio:0:11:21} A lot of the economics are, obviously, FanDuel and DraftKings, with their Daily Fantasy Database. They may have an existing set of players, where they may be able to negotiate a smaller rate, because they already have players that they will, likely, more easily be able to convert, rather than just trying to find new players. It cuts down on acquisition costs, which thus, makes the bottom-line revenue much more attractive for that land-based operator, that’s working on a rev share agreement. It’s really hard to define but it’s something that’s pretty clear, when you see these announcements of who is constantly making deals and who is entering markets.

{audio:0:12:02} What’s even more important is, who is the first one to take bets in a given jurisdiction? How long does it take? Basically, DraftKings, FanDuel, Rush Street, Kindred, 888, they’re usually the top four or five operators, in almost every state. PointsBet, as well. They are the first to market, whenever something opens up. Usually, the first day, within hours of each other getting live, in some of these states, where there’s that retail for online. It’s pretty clear to see who is actually moving the needle. Thankfully, all these numbers are publicly available, through the Gaming Commission, so you can see who’s making money. You can see who is generating significant handle, in comparison to their colleagues and their peers, but also, month over month, how they are growing, which indicates how much they are spending on acquiring and retaining customers and just having a much better product. Fortunately, a lot of this is public knowledge.

{audio:0:13:04} Moving onto looking at sportsbooks, specifically, can you just define, exactly how you look at a sportsbook and how it works?

{audio:0:13:14} I think the ecosystem of a sportsbook is fairly simple. It’s not dissimilar to financial markets or any supply chain business. Effectively, a sportsbook, if you really distil it down, is a software provider, in the most part, with some ancillary services. As a result, they need some meat to chew on and that meat comes in the form of data that is distributed officially – in some cases, unofficially – through a data distributor, such as Betgenius or IMG or Sportradar or some very widely known, sports data distribution company.

{audio:0:13:54} So a company, like Kambi or another sportsbook, would ingest that data and, through that data, whether algorithmic or manually, they will derive a price or a line or odds, based on a given match, both in-game and pre-match. Then those odds are then published to that client or that operator’s front end. So it’s a very linear path, where the data gets ingested, Kambi cooks it up and comes up with a price or a line, for a given match. Then it’s published through to the network of operators. Most sportsbook suppliers have a number of different customers. Very few only have one customer. So as a result, it gets published wherever they have an operator and where the regulator allows that given contest to be wagered up.

{audio:0:14:50} There’s different rules from Pennsylvania to New Jersey to Indiana. There’s some slight nuances to be able to get different markets up, in a timely manner. But in terms of how they actually work, it’s very succinct and it’s not very difficult, at a high level. But it’s very difficult, at a low level, to execute effectively, in a timely manner; accepting bets, placing bets. It gets very difficult, so the top players really separate themselves, in that respect.

{audio:0:15:27} Can we walk through how a land or online operator, chooses a sportsbook? Through your experience of pushing Kambi or selling the product, what do they actually care about?

{audio:0:15:39} I think they care about a number of different things. Reliability is a huge piece. No matter where you are in the world, there’s usually sports being played, at some point. There’s very little downtime. The only downtime you’d really see, is 2AM to 6AM, Eastern time, where there’s not much sports. Other than that, there’s usually sports, from the UK and then back to the US and then you have some Asian games, as well. So from that side, it needs to be a reliable business that has uptime, that has support across the country. It can’t just be a centralized support system, such as a support system that’s in Bulgaria, that is servicing the entire globe, which doesn’t make sense. It’s not something that’s scalable.

{audio:0:16:30} In some cases, you may need support in the Philippines, for example or in Eastern Europe, as well as Western Europe, the United States, on both coasts. The sun really can’t set on support. You need to be reliable; systems can’t go down, odds have to be correct, bets need to be graded extremely quickly. Reliability is huge. I think flexibility is also very important. What you see, in the market now, is a lot of lookalike products, where it’s very difficult for operators to be flexible on their frontend, in terms of what the customer sees. And it’s more of a cookie-cutter product and everyone gets the same product and, if you don’t like it, go somewhere else, which I don’t think is conducive to a very competitive market. So the flexibility to change things, make your product look different, quickly integrate new functionality, whether it’s live streaming or in-game placing of bets. It really needs to be a flexible product. Typically, the easiest way of doing that is through the UI.

{audio:0:17:38} Then finally, just experience. Being able to have been there and done that. Been licensed in multiple jurisdictions, which is really difficult. Having a product that can span across dozens of jurisdictions is something that is very difficult. It’s not just the case of taking your product from the UK and walk it into Indiana. There does have to be some significant differences in the product such as where data is stored, how bets are graded, where you service it. It’s a very difficult process so, I think, experience and legitimacy are important.

{audio:0:18:13} I think those three to four elements, reliability, flexibility, experience and really some wisdom, are probably the biggest things that differentiate sportsbook operators. That is usually the rubric at which most of these land-based operators choose a partner or their own supplier.

{audio:0:18:31} Do they look at the frontend and the backend as two separate products and systems?

{audio:0:18:37} I think they look at it as a total package. There are, obviously, some strengths and weaknesses on both sides of it. But without a strong backend, the frontend doesn’t really matter. I think that’s what you see in the market. You see a lot of really cool looking products, that don’t necessarily work. They have very limited markets; they break down often. A great example is someone who is trying to wager in-game, or right before tip-off or kick off. They’re not able to get a wager in, because maybe the game has been taken down, but the game hasn’t started yet, so there’s some latency. There’s a lot of really good frontends out there, but coupling that with a backend is really how you get a powerful product and that’s something that you see the market leaders do very well.

{audio:0:19:27} So having a strong backend, that can maintain some serious scale. If you have a World Cup final or a large boxing match or the Superbowl, it’s fantastic to have a great frontend, but you really need the backend, to support and to be able to handle the scale and the liquidity that is coming through the platform.

{audio:0:19:47} Do you see a trend towards the operator insourcing the frontend?

{audio:0:19:56} Yes. I think it’s very expensive, just the dev work on the frontend. There are definitely some companies that have been very successful insourcing. Arguably, Bet365 is the most successful sports betting company in the world and I don’t think that’s up for argument. They insource nearly everything. I think a lot of companies aspire to be that but I don’t think they, necessarily, understand the level of investment, the time required, the resources and the really difficult part is finding the experienced people, to help build teams, to build some of these products. Insourcing is something that is definitely possible, it’s just extremely difficult, without the know-how and the tools that are actually required to do that. But yes, to answer your question, you do have a lot of folks trying to insource the frontend. You even have folks trying to insource the backend. But ultimately, the strongest products, right now, are the ones that are outsourced.

{audio:0:21:03} What’s more difficult for an operator to insource, the backend or the frontend?

{audio:0:21:08} The frontend, for sure. This is probably a dramatic over-simplification, but the frontend is really cosmetic. For frontend, you have developers across every business, I don’t care what it is. Whereas, having a backend sportsbook is a very small niche of people, that can do it exceptionally well. Typically what you see is, a lot of operators going to the same sportsbook supplier and then they are able to adapt and flexibly maneuver on their frontend, to make their products look a little bit different, react and behave a little differently, with the underlying data structure of the sportsbook being the same.

{audio:0:21:51} So they will hire devs, in each local region, to do languages, to do those more local elements?

{audio:0:21:58} Yes, they localize the product, for sure.

{audio:0:22:00} They’ll leverage Kambi’s risk management, traders and odds-compiling service?

{audio:0:22:08} Absolutely. That’s something that they’ve done exceptionally well. If you look at Kambi’s customers, most of them look dramatically different. 888 looks dramatically different from DraftKings and Rush Street looks dramatically different from Unibet. There are big differences there and that’s something where the backend enables you to be flexible on the frontend.

{audio:0:22:28} How difficult is it, though, to insource this backend. As you said, Bet365 have done it; some of the old European legacy operators have, typically, had this in-house, as well.

{audio:0:22:47} Firstly, it’s the experience to compile odds. Obviously, some of it is algorithmic, but there is an element that needs to be manual, especially for in-play. There needs to be significant experience of, not only risk management, but understanding what the market is doing and how that affects pricing. Taking bets from the right people and understanding which bets to pay attention to. Frankly, it’s just sheer size. It’s very difficult to have an expert trader in tennis, that’s also an expert in the NFL. You need to have specialized, localized talent, to maintain this. From a human resource perspective, that’s extremely expensive. The barriers to entry, to do that exceptionally well, are difficult. Could you do it all algorithmically, cheaply and quickly? Sure. But you don’t know how long that sticks together. Some of these companies have built a significant business, at enterprise scale, that is very hard to replicate.

{audio:0:24:06} In terms of the pricing, if Kambi changes the price of a certain match or game, does that get changed for all operators?

{audio:0:24:16} No. Operators have pricing flexibility, so they are able to change prices, based on what they feel, in a localized market. So if you are in Philadelphia or if you’re in Denver or the UK or if you’re in Sweden, you’re able to change the price, based on what you think. For example, in Philadelphia, it may be a bit more expensive to bet on the 76ers or the Eagles; in Denver,  it may be a little bit more expensive to wager on the Broncos or the Nuggets, just because of where you are and where you expect the market to be.

{audio:0:24:56} It may even be less expensive. It’s just a matter of what the operator wants to choose. But no, it is not the case that Kambi sets a line and you have to take that. There are ways to manage that and differentiate, if you would like to.

{audio:0:25:13} So Kambi has a base price for the odds.

{audio:0:25:18} Yes, they have the true odds of what they anticipate and if it’s something where you think Kambi is wrong or if you want to have some marketing or some promotion around odds boosts, you’re certainly able to do that. But most people hire Kambi for the expertise and you’re diminishing that expertise, if you’re constantly changing prices, if you think they’re incorrect or inaccurate. They’re saying the true odds and the probability of what’s going to occur and it gives the operators a chance to differentiate, more than anything, to say, hey, we have better pricing than PointsBet or DraftKings can say, we have better pricing than FanDuel.

{audio:0:25:59} Do you think it’s a risk, for the likes of Kambi, that the largest players in the US will insource the book, at some point?

{audio:0:26:11} I think it’s a matter of, at some point. DraftKings SBTech, I think that was worlds colliding. I just think things came to fruition that weren’t necessarily expected, but you also want to work with operators that are that aspirational, that have the aspirations to be a market leader, globally. A great example of that is Kindred. Kindred has been a Kambi customer for an extremely long time. Kindred would certainly have the ability to insource their own sportsbook, and it’s really what their main core focus is. So I think you will see some shift. Penn National is another example. They’re a Kambi partner and will be going live, fairly shortly, I expect, based on market reports. I think it’s the aspiration of all operators to want to insource everything and own the entire ecosystem. But I think they come to the realization of how difficult that is and moreover, how expensive it is, both in terms of capital and time. It’s incredibly difficult to get there.

{audio:0:27:29} You may lose market share points while you’re trying to do that and is that something you can recoup easily? That’s yet to be seen. We’re still in the infancy of the US sports betting market. I think we’ll still see a lot of operators maintaining the outsourcing of sportsbook technology.

{audio:0:27:47} What do these operators see as their intellectual property or value add? If they outsource the sportsbook, if they outsource the backend, and they have a frontend, how do they look at their role? Is it just a license holder, to take bets?

{audio:0:28:05} Yes. Effectively, they’re the ones bankrolling the sportsbook. They’re the ones who are taking the lion’s share of the risk and reaping the lion’s share of the reward, as well. It’s a business that makes sense and it’s a business that can make money. I think that’s been proven in any market that a sports bet has ever been taken in.

{audio:0:28:28} You need to focus on your core competencies and, right now, there’s no sports betting company, as an operator – except for Bet365, which is the only operator that I can think of, off the top of my head – that has been overtly successful insourcing everything and building everything from the ground up. Beyond that, most operators need help, from someone, to bolster those non-core competencies which, in most cases, is the backend sportsbook.

{audio:0:28:59} What do Bet365 do so well?

{audio:0:29:03} Make a lot of money; if you look at what their executives pay themselves and they are some of the highest taxpayers in the UK, for example. They have a great product, a great in-play product. They are accessing a lot of lucrative markets. They are a first mover, in many markets. I think they are starting to focus on the US. There needs to be a large, dominant force, in any market and that just happens to be Bet365, at this point, globally. They are a blip on the radar, in the US, right now, with the likes of FanDuel and DraftKings and Rush Street. They’re not moving the needle nearly as much as they are in other jurisdictions, but that’s maybe why they are successful in other jurisdictions, because they stick to what they know, very well, and where they’re successful. I guarantee you that they are evaluating the US market and picking their spots of where they want to do business and where they don’t.

{audio:0:29:59} As it stands right now, they just have a very strong product, very low customer churn and a very sticky product, where you can migrate from sports, to casino, pretty easily. It really just gives the customer what they want, in a given jurisdiction.

{audio:0:30:17} How, exactly, does a sportsbook integrate with a player account management system, from the likes of Playtech or GAN?

{audio:0:30:29} In the ecosystem we discussed earlier, Kambi is the one who is responsible for ingesting data, creating the pricing but just beyond that, is the player accountant management, where all the customer data lives. The player account management, or the PAMs, are the ones that are processing these transactions, holding the customer data, messaging the consumer. Those are the ones who are holding all the PII, the personal identifying information, that enable a bet to actually be placed.

{audio:0:31:01} Where they sit is much more towards the frontend, in terms of that ecosystem. Basically, all a sports betting operator would have to do is to understand, if someone places a $1,000 bet, that there are sufficient funds in the account. That’s really where they technically talk to the player account management platforms, just to make sure that there is sufficient funds. Once the bet is graded and, hopefully, won, that the funds go back into the account, plus the winnings. That’s really the function of the player account management. They’re integral in the process but, as it relates to sportsbook, they’re more or less, the ones who are holding the customer information, at that point.

{audio:0:31:47} In your experience, when you’re selling Kambi to operators, how does the operator think about the stack, in that sense, between the PAM and the sportsbook?

{audio:0:31:58} If an operator has an incumbent platform provider or a pre-existing relationship – whether it’s social casino or real money casino – some of them probably already have a platform or are in some loyalty programs, in some cases. They may have a large piece of slot business, with an IGT or a Scientific Games, that may have opportunities with GAN or they may buy from Rush Street Interactive. There are a number of different PAMs that are out there, such BRAGG Gaming. There are plenty of platforms out there that they could already be working with.

{audio:0:32:38} Otherwise, they go to market and evaluate platforms, just as they would a sportsbook. They integrate with them, just from an element, to make sure that there is ease of integration, to make sure they can get to market quickly, accurately and, more importantly, that they have a functional product that is QAed very significantly.

{audio:0:32:58} What do you think is the most critical part of the stack?

{audio:0:33:02} Platform is very important, because it creates a lot of friction for the player, initially. If you focus on the player first, they need to have a great experience, as soon as they download an application or as soon as they visit a sports betting or casino operator, online. They need to see a great product, a great visual product but also, functionally, they need to make sure that they have a number of different deposit methods, such as PayPal, ACH, Play+. There are tons of payment options and you need to give them flexibility there. It’s really hard to identify a specific piece that’s the most important, because they all cohabitate and they rely on each other.

{audio:0:33:46} A platform needs a backend; a backend needs a frontend. From that side, it’s really difficult. I love sportsbook; it’s just a passion of mine. So for me, the backend is very important, because you want to have a large breadth of markets that are available, and cool markets that are available. You don’t just want to wager on whether or not the Jets are going to win the game. You want to wager on what Sam Darnold is going to throw, how many touchdowns he’s going to throw; all of that is very important.

{audio:0:34:15} So for us, you need to understand that it all cohabitates and they all make each other better, but you really just need something that actually works, first of all, and then you can focus on the more glamorous pieces of a bunch of different payment methods, having something that looks great, that has live streaming and that has markets coordinated with the live streaming. I can’t put a finger on, exactly, which one is most important. I just know that the most successful operators do, mostly, everything extremely well and there’s very little friction to get a bet down.

{audio:0:34:55} When you mentioned backend, I guess you mean the sportsbook and Kambi. What do you classify as PAM? Is that the platform and the wallet?

{audio:0:35:03} The frontend is more on the operator side and the platform is more the PAM, the player account management. That’s really who a customer gets touched by first. That’s going to be the one that’s processing the payment, holding their information and communicating that to any relevant party, within the marketing ecosystem.

{audio:0:35:26} What is the first vendor that the operator approaches? Is it the PAM?

{audio:0:35:35} Let’s use the base case of, a new market is going to open in Virginia. Typically, evaluations go on concurrently. In some cases, an operator may choose a platform first and then ask for suggestions on which sportsbook they work most closely with. In other cases, they may have a sportsbook they really enjoy, where they have built significant relationships or bought into the philosophy of the product, fundamentally agree with how the sportsbook is supposed to be run and they may ask suggestions there. But some of these processes are run by industry consultants. That’s their profession; they work through these evaluations, where they give options and then let each provider really make their case for why they are a good fit, for that business.

{audio:0:36:34} To answer your question, I think it tends to happen concurrently, more than anything else.

{audio:0:36:40} Do you have any insight or view on the position of the likes of GAN, in the market, versus other PAMs?

{audio:0:36:49} I think GAN has a significant set of customers. As a publicly traded company, now, they received quite a bit of attention in the capital markets. They have a strong leadership team, based in the US, which I think is very helpful, with an existing business in the UK and other parts of Europe. They have a strong social business. More importantly, they have some deep relationships with operators that they’ve had for quite some time, so they’re not new to the market. People are familiar with their product, what they do, how they do it.

{audio:0:37:26} Overall, there are a number of strong operators, who I respect, that I currently use, as a platform and a PAM. You have to really dictate that by the market and, clearly, the capital markets think they are a strong candidate, as do some very top operators, in some large jurisdictions, that are market leaders, who have selected them and continue to use them, as a PAM. I think that speaks for itself.

{audio:0:37:55} How crucial is the social gaming product GAN has, to convert them to real money gaming?

{audio:0:38:01} People talk about the conversion from social to real money. There is 100% a cross-sell there. I think most people, industry analysts, diminish the value of social, as it just social. Social can still generate some revenue. As a result, I think you start to see some operators focusing on social, not so much as an acquisition tool, but actually, as a revenue center. Obviously, there are ways that it can lead to real money a lot more easily than some other acquisition tools but it’s also, standalone, a very strong product to generate revenue.

{audio:0:38:48} Moving on to look at Kambi, versus competition and, I guess, SBTech and the recent deal with DraftKings, how do you compare the two solutions?

{audio:0:39:02} I think there’s a bunch of similarities and there’s a lot of differences. I think the best way to look at it is who their customers are. Kambi has quite a few Tier 1 customers, in multiple jurisdictions. SBTech has quite a few Tier 1 operators, in multiple jurisdictions. It’s tough to analyze the financials as a publicly traded versus privately traded company, specifically for the reason of analyzing margin. You look at a company like Kambi, who has extremely steady margins, for their operators, which I think, is probably the largest feather in their cap. If you want to make money in sports betting and have a steady margin, somewhere between 5% to 11%, on the ultra-high end, it’s a very strong supplier. Whereas, someone like SBTech, we don’t exactly know what their margins are or where their revenue is coming from; it’s just hard to gauge.

{audio:0:40:13} You can look at any of these awards in our industry and Kambi and SBTech are constantly neck and neck there. If you look at them from just one operator, who wins that business? It’s very hard to decide and to understand who someone selects. In some cases, it’s a coin flip. At that point, the decision gets made on commercials, which are also very difficult. As a premium-priced product, Kambi is definitely at the top end of cost, but with that, you get a premium product, in comparison to anything else on the market.

{audio:0:40:56} You’re operating on limited information, on the nuts and bolts of exactly what’s happening. But ultimately, it needs to be bought in, philosophically, with the relationships that are built through the sales process. The industry is pretty small and everyone knows everyone. So decisions are made, for the most part, anecdotally, which operators have been successful and used XYZ product and how are they similar to the specific target that we are discussing. It’s really hard to compare and contrast them, without having the total picture. If you’re looking at it from a meritocracy, just look at who is making the most money for their customers. A lot of that is publicly available, in white, regulated markets.

{audio:0:41:47} If you have a level playing field, you look at specific operators in New Jersey or Pennsylvania or the UK, Sweden. You look at lottery revenue; you look at social revenue. You can look at a whole bunch of different metrics. It’s really hard to define who is better, because it really is a case by case basis, because it’s not too large of a market. As an enterprise software company, effectively, Kambi has somewhere between 20 and 30 customers, whereas a traditional tech company may have hundreds of customers. So it’s a limited size, where it’s more focused on building deep, long relationships with several providers.

{audio:0:42:29} Who is better at offering live bets?

{audio:0:42:32} If you look at live bets, you’d have to do a market by market analysis. But if you want to look at sheer quantity of live markets, this is something I do on a regular basis in New York, New Jersey and Pennsylvania, where I live, it’s more that Kambi has a significant amount of live markets available, larger than anything you see in this country, so far. I would say that Bet365 is the closest, in New Jersey and FanDuel is very strong in this category, as well. But I would say that Kambi has significantly more live markets than SBTech.

{audio:0:43:15} Does FanDuel use Playtech or IGT?

{audio:0:43:20} They have a bunch of providers they use so it’s a little blurry, from my perspective, to understand where the ball goes, from provider to provider. It’s an amalgamation of GAN, IGT and the existing Paddy Power infrastructure. They work with various strong providers but I don’t specifically know where it changes from GAN to IGT and from IGT to existing, in-house tools. But I do know where the other operators sit.

{audio:0:43:56} What makes Kambi so efficient or good at offering live, in-play bets?

{audio:0:44:03} I think that goes back to the point of the human capital piece. Having markets open, 24/7, with traders working 24/7, around the clock; not as individuals but, collectively, as teams. That really helps. They’re able to trade off sports that don’t necessarily have official feeds so they can trade off pictures, to understand what the market is doing and what is happening, at a given instant. I think there is not only the size of the team, but it’s also the expertise within the team. That’s really where they thrive, being able to understand, not just algorithmically, what this line is supposed to be, with two minutes left in the first half, of a Saints, Bucks game, but is also needs to be, situationally, what’s happening and how do we derive the appropriate price that’s going to be attractive to betters, but also be attractive to the operators, as well, to make sure it’s a fair and probabilistic bet. I would say that it’s expertise and experience.

{audio:0:45:11} A good example is that Kambi has been trading live sports, in the US markets, for years and years; decades, almost. This is in comparison to someone who has been doing it for six months or since PASPA was repealed, two years ago. There is a steep learning curve, but then there is also the experience of having been there and done it, for quite some time, and they have a much better pulse on the market.

{audio:0:45:39} What do you think is the biggest challenge for Kambi, going forward?

{audio:0:45:43} I think it’s more scale. If you have a premium product and a strong set of operators that you are partnered with, how do you scale that, whilst maintaining the level of support, the level of exposure and really replicating each success? It needs to a constant, vigilant process of making sure that you are changing with the market, changing with customer demand – and by customer, I mean the end user – to make sure that the product is strong and allows your operators to be market leaders, if they choose to be. I would say that scale is, probably, the most difficult piece. How do you scale from 20 to 30 operators, to 40 operators? How do you maintain scale, to be a market leader in Michigan, Colorado, Indiana, Pennsylvania, New Jersey and then another 10 states, in a few years?

{audio:0:46:39} How do you maintain the scale to be the first one to take a bet online, in nearly every state? So far, in the US, that’s a tough process, to keep continually making sure you are better than the competition. So I would say, keeping up with scale and maintaining the results that are expected. Continually meeting those expectations that are significantly higher than the competitors.

{audio:0:47:10} How much do you need to scale the fixed cost base? For example, I think they’ve got roughly 200 traders, 200 developers; let’s say a new state opens and they want to enter that state, do they need to hire more traders? I suppose there are nationwide sports.

{audio:0:47:27} Yes, there is definitely some scale there that you can economize and the unit economics change, significantly. There’s certainly an element of that, but a company with 10 client operators, versus a company with 30, 35 or 40, there’s administrative impacts, there’s localization impacts on where you have offices and where you make sure that there is a lot less latency from an operator that is, potentially, in California, working with folks that are based in London. It’s a big difference to have them work with folks that are based in Philadelphia and, potentially, even on the West Coast.

{audio:0:48:16} The unit economics get much more attractive, when you add more operators, but you also have to keep up with the maintenance, from a development perspective and a roadmap perspective. The product isn’t always the same. The product, today, will be different in six months and, six months after that, it will be even more different. You need to maintain that and that requires some significant investment and thus, that investment effects the unit economics. It’s not just one product that will always work the same way, for every operator. It takes quite a bit of vigilance and attention, to make sure that each operator receives, ideally, even better support and service than the operator before.

{audio:0:49:02} How, exactly, does pricing work? Let’s say, I’m an operator, you’re Kambi and I’m coming to you; how is it set?

{audio:0:49:09} It operates, mostly, on revenue share. It makes sure that the supplier that the operator chooses has a stake – they have skin in the game – to want to be successful. You don’t want an apathetic supplier that doesn’t really care what happens. You want someone to make sure that they feel the pain as much as you do, when things aren’t going well. Therefore, they will work hard, to make sure things go according to plan. The commercial structure is very basic. It needs to make sense for both sides. Typically, the best way to do that is to have commingled interests.

{audio:0:49:52} So it’s 6% to 8%, roughly, of the net revenue?

{audio:0:49:57} I can’t comment on exactly what the numbers are, but it works on a revenue share agreement. These operators are paying platform, they’re paying geolocation services; the costs add up, significantly. You don’t want a sportsbook supplier to be overbearing and cost-prohibitive. It’s the responsibility of sports betting operators to make sure that they’re, not only competitive against the other sportsbook suppliers, but that they’re also competitive, taking into account the other costs that the operators have to incur, even before they take any bet. How quickly does that dollar diminish, once you start paying each one of those suppliers? They have to constantly toe that line, to make sure that they are profitable, but also making sure that it isn’t cost-prohibitive.

{audio:0:50:49} How do you see that evolving? Who will the operators squeeze first, between the sportsbook, the PAM, the frontend?

Kambi & US Sports Betting

The scale advantage of Penn and Boyd and how operators look to choose online operators

Kambi & US Sports Betting

Former Director, US at Kambi

inpractise.com/articles/kambi-us-sports

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Executive Bio

Max Bischel

Former Director, US at Kambi

Interview Transcript

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Kambi & US Sports Betting(June 15, 2020)

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