BallStreet: Money Never Sleeps

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🚨 EXEC SUM: SUPER BOWL SUNDAY EDITION 🚨

Last week, we made sure to fill the void of no playoff football with some fire content about Titan. “But Lit, today is the Super Bowl! No one wants to read a newsletter!”

Normally I would agree with you, but not today. Why? Because today we’re bringing you some more quality content about our favorite new entrant to the sports betting world: BallStreet. And guess what? BallStreet is hosting a free-to-play Super Bowl competition with a $50,000 prize pool 👀 You can join the action by clicking here.

As we've said before, think of this like it's an investment memo made public. In this case, it just so happens that I have invested in BallStreet. In today’s piece, I will break down the sports betting landscape and explain why I'm excited to be an investor in this company.

As we’ve mentioned before, nothing written here is investment advice. We’re here to talk about sports betting, emerging market sectors, and Ballstreet’s business model. Do your own research.

Let’s dive in.

Background

For decades, sports betting in the United States was outlawed in all but four states: Oregon, Delaware, Montana, and Nevada. However, in May 2018, The US Supreme overturned the Professional and Amateur Sports Protection Act of 1992 (PASPA). With this change, all 50 states were allowed to craft their own sports betting legislations.

Since then, many states have taken advantage. This map from the Action Network shows each state’s betting status so far:

Here is the breakdown of sports betting status by number of states:

• Only in-person sportsbooks: 9

• Only physical sportsbooks now, online pending: 1

• Full mobile betting with multiple options: 13

• Full mobile betting with multiple options; in-person sign up required: 2

• Limited mobile betting options: 6

With state after state passing legislation, betting handles and revenues have exploded. Since 2018, total sports betting handles across the United States have reached $98.3B, and revenues have totaled $7.2B.

In Q1 2021, Gabelli Securities projected that US sports betting revenue would hit $2.1B in 2021 and $3.6B for 2022, eventually reaching $10.1B in 2028.

In reality, US sports betting revenue blew out this forecast and hit $3.6B in the first 10 months of 2021. By the end of the year, US sportsbooks saw $52.7B in betting handle and ~$4B in revenue. This is a massive market, and gamblers can’t get enough. While a lot of this growth stems from new states legalizing sports betting, organic growth has been fantastic as well. Sports Handle breaks down monthly data per state. 

Let’s check out New Jersey’s month by month stats. NJ is the second largest betting market in the country, and it introduced mobile betting in August, 2018.

Over the last four years, December's single-month betting handle increased from $319M to $1.2B (~4x)!

Besides a covid-induced dip in the first half of 2020, the New Jersey sports betting market hasn’t missed a beat. Plus, 88% of New Jersey’s sports bets come from mobile.

How about our home state of New York? $150 million, MILLION, was bet in the first weekend that the state’s online sportsbooks were open last month.

Nationally, total sports bet wagers are up more than 100% since pre-pandemic, and we’re just getting started. Last year, the Action Network estimated that illegal offshore sportsbooks brought in $17B in annual revenues. The legal market could 4x its revenue just by taking market share from offshore sportsbooks.

Four years. $100B wagered. 31 states. Several catalysts for future growth. This is a booming market.

Beyond Sports

Obviously, sports betting is a massive market. However, the innate human desire to gamble doesn’t end at sports.

When sporting events shut down during the pandemic, gamblers turned to the world’s biggest casino: the stock market. From March 2020 to March 2021, Robinhood grew monthly active users from 7M to 18M, and assets under custody ballooned from $19B to $80B+.

This matches what we said last week in our piece about Titan:

Of course, Wall Street denies that the stock market is a casino. After the GameStop short squeeze, Stacey Cunningham, the president of the New York Stock Exchange, said:

Maybe the stock market isn’t supposed to be a casino, but to quote Eminem in his hit feature with Rihanna, Love the Way You Lie:

“I can’t tell you what it really is, I can only tell you what it feels like.”

And the stock market certainly feels like a casino.

49% of all investors check their brokerage apps everyday. Hardly behavior that signifies long-term wealth creation. And our favorite betting investing app Robinhood? Users trade 9x more often than those on E-Trade, and 40x more than those on Charles Scwab.

Wallstreetbets, a subreddit whose name is literally a juxtaposition of “Wall Street” and “Bets”, has 12 million subscribers.

The most popular post with half a million upvotes? A video of a massive Times Square advertisement promoting GameStop’s stock.

These markets certainly are highly overseen, eh? And 7 of the other top 10 posts? This guy named “DeepFuckingValue” posting weekly updates about his GameStop YOLO.

On top of that, the face of sports betting, Barstool Sports’ founder Dave Portnoy, ran a livestream of himself day trading for a year.

As the line between "investing" and "gambling" has blurred, we thought it was timely to launch our very own sports betting account, @BackOfficeBookie, to capture the culture and humor in this space.

I’m going to have to disagree with Stacey Cunningham. For many participants, the stock market is, functionally, a casino.

And the stock market was just the beginning. To scratch that gambling itch during the pandemic, bettors turned to a variety of outlets. A statista poll surveyed 4,400 US adults to see where they would bet with sports shut down, and the results were nuts.

Everything from covid numbers to political elections was fair game. The popularity of esports exploded, with wagers being placed on League of Legends, Counter-Strike, and Fortnite, among other titles. With mainstream sports unavailable, Belarusian and Nicaraguan soccer, Korean baseball, and English darts also became Vegas darlings.

There are only three certainties in life: Death, Taxes, and Gambling.

But there is one key difference between the stock market and sports betting market: Your ability to exit a position.

Imagine that I buy $10,000 of $PTON call options because I think the fitness company’s stock will rebound under new management. My options expire in six months.

Two months in, PTON has doubled in price. I can sell right there and cash out. Easy money.

Now say I’m betting on the Super Bowl. I place a $10,000 bet on the Bengals money-line at +165. By the end of the 3rd quarter, the Bengals are up two touchdowns, and the live bet shows a -300 money-line. 

I want to exit and lock in some gains. But I can’t exit my bet. I have to wait until the game finishes. So I watch the Rams score a touchdown. Then the Bengals turn it over. The Rams start marching towards the redzone. My -300 bet swung back to dead even. And here I am, biting my fingernails, praying that the ball goes my way.

That is the reality of sports betting, you’re in for the long haul. 

But what if you could exit those bets? What if you could make adjustments in real time?

Enter: BallStreet.

Day Trading Meets Sports Betting

BallStreet is a real time peer-to-peer prediction market that allows fans to compete against each other during any live events. I will cover functional details later in this post, but BallStreet’s platform allows users to “live trade” both sides of a bet for the entirety of a game.

BallStreet transforms sports betting from a static activity that stops after the bet is placed to a dynamic activity that keeps you engaged throughout the duration of the event.

Players are no longer “locked” into their positions until the clock hits zero; they can (and should) make real time adjustments as their odds shift.

History/Founding Story

Where did BallStreet come from? Great question.

BallStreet was founded by a veteran of “Wall” Street (get it?), Scott San Emeterio. After graduating from college, San Emeterio was an equities trader at Worldco, a consultant at Morgan Stanley, Deutsche Bank, and Bear Stearns, and most recently a vice president at Credit Suisse. 

Scott realized that there had not been any true innovation in the sports betting space in decades.

He wanted to create an experience that was new and gave players control. San Emeterio played online poker everyday in the early 2000s, and his time in the poker rooms inspired him to build BallStreet. The "eat what you kill" mentality native to poker was always something that he wanted to see in the sports betting world. The idea of only betting against the house in the 2020s felt dated.

So, How Does BallStreet Work?

In traditional sports betting, you wager X amount of money at X odds. For example, you might bet $1,000 on the Bengals money-line at +165 odds. This means that you are betting $1,000 to win $1,650 if the Bengals win.

BallStreet is different in a few ways. First, every competition is entirely free-to-play. Users wager $0 of their own money to participate in these competitions, which means BallStreet can operate in 49 states (sorry Washington).

When you enter a competition, you are given 100 “shares'' for each team in the market. I’ll continue to use today’s Super Bowl matchup for example purposes. If I enter BallStreet’s Super Bowl competition, I will start the game with 100 Bengals shares, and 100 Rams shares.

I also start the game with $1,000 in virtual currency, which can be used to “buy” more shares of either team. At the end of the game, shares of the winning team will be worth $100, and shares of the losing team will be worth $0.

If this was a regular money-line bet, you would immediately try to go all in on shares of the team that you expect to win.

But this isn’t a regular money-line bet. As soon as the game starts, the prices will move based on supply, demand, and fluctuations in the market. Your goal is to make as much money as you can by actively trading these moves.

If the Rams score early, the value of their shares will likely jump to $60, while the Bengals’ shares will drop to $40. Rams are favored to win now, but you aren’t trying to pick the winner, you are trying to make as much money as possible from the probabilities shifting along the way. So you sell your Rams shares for Bengals.

Then the Bengals score, and on the next drive the Rams turn the ball over. Suddenly, the Bengals are slightly favored again, and you dump your Bengals’ shares for Rams’.

The prices of these shares are constantly moving, and they grow more and more volatile as the end of the game approaches, especially if the score is tight.

Your goal is to maximize your total earnings over the course of the game. While you obviously want to end the game holding shares of the winning team, you accumulate more shares by trading well throughout the four quarters.

BallStreet injected game theory to a sports betting platform, like your sportsbook met your Hold ‘Em table.

The graphic below shows what BallStreet’s UX looked like in the final round of the 2020 Workday Charity Open, a playoff won by Collin Morikawa over Justin Thomas. 

As I mentioned earlier, all of these competitions are free-to-play. However, the winner(s) do receive payouts. A prize pool for each competition is supported by BallStreet and/or its partners for each event.

In the case of the Super Bowl, BallStreet, along with its partners ESE Entertainment Group and Sporttrade, have raised a $50,000 prize pool. This isn’t a winner-take-all competition. The prize money will be distributed to the top traders, and hundreds of players will take home some cash.

What Markets Does BallStreet Support?

Any market that you can bet on. Obviously, sports betting is a massive driver for BallStreet. The betting platform will be holding special events for March Madness and The Masters, along with a variety of normal competitions. However, BallStreet dives into other markets as well.

In 2019, BallStreet let Game of Thrones fans bet on who would win the Iron Throne, while in 2020 the company made a betting market for Nathan’s Hot Dog Eating Contest.

However, their biggest non-sports market is the digital world of Esports.

Riot Games is the video game developer behind popular titles like League of Legends, Teamfight Tactics, and Valorant.

Last year, BallStreet signed a multi-year deal with Riot to create a free-to-play trading market for the North American circuit of Teamfight Tactics.

Sports. TV shows. Competitive eating. Esports. Any market with variable outcomes is a possibility.

How Is This Different from Current Betting Markets?

The sports betting market can be broken into two broad categories: traditional sportsbooks and fantasy.

Traditional Sportsbooks

Quintessential sports betting. Rams money-line. Bengals covering the spread. Super Bowl hitting the over. Traditional sportsbooks allow you to wager a certain amount of money at locked-in odds.

Traditional sportsbooks have been operating for decades in Vegas, and they are now accessible in dozens of states through mobile apps such as DraftKings and FanDuel. Once your bet is set, you are locked in until the game ends.

Fantasy

From college friend groups to work teams, fantasy football is popular everywhere in the US. In fantasy football, you “draft” a team of players and earn points based on how they perform any given week. You win if your players outscore your opponents’.

Oftentimes, fantasy leagues pool money together for a cash prize for the winner. Additionally, some have creative punishments for their losers. Spend 24 hours in a Waffle House. Take the SAT and post your score online. Take a blow up doll on a date. Ride a greyhound bus to Sioux Falls, Iowa, take a video of yourself eating sushi in a local restaurant, and ride a greyhound back home.

Traditional sportsbooks and fantasy football are both wildly popular, but BallStreet offers a completely different product than either of these options.

• Sportsbooks are static: once you place a bet, it’s locked in.

• Fantasy is dynamic from week-to-week as you manage your lineup and roster. However, once the game starts it is static as well.

• BallStreet offers a dynamic alternative that keeps players trading over the course of the game.

Segmented Customer Base

We know that sports betting is wildly popular, and this market is only growing larger with time. Data from Morning Consult suggests that not only have the sheer numbers of sports bettors grown, but also the frequency of their bets.

But here’s the thing: not every participant plays the same games or places the same bets.

According to this same data set:

• Almost one third of bettors (29 percent) said they typically bet $10 or less on an individual game or event

• Nearly half (47 percent) said their usual bet for a single game is $25 or less 

• Just 14 percent of monthly bettors said their usual bet is more than $100

Most players don’t want to wager too much money, but they do want to play frequently.

This plays right into BallStreet’s model.

BallStreet offers 1) free-to-play games that 2) keep participants engaged as they have to actively trade their positions as probabilities change. Plus at the end of the event, there is some prize for the winner(s).

Sports betting is a massive market. And a growing market. There are millions of new players entering the sports betting world every year, and many of them want to experience the rush of gambling without having to risk any real loss.

They want as little skin in the game as possible. And that is BallStreet’s niche.

Esports

The 2016 NBA Finals were incredible. Lebron James and the Cavs were down 3-1 against the Steph Curry-led Warriors, who had just set the NBA record for regular season wins.

Three games later, Lebron brought Cleveland its first championship in more than fifty years, forever cementing his legacy. Game 7 of this series, the most important basketball game since the era of Michael Jordan’s Bulls, garnered 30M views.

Impressive.

You know what’s more impressive?

More than 70M concurrent viewers watched last year’s League of Legends Championship.

A video game championship garnered more than 2x as many views as the most important basketball game of the last two decades.

Why?

Because gaming is massive.

Newzoo’s most recent annual report of the gaming market showed that 747M people watched Esports in 2020, up from 593M in 2019. They are projecting 943M people to be watching Esports by 2024.

Twitch data supports this forecast. Twitch is the largest live streaming website in the world, and approximately 8M individuals stream content on the site. The rise of video games and Esports has been a boon for Twitch, as fans will watch their favorite gamers play for hours on end.

Twitchtracker provides valuable insights on Twitch usage over time. You can see below that even as the world has begun to reopen, Twitch views have continued to climb. Esports are here to stay.

I mentioned earlier that BallStreet is in a great position to capitalize on the Esports boom through its partnership with Riot Games. Let’s go a little deeper on the Esports hypothesis.

In 2020, Twitch began letting audience members bet their “channel points”. Creators can create events for their viewers to bet on, ranging from outcomes of a video game to “will I finish this whole pizza?”

Users earn channel Points on the platform by watching, following and subscribing to channels. They can then use those points to unlock features, such as the use of certain emotes or the ability to highlight their messages in chat. 

The channel points experiment was a hit. It just so happens that the only thing more addicting than playing video games is playing a game where you bet on other people playing games. Gameception.

Popular streams have hit 100M+ channel points bets, and Felix "xQc" Lengyel recently compiled the single largest bet on Twitch: over one billion channel points wagered by his fans.

Once again, people will bet on anything.

In their partnership with Riot Games, BallStreet offers live trading markets for popular video game Teamfight Tactics. San Emeterio said the company averages north of 70 minutes of app open time and 85 trades per user during their live trading events with Riot Games. That is a ridiculous level of engagement, and it supports BallStreet’s thesis that people want an option for actively betting on outcomes of games.

Where It Is; Where It’s Going

Right now, BallStreet offers free-to-play competitions across a variety of games. Since they aren’t a true sportsbook, they can be flexible in the face of regulation. This allows BallStreet to create unique partnerships that will drive user growth and accelerate acquisition. 

However, BallStreet has considered what a real money platform in the not-so-distant future.

In a real money scenario, BallStreet wouldn’t function as a traditional sportsbook. It would work very much like a DFS or poker tournament with each player paying an entry fee and the prize pool is distributed amongst a preset number of "winners". 

The entry fee model would allow BallStreet to make a risk-free 10% margin on handle while still offering parlay style payouts to all participants. BallStreet would be able to operate as a regulated fantasy operator in 45 of 50 states and create real-time player markets.

An example might be a $20 entry fee (+$2 for the house) where the top 20% win $100.

• Enter a BallStreet contest for $20+$2

• Top 20% win $100 (5X)

This offering would help BallStreet attract more serious gamblers.

Competition and Risk

Okay, so BallStreet has an engaging product in a fast-growing market. Is there a lot of competition?

100%.

The sports betting industry as a whole has to compete with the world’s biggest casino: the stock market. Ironically, Robinhood and crypto exchanges may be two of the biggest betting platforms in America.

Competition is fierce within the sports betting industry as well.

Last year, Joe Pompliano put together a graphic showing the market share breakdown of US sportsbooks.

DraftKings. FanDuel. Fox Bet. These are multi-billion dollar companies spending hundreds of millions of dollars to gain market share. If it seems like 99% of advertisements these days are for sports betting, it’s because they are. 

Once customers sign up for a sportsbook, they tend to stick with it. Outside of varying odds from book to book, there is very little product differentiation. This has made competition cutthroat and expensive.

Some companies are also positioning to create true sports betting exchanges akin to derivative markets.

Sporttrade, one of BallStreet’s partners for the Super Bowl competition, recently partnered with Nasdaq to bolster the security and integrity of its sports betting platform. The company plans to roll out the first “sports betting exchange” in New Jersey this year, with other states to follow soon after.

So yeah, there is a lot of competition, and competition isn’t cheap.

High customer acquisition costs and low moats have made this market expensive. DraftKings even spent more on marketing than it generated in revenue in Q3!

But the bigger sportsbooks have the bankrolls to afford that spend right now. Bigger sportsbooks could roll out a free-to-play, live betting platform as well.

How does BallStreet overcome these risks?

Through differentiation and collaboration.

Most sportsbooks are in a race to the bottom due to high customer acquisition costs. They are offering similar products, so they throw money at social media advertisements, stadium signs, and influencers in order to onboard as many new users as possible.

However, differentiating your product and/or your customer base can negate this risk. BallStreet isn’t targeting the diehard gambler. BallStreet is targeting the individual who wants to be more engaged in the game without having to take on much risk. The individual who enjoys speculating on the Super Bowl, or an Esports championship, or over/under on the length of Biden’s State of the Union. Sportsbooks want the diehard customers because they spend more money. BallStreet wants the casual players looking to have a good time.

The other major risk is another platform copying BallStreet’s model. We are already seeing a similar model with Sporttrade’s sports betting exchange. However, Sporttrade’s exchange will still target those players who want to throw real money at games. 

BallStreet’s target audience is the casual bettor with little skin in the game. To use another sports analogy, they are like a feeder program for entry level gamblers.

This also makes BallStreet an appealing partner for more mature sportsbooks. A large novice audience is worth a fortune in the gambling world.

BallStreet could also become an acquisition target at some point. DraftKings’ recent purchase of Golden Nugget shows that this industry is consolidating quickly. Everyone wants to capture market share.

Major Events

As I mentioned at the beginning, BallStreet is running a Super Bowl competition with a $50,000 prize pool. You better believe I’ll be trading like crazy 😤 On top of that, they are doing similar events for March Madness and the Masters.

As we move further into 2022, you can expect them to have more and more events.

Final Thoughts

The sports betting market is on fire right now, and gamblers can’t get enough. Millions of new bettors are pouring in, but not all of them have the same risk tolerance.

BallStreet has found its niche in the retail bettors that want to actively trade during a game without having to take too much risk.

BallStreet has so far accumulated 40,000 users in this niche without a marketing campaign. However, the gauntlet of Super Bowl - March Madness - Masters has given them a prime opportunity to grow their base, and we are excited to join in on the fun.

I’m about to crush 20 beers watching the best football game of the year, and you better believe I’ll be betting on BallStreet for all four quarters.

Click here to join me

And if you’re wondering who I’m rooting for…

Who cares? Like Rob Lowe, I just want to watch a great game.

- Lit