Start-Up Exchange Sporttrade Looks To Attract New Type Of U.S. Sports Bettor

November 1, 2022
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Although many have preached the need for differentiation to succeed in the U.S. sports-betting space, Pennsylvania-based start-up Sporttrade is looking to make a dent with a product unlike few in the U.S. to date.

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Although many have preached the need for differentiation to succeed in the U.S. sports-betting space, Pennsylvania-based start-up Sporttrade is looking to make a dent with a product unlike few in the U.S. to date.

The company launched its sports trading platform in New Jersey in September, a stock exchange-like product with a focus on attracting a different type of player than the traditional sportsbook offering.

The format includes a $0 to $100 buying price on each event contract, and includes the unique feature of allowing customers to effectively cash out part of their position during events while keeping the remaining portion of the bet.

CEO Alex Kane said that he believes that sports trading betting exchange products can obtain about 15 percent to 20 percent of the total sports-betting market in the U.S., which would be a higher share than Betfair and other exchanges account for in the UK.

He estimated that about half that share would be traditional sportsbook players, but another half would be new players that grow the overall pie.

“You’re still going to get all the sharps, all the price-sensitive people, all the match bettors, but on top of that, you’re going to get the type of customer that doesn’t know what any of that is, you’re going to get the customer that’s going to buy the Phillies to win the World Series, they’re going to win the NLDS (National League Division Series), they can sell out half their position and let the rest ride,” Kane said.

“You can’t come into DraftKings thinking, 'I’m going to buy in at this price, I’m going to put a limit order to sell,' it just doesn’t make sense,” he continued. “And I think because millions of Americans already use Robinhood and Coinbase and OpenSea, that there is going to be that much bigger of an industry here.”

One of the biggest challenges for exchange-based products like Sporttrade and fellow New Jersey market debutant Prophet Exchange in the U.S. is that, unlike in other jurisdictions, the federal Wire Act means exchanges cannot match players in different states, requiring individual state liquidity.

Sporttrade uses market makers to improve its liquidity, in hopes of ensuring there are always contracts to offer players, as well as a smaller event catalog than a traditional sportsbook, largely focused on major American professional and collegiate sports.

The company also rolled out futures offerings in October, allowing players to purchase contracts on the winners of major American professional sports leagues ,as well as the World Cup.

“Having liquidity to be there almost as an afterthought is one of the huge advantages, and that’s where our technology comes into play,” Kane said. “The way we built the matching engine, it’s very easy for a market maker that’s traditionally capital markets to look at our system and say, you’re using this protocol, this is your data port, this is how I plug in.

“We have multiple market makers, and the idea is to get to more, but not too many,” Kane said. “It’s not like financial markets, there’s not like a ton of volume where you can support 40 market makers.”

Kane said that although Sporttrade has talked to some market makers that would allow it to offer markets on like soccer and tennis, the company is focused now on the ones that can continue to enhance the American sports offerings.

In terms of future expansion, Sporttrade has market-access deals for Colorado, Louisiana and Indiana, as well as a few other states that have yet to be announced, but Kane said that the priority is to bring the product next to Colorado sometime in 2023.

Another issue that exchanges and other alternative products have faced in some states is either inflexibility in sports-betting laws or among regulators in figuring out how those models fit in their respective taxation models and how their tax revenues would compare to those from a traditional sportsbook.

“The regulator’s job isn’t to make sure the customer loses the most; it’s to protect the customer,” Kane said. “So many times, that gets lost, they should be happy that the hold is lower. Of course, sometimes they aren’t.

“I think practically, customers have a budget of money they’re going to lose, if they lose it at a 1 percent clip, they’re just going to trade 17 times more than if they’re losing 17 percent,” Kane said of the comparable revenue. “Net, it’s very, very similar.”

Another challenge is the same faced by most smaller and start-up sportsbook operators, namely marketing in a space dominated by major players with nine-figure customer acquisition spending.

Chief marketing officer Russ Rubino said the focus for Sporttrade is education on the product, while also acquiring customers in the financial trading space that traditional sportsbooks are not chasing.

“For the trader audience, my job as a marketer is to educate them on the product, build brand awareness, leverage influencers in that space,” he said. “We are marketing in greenfield. What would DraftKings market to that person? We’ve got a trading app to a trading audience."

“The customer acquisition cost is going to be significantly lower because we don’t have to drop $1,000 risk-free bets right out of the gate along with the millions and millions of dollars for TV advertising,” Rubino added. “We’ll grow slower, certainly, we’re not going to have hundreds of thousands of customers out of the gate, but there will be a viral nature to that that we’re expecting.”

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