Week 4 ~ Tokenized Sports Betting Syndicates
Deep pockets park their money with fund managers, right?
There’s a certain pride in winning. Especially something totally out of your control. It sounds like an oxymoron, but holds very true.
That’s why the allure of gambling is so strong for sports fans. It gives them a direct path to putting their money where their mouths are, and obviously an added jolt of fanship.
Beyond this point, the pool separates into two groups: those who want to bet, and those who want to win.
If this were on a Venn diagram, the overlap would be much narrower than most people assume…
There’s an evident difference between playing and actually competing. We’re about to explore the evolving world of sports betting and learn how security tokens can create real winners, not gamesters.
Aside from the excitement of lining up a 5-way parlay, getting your friends together, and gluing yourselves to 3 screens, the purpose of betting is to win and profit. From an investor’s standpoint, the most rational decision involves a proper risk-reward and expected value analysis. The outcomes with the greatest expected values for X amount of risk are typically deemed to be the best plays. Although outliers exist in every data set, this notion holds true for the majority, and can be proven through consistency.
For familiarity’s sake, the gambling population can be labeled as “retail” and “institutional”. Retail being amateur, one-off gamblers, and institutional being professional, consistent gamblers.
*Note: I don’t buy into these labels regarding skill level or ability — we all know how the tables turned last week in the markets ;) Let’s use these labels for ease of reference.
Only a very well-defined group can truly call themselves professionals — consistently profitable gamblers. Rather than taking 10 moon shots and hoping 1 hits, these gamblers choose events (single bets, parlays, props, etc.) with positive expected values that are successful more than half the time.
Even more fun, some (probably most?) have developed their own algorithms for deciding on optimal betting conditions and events. Much like traders, there are sets of rules that govern these bettors’ choices which ultimately lead to consistent positive cash flow.
While it’s certainly possible for “retail” gamblers to develop their own quant methods (I know a couple personally — can confirm the methodologies are quite creative), it may be more beneficial (read: profitable) to back the best in the game rather than running through trial-and-error parlays.
Drawing from the concept of choosing money managers for investments, security tokens are conducive to giving “retail” bettors access to “institutional” strategies while simultaneously increasing the “institutional” purchasing power.
Value Adds
“Institutional” Gambler (Token Issuer)
- Can increase one’s capital base and better scale risk-reward setups
- Ability to structure tokens with automatic dividends/distributions
- Will have the opportunity to grow earnings beyond one’s solo capital base through the token offering’s structure (i.e. Management and Performance fees that exist in legacy financial management partnerships)
“Retail” Gamblers (Token Holders)
- Access to proven strategies without any direct management needed
- Opportunity to back their favorite gamblers and share in the rewards
- Distributions can be received as frequently as daily, even at the close of each event
- Tokens may be seamlessly converted and swapped to other gamblers, strategies, or preferable events (ex. Swapping tokens for institutional gamblers based on success rates in the Super Bowl vs. March Madness, much like investors swapping fund managers in various economic climates)
The winning percentage of a professional gambler is only around 53% (source). As mentioned earlier, the majority of bets should consistently hit — and while that average is only 3% into the majority level, it’s a line that can be very defining.
A win-win scenario through security tokens exists in the gambling world. Pros who are averaging an impressively high success rate can increase their deployable capital and further increase their profits. Amateurs, who may love the thrill of the bet, gain access to a new avenue of sports betting — one that is a bit more on the sidelines (Isn’t every bettor technically on the sidelines? Let’s see if Tom Brady will bring this guy to the Promised Land this weekend, in the meantime).
As mentioned, this structure is quite reminiscent of established investment funds and vehicles — people do their diligence on investment managers, decide which strategies and managers meet their preferences, and park their capital with said managers.
The same opportunities can exist for avid bettors in various capacities. The ease of security tokens makes this execution smooth. Further, professional gamblers that rank as “institutional” gamblers and choose to launch tokens can offer up an overview on their gambling strategies, events of choice, historical results, and other information that would be helpful to “retail” gamblers doing their diligence.
Much like how some investment managers perform better in certain economic climates, some professional gamblers may have their own fortes in regards to big events. Retail Gambler A could choose to back Institutional Gambler B for the Super Bowl, and then convert those tokens into Institutional Gambler C’s tokens for March Madness if those events reflect each gambler’s specialty. This can be a seriously powerful mechanism, and can carve out legends in the gambling game if the results follow.
Obviously the push back will have something to do with “risk” — that’s an easy word to throw around in uncomfortable and new situations. Every process will have its own unique risk management methods, and people should only take on what they can handle (financially, mentally, and emotionally).
Historical bets certainly do not indicate future results… but neither do past investment performances, and yet there is still a huge emphasis on track records.
The ability for the sports betting world to operate like the investment world is here. It is perfectly feasible and could be operationally functional with the right leaders at the helm.
Partnership Opportunities
With an industry valuation of over $85 billion in 2019 and more than $20 billion pouring in the last 2 years alone (we salute you, legislation), there is significant potential for a first-mover advantage here.
Someone like Dave Portnoy at Barstool Sports already has the influence, the immersion, and the consumer base to bring this concept to fruition.
And as market leaders with an estimated 49% market share of all U.S. sports bets by the end of 2021, Draft Kings is extremely well positioned to kickstart this initiative.
Perhaps sooner rather than later retail gamblers can ride the institutional wave and celebrate like this:
More coming next Wednesday 2/10/21!
Disclaimer: This is not financial or investment advice and should not be interpreted as such. Please do your own research on investments and financial decisions before partaking in any ideas or ventures depicted in this publication.
