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FanDuel Co-Founder Nigel Eccles on the Future of Sports Betting
Eccles talks about what's next in sports betting and daily fantasy, international markets, artificial intelligence and Web3.
Nigel Eccles was the co-founder of FanDuel, one of the breakout companies in daily fantasy and sports betting. He’s seen firsthand the growth of the market and the rapid changes in recent years. Since leaving, he’s now an operator and an active investor in startups in areas including sports betting and daily fantasy.
In this conversation he talks about what he’s seeing in sports betting and fantasy sports, both in the U.S. and internationally, and the differences between the two. He also talks about micro-markets or in-play gaming, and the impact of technology such as AI and automation. But despite some big moves toward technology, many sportsbooks are still fairly traditional and rely on human traders, he notes.
More recently, Eccles helped start BetDEX, an decentralized exchange providing liquidity for sports betting. That company is taking on others such as Betfair by using Web3 as a way for people to bet on sports with a much lower cost for consumers. Since bets are decentralized and held on a smart contract, neither BetDex or brokers/operators are able to hold customers' money—it’s held by the Web3 protocol. Eccles is also working on a new music startup, Vault. Here’s our conversation which was edited for length and clarity.
BetCrunch: What are you seeing in terms of innovation in sports betting and fantasy sports?
Nigel Eccles: We are seeing quite a lot of innovation or more than we've ever seen in 20 years. The U.S. opening up is a big part of that. Not only opening up the U.S. market but opening up to a lot of U.S. entrepreneurs that—might be doing something else otherwise.
We've also seen some ideas that maybe started in the U.S. and have gone to other countries like India or Brazil and then developing further than they have in the US. One example would be Dream11 in India that as a fantasy sports business is actually much bigger than FanDuel or DraftKings’ fantasy business. So we’re definitely seeing a lot of innovation.
So some of that innovation is happening overseas as opposed to moving to the U.S.?
Yes, the U.S. is a massive laggard in gaming. If you add FanDuel and BetMGM (and PointsBet), around 65 to 70% of the U.S. sports betting market is controlled by European operators or those that have at least a 50% stake owned overseas. That's quite incredible. There's not that many markets in the U.S. like that—maybe music with Spotify. That's pretty rare for consumer businesses. The only U.S. ones are DraftKings, which had to acquire an international operator, SBTech, and Caesars, which had to acquire William Hill to get the expertise. BarStool acquired a Canadian operator and relied on Kambi or still relies on Kambi.
Is that because the U.S. has been closed off?
It's been closed off whereas the rest of the market has developed and matured.
Does that leave more opening for startups in the U.S.?
The challenge is the U.S. has moved from being a market opening up to actually being quite restrictive now. So I don't see much of an opportunity for new entrants in regulated sports gambling in the U.S. It's quickly becoming an oligopoly of three players. We've seen even PointsBet which was early and well capitalized—even then, they have a 5% market share and now trying to find a buyer. It’s a great market to be number one. It's a harder market to be number two or three. It's a terrible market to be any lower than that.
We’re seeing more innovation in fantasy sports than we are in sports betting. In fantasy sports it is more open to startups. And we're seeing more innovative products like say, Underdog, that are doing really well.
Can the big operators with scale just rely on heavy marketing and advertising?
They still need to innovate and develop the product. But you wouldn't bet on someone with an innovative product but doesn't have scale in that market. Because to get there—it's just too hard. An interesting product is Mojo or Betr, but the challenge is how do they get to national scale? It costs hundreds of millions of dollars. So it's very hard for somebody who's got a cool product to really prove it in one market and then roll it out. No one's managed to do that. I'm skeptical that anyone will in regulated sports betting.
The Fantasy Sports Market
What about fantasy sports? Is that more open in terms of competition?
It’s much more wide open because it doesn't have the restrictive regulatory requirements. You can launch in some 40 states out of the gate—including in big states like Florida, Texas, California.
There’s a lot of interest in micro markets and in-play betting. What are you seeing there?
That’s a long term trend. And it sort of depends by sport. Something like tennis where over 80% of the bets are in-game, or cricket has a really fantastic in-game betting market. So we're definitely seeing a rapid movement and share moving towards in-game.
Are you seeing more interest from a younger audience in micro markets?
Hard to say. I think so. But I haven't ever seen any kind of hard data. Both demographics (older and younger) have migrated towards in-play, so it's hard to say that's one or the other.
Technology in Sports Betting
What do you see in terms of sports gaming companies moving into artificial intelligence, automation, and machine learning?
So for pregame markets it maybe wasn't quite as important. But for in-play, you can’t operate without it. As a technology, it moved from something that was kind of uninteresting—a cost saving, you can automate, therefore you don't need as many traders—to actually being something that's more interesting. Which is: whenever you automate, you can offer products you couldn’t even have done before. You can offer many, multiple markets for in-play. You can't really do that with human traders. So that's when the technology gets really interesting. When it's not just a cost saving, it's more enabling something totally new.
Are the larger operators moving that way in terms of automation and AI technology?
Yes. Interestingly Amelco just did a deal with Simplebet. So that is an indication of demand. There's definitely indication that that is the case.
They talk about it but are they actually doing it?
The trading side (of many companies) is surprisingly less sophisticated than people think. Everyone that looks at the gaming sector thinks that they've got supercomputers and they've got Harvard and MIT PhDs running artificial intelligence. When in reality it looks more like: you've got 40-something-year-old blokes with a stubby pencil, with Pinnacle lines up, and and they see risk and they move it around. And it’s more like the latter. I'm not saying it's totally like that, but it looks a lot more like that than you would think.
Given that, how do they handle risk?
One other thing about regulated sports betting is because those sportsbooks have Know Your Customer procedures, they can limit users. If they didn't have that ability, they would have to have sophisticated risk management. But because they can quickly identify who the winners are, and what a pattern is of a winning customer—they just restrict those users.
Therefore they don't have to have super sophisticated risk management. All you need to do is identify who the winners are and eliminate them. It’s a job of just trying to price the losing users you have on the higher and higher margin products. That’s not the case in gray markets—take India for example. You don't have KYC, you can’t limit users. If you don't know who they are, you can’t limit them. Therefore they surprisingly have to be more sophisticated. And they manage their liability. They also operate to much lower margins.
Web3 and crypto in sports betting
You’re working on a startup, BetDEX. How does that play in the sports betting world?
BetDEX is focused on international sports betting markets. About $2 trillion is bet every year on sports. The weird thing is that it's split, that liquidity is split among 10,000 different sportsbooks. And so, we have all these different pockets of liquidity.
For example, if you wanted to buy Apple stock, imagine there were 10,000 different places where you could buy it—and all quoting different prices. That’s insane. That's the sports betting market today. Our view is: why isn't there a central clearing house for all of those markets? So if there is a sportsbook that takes a lot of money bet on one side of a game, it can blow it off onto this exchange, or it could even offer that exchange pricing to their customers.
What’s the existing landscape look like there?
There is an existing betting exchange called Betfair, which is very popular. It was founded about 20 years ago in London. And the problem with Betfair is that it is a centralized exchange. It's owned by Flutter. And, early on, they said, “Winners are welcome.” But later what they decided was well, winners are welcome, but we're taxing them really heavily.
So if you invest a lot of time and money building your business on there, suddenly you might be unprofitable. Additionally, there's a risk if you build infrastructure on top of Betfair that Betfair could just decide they don't want that business anymore.
How is BetDEX different from the traditional exchanges?
So what we decided with BetDEX was we were going to separate the exchange part from the broker part. There's two parts to this product. The exchange part is like digital plumbing—sports betting plumbing. That means that two different brokers can use the protocol, called Monaco. And so I could make a bet through BetDEX and that bet appears on Monaco. So if I want to bet $100 on Manchester United to win, someone using a different broker could see that bet and could take the other side of that bet.
So what the protocol does is it allows this liquidity to be broadcast out to all of these brokers. And our aspiration is that one day we have 10,000 brokers using this infrastructure to pool bets. And what that means is that Monaco becomes basically the greatest source of truth and of liquidity for any of these markets.
The other thing to note is it's noncustodial, so neither BetDEX or brokers ever holds users' money. If I bet with BetDEX, I have a wallet and when I place a bet that money goes from my wallet into a smart contract, which is controlled by the Monaco protocol. And when the bet is settled, the money goes straight from Monaco back into that user's wallet. So at no point am I ever at risk from the bookie deciding that they're not going to pay me back, or they're going to make it difficult to get my money out, because the bookie never touches my money.
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Which basically is not possible in the traditional world?
100%. There’s been a lot of discussion over the last year on use cases for crypto. A lot of people have come up with stuff and you're thinking: why does it need to have crypto? A lot of projects didn't really pass a test of: does it really need crypto? With Monaco you can't build it without it. Unless there's a decentralized protocol that does this. There is a single controller. There's some entity that we have to trust. With Monoco we no longer have to trust anyone with our money because the money is not controlled by some third party. It's either in my wallet or it's in the smart contract. And then when it settles, the money goes straight back to my wallet. And that's pretty revolutionary.
And then oracles determine the outcomes?
We've used a price oracle. It's, “Did Man City win or not?” Once that happens, then there's a price oracle that triggers it, the smart contract looks to that oracle to tell us what the truth is and then settles it. In cricket we seem to have a lot of traction, but also soccer and basketball.
So the vig or hold would be much lower than in the traditional world?
It looks like 1% to 2%. Compared to the 10% to 15% that a lot of people are more familiar with.
Do you see other use cases for crypto or web3 and sports betting?
This is one that really makes sense. I was at Betfair 20 years ago which is quite alarming. I remember even when I was leaving and some years afterwards, it felt like there must be a better way of doing it. And this is a better way of doing it.
Today where crypto is the most successful is payment rails. Gambling is a huge problem with payments. A lot of times the credit card company just doesn’t play nice with it. So we've seen products like Stake.com say “We’ve got a solution for that. We're just going to use crypto.”
His Music Startup
And so you’re also doing the music startup Vault as your day job?
Yes, Vault is a new digital music format that uses crypto, but that's hidden from the user. And the idea behind Vault is if you think of the mp3 format, from an artist's perspective, the thing that was really bad about it was it was infinitely copyable. You could create perfect copies of it. And from a fan perspective, the thing that was bad about it was you didn't own it. You just had a file. The ownership: you couldn't gift it to a friend, you couldn't resell it. You couldn't really collect it in the same way. You didn't actually have ownership.
We've created a new format that is copy-protected. If there’s only 100 of them, there’ll only ever be 100 of them. (Many artists create only 100 using Vault.) But also it is collectible because you can actually own it. And ultimately you could gift to your friend or you can resell it. It uses NFT's and crypto rails but from a user perspective they don't actually see any of that.
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