Will Aaron Judge hit a home run on this pitch or in this at bat? Those are the type of instant gratification entertainment focused products. That simple bet in particular, but new competitors as well enabled and that that are getting extremely popular. The future of the sports betting industry is really an entertainment product. Welcome to the investor, a podcast where I, Joel Palafinkel, your host, dives deep into the minds of the world's most influential institutional investors.
In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. So we are live here. I'm excited to have another guest on our show, Lloyd Danzig. So, Lloyd, thanks for coming today. Excited to learn a little more about his background and, you know, all the investing activities that he's involved in at Sharp Alpha Advisors. They predominantly invest in sports betting.
So just excited to go a little deeper in that sector. Haven't had a guest, covering that area, and he's also been a pretty renowned, speaker as well. You know? I think you've spoken at a couple TED Ted Conversate, Ted conferences and, have been just kind of really a big player in the, the ecosystem. So, thanks again for coming, Lloyd. Excited to to learn a little more about you and your firm and kind of what you guys are focusing on. Yeah. Look, thanks for having me.
Love what you're doing and everything you guys are doing at at at Sutton Capital, as well. Thank you guys put out some fantastic content that helps people answer questions that you just can't Google or ask chat GPT if you are so inclined. That's one of the most interesting but challenging things about the world of venture investing is Yeah. Perhaps, you know, more so today than in the past are there available resources, but they still are relatively scamped.
And Yeah. It's really more of an apprenticeship business, and and it's hard to find content where fund managers, fund partners are are giving genuine behind the scenes insights into how funds come together, how venture funds raise money from their LPs, how decision processes get made to invest in portfolio companies. But glad to see you guys doing doing some great work and and making all that a bit more transparent. No, thank you so much.
And I think, look, I selfishly have built this to just, also educate myself, right? I mean, a lot of this stuff to your point, I mean, you went to a top Ivy League school and, you know, that content is there and, you know, the the institutional knowledge is there. But sometimes to get the intimate stories to hear the actual rules of practice, you know, that's usually behind closed doors. Sometimes it's proprietary.
But, know, a lot of times it's just because you didn't have the right person to share that story, you know, in your business school education. But I really look at the career as joining. So you join a firm, you know, whether you, you know, went through the normal route of like, go into a top tier business school or, or, you know, pivoting on your own somehow, and then eventually going to launch.
And then I would say the final stage is just allocating, you know, thinking about your family office or your legacy and how you're going to be allocating the remainder of your portfolio for your remaining days. You know, that's kind of how I segment the asset manager career, just those three steps. So I think we can definitely talk about all three of those steps from different perspectives.
But, before we do that and go deep and go down the rabbit hole, we'd love to just learn a little more about, you know, who Lloyd is, you know, tell tell me a little bit about your background, your career, what your parents did, what you study, and, you know, why and how you even broke into VC. Yeah. No. Absolutely. I went to Wharton undergrad Columbia for grad school, spent most of my career on Wall Street, primarily at BlackRock, also at a smaller shop where I was a fixed income trader.
Mhmm. Always loved sports, sports betting, fantasy sports. Never frankly thought they would have anything to do with with my career. But the thing that I always love about sports, betting on sports, fantasy sports was not that it's a way to maximize your risk adjusted return, but that for me and and a lot of my peers, it's just a fantastic entertainment activity. I I tend to derive more utility per dollar.
If I place a bet on the Knicks game and have a good time watching it with my friends, then I could spending that same dollar in another way in New York City where that dollar certainly doesn't go very far.
And so had an institutional investment background, had a love for fantasy sports and sports betting, never thought that those paths would intersect until May of twenty eighteen when there was a Supreme Court case that has since given rise to the proliferation of online sports betting that many people have likely noticed if they live in a state where it is legal and, are receiving DraftKings and FanDuel ads and and things of that nature.
And as soon as that Supreme Court case, was decided, it it was clear to me there was a huge opportunity there similar to the stories I had studied about people who had made a lot of money at the start of the Internet, at the start of mobile, at the start of social, at the start of crypto, etcetera. And so decided to do something a bit riskier, more entrepreneurial, but something I was more passionate about, which was focus on a a a product that I was a longtime consumer of and Mhmm.
Felt I understood The US target demographic of very well, helped launch, and raise money for a company in New York, that that was raising and and building some really cool AI powered tech for sports betting right after legalization.
Started doing a bit of angel investing, frankly, got a bit lucky and had a couple of exits and developed a track record and a bit of a reputation in the space for being someone who has good insights, connectivity and can add value, and then was in a position to put together a small kind of proof of concept fund back in 2021 and deploying that into companies predominantly in sports betting, but perhaps more broadly in a category I like to refer to
as competitive entertainment, which I think does a good job describing these psychological similarities between sports betting, casino, lottery, retail crypto trading, retail equity trading, even aspects of the collectibles, merchandise, and ticketing market. And and those are the types of deals we've been allocating mostly at seed and series a, out of fund one and and have now had quite a bit of success and are thinking about the exact timing, size and shape of what fund two will look like.
But that's where we sit. We invest in companies building the next big thing in competitive entertainment in real money gaming and sports betting. I personally am a power user of every company's product that I invest in, and I use myself as the test case for every product that we diligence, in order to see is this something that can really capture the hearts and minds of The US audience? And I should mention, the story is not just about The US.
Latin America, in particular, Brazil is now legalizing online gambling for the first time. Japan historically was thought to be a region that would never do so, but MGM just got clearance to build a resort and casino in Osaka, and people believe this may be, a stepping stone to a broader legalized online gambling ecosystem, and there are other jurisdictions.
India, for example, in particular, that also have not previously formally legalized and regulated online sports betting and casino and are now considering doing so. Sure. And can you just unpack the entire gaming market? So, you know, there's you know, what are the sectors of sports that are the most popular for betting? You know, I know there's, you know, definitely, like, all different ways to permute, you know, football outcomes and basketball outcomes.
You know, I went to, you know, you know, Kentucky couple couple years ago and went to Churchill down. So I'm I'm imagining horse racing is is a big one too. But, you know, what are the maybe the the platforms and then the apps that sit on top of those platforms? And then what are, the popular sports that people are using? I mean, I've heard of Simple Bet. I knew a buddy that was running product there several years ago. So I know that was one of the, you know, platforms that was pretty popular.
But, you know, if you could just catch us up on the market and just kinda what's what's emerging and and kinda what's what's still an opportunity that would be pretty helpful for the community. Yeah. So just parenthetically, I was one of the first five or six people at SimpleBet when it was run out of the CEO's one bedroom apartment in Hudson Yards here in the city. And they have come quite a ways, you know, since then, which I'm I'm so thrilled to see.
I'll get back to them and where they sit in the ecosystem for a minute to stay step back and perhaps offer a bit of a a primer. One thing that a lot of people might be surprised to hear is that sports books and casinos are actually not very good internally at doing the type of things that you think would be core competencies of a sports book and casino, such as setting odds, taking bets, changing odds as bet bets come in, creating new table games, creating new slot machines.
Companies that people are familiar with in the world of of gambling, whether casino or sports betting, Historically, our consumer facing brands that are publicity and customer acquisition engines, but then sit atop a complex combination of B two B software platforms that are all plugged into one another that provide the core functionality such are such as what are the odds on this particular bet? Can this customer make a bet of this amount of dollars at this particular time?
New casino games, new sports betting products, they all tend to come, from third parties, more so from the market leading consumer brands that people are familiar with.
In addition, I think it's worth understanding that the investment case, particularly for early stage companies in the space, goes something like there are incumbents and market leaders in the space that are desperate to differentiate, desperate to innovate, and yet are generally ill equipped or too resource constrained to provide that innovation in house organically.
And so virtually the entire industry is in buy rather than build mode, which provides this incredible pocket of opportunity for early stage companies that are more nimble, more agile can build the products of tomorrow like simple that has with micro betting, for example, which may ultimately gain popularity under a draftkings or FanDuel or Caesars or MGM umbrella, but almost certainly did not originate, at those types of of companies.
And so that's a lot of of what we're focusing on now at a time when the industry, despite any economic headwinds it might fit that the economy might face, is growing rapidly. Sports betting revenues in The US have doubled year over year every year since 2018 and are expected to grow at at least a 40% compound annual growth rate for the next ten years regardless of what happens in the macro economy. Lottery sales actually increase when unemployment rate increases.
And so there are some interesting ways in which the gambling sector, lottery in particular, are actually, you know, inversely correlated with economic health and and perform quite well in a in a time of of recession. So that is the backdrop. You mentioned SimpleBet. They're a great example of a company that enables some of the new types of betting that people are enjoying engaging with.
SimpleBet is a b two b company that powers DraftKings, Caesars, and Bet365, specifically in their offering of what has now become known as micro betting. Micro betting refers to placing wagers on short duration outcomes in the game that don't really have anything to do with who's winning or who's losing or or what the eventual outcome of the game will be. So placing a bet on will the next pitch be a ball or a strike? Will it be over or under 89 miles an hour?
Will Aaron Judge hit a home run on this pitch or in this at bat? Those are the type of instant gratification entertainment focused products. That simple bet in particular, but new competitors as well enabled and that that are getting extremely popular. The future of the sports betting industry. Is really an entertainment product.
Is a product that caters to high margin, low volume customers who psychologically classify their deposits as entertainment expenses, not as capital investment from which to earn an ROI. And so one of the hottest areas to invest in is b two b companies that enable the DraftKings and FanDuels of the world to deliver more of these entertainment focused instant gratification, maybe low risk, high reward products. Micro betting is perhaps one of the most popular.
The other is something known as a same game parlay, which is where you are betting on multiple events all to occur within one game. And you either win a whole bunch of money if they all occur or you don't win anything if even one of them does not occur. And that is another ultra popular product among the recreational high margin, low volume kind of user that that has really transformed the product landscape in the past couple of years.
Mhmm. At the same time, there's a lot of investment in regtech infrastructure and responsible gaming infrastructure intended to keep customers safe and extend the durability and sustainability of the profit making capabilities of the companies in this space. So that's definitely another area, for investment.
And then I would also say there is a lot of effort being made to underwrite companies that will enable a degree of personalization and customization that currently does not yet exist in the industry. If you open draftkings and I open draftkings right now, we will see the exact same app.
But if I am only a Yankees baseball fan that places baseball bets, and you are only someone who likes to bet on hockey, we should see completely different welcome screens and get completely different promotions and and and recommended bets and things of that nature. And so that is certainly something best accomplished by third parties, and there's some interesting companies pursuing that.
And then perhaps the last I'll mention for now before pausing and certainly, you know, go down this rabbit hole as deep as you'd like. I mentioned there are a lot of other jurisdictions that are undergoing their online gambling or sports betting renaissance as we did starting in 2018 here. And investors are noticing that the best performing companies really have been DraftKings and FanDuel who were in the market five years before it was legal to be in the market.
And so that then begs the question, what are the new frontiers where companies can gain early entrance, build up a user base and brand equity, and then as soon as the legalization moment occurs, be in pole position to capture a great deal of that interest. And so I'd say another area for investment is companies that provide exposure to some of the emerging geographies, in particular, Latin America, Brazil, Mexico, India, and other parts of Asia are especially ripe for innovation.
So let me pause there. That's kind of like the rough size structure and shape of the market, the opportunity, and where people are investing at the early stages. Yeah. No. That's really helpful. And can you unpack the regulatory changes? So, you know, I know there is some, uncertainty around if, you know, some games are games of skill actually gambling.
And can you just give us a little bit of a history lesson in terms of how, you know, sports betting, you know, has has evolved and, you know, how does that intersect with gambling? Or are they two different things, or are they kind of congruent in some nature? So we'd love to love to just kinda know, like, how sports betting has evolved and then, you know, just the regulations being lifted in in some instances that might be helpful for the audience. Absolutely.
So starting with sports betting, and then I will mention games of skill and casino. In 1992, the Professional and Amateur Sports Protection Act known as PASBA was passed, which basically made sports betting illegal everywhere outside of Las Vegas, outside of Nevada. And that was the case from 1992 up until 2018 Mhmm. After a series of carefully engineered lawsuits caused the Supreme Court to say, actually, that is a violation of the tenth amendment.
There are no federal provisions regarding sports betting, and as such, it should be left to each state to decide if how and when they want to regulate, permit, and tax sports betting within their borders. And so since 05/14/2018, it was deemed that is a state's rights decision to legalize sports betting. And each state has been on their own legislative journey over that period from 2018 until now to legalize and regulate sports betting within their borders.
Some, like New Jersey, have been extremely quick to do so and have done so with very business friendly tax rates. Mhmm. Others, like New York perhaps, have been a little slower and rolled out much less business friendly tax rates. For reference, the tax rate on sports betting, revenues for a business in New Jersey, is eight to 12%. In New York, it is 51%. Pennsylvania, somewhere in the middle at 36%.
And then other states have been even slower, and in particular, those where there is a large tribal native American contingency, which has its own, gambling rights that that have been allocated to them like California or Florida, for example, those states have not legalized online sports betting.
So as far as sports betting goes, as of 05/14/2018, the legalization of sports betting is unequivocally a decision to be made by each state, and each state in The US has now been going through the process of deciding if how and when they will move forward with that legalization. There are currently 36 states that offer some combination of online or brick and mortar sports betting.
Online casino, which often is referred to as iGaming, which I believe usually stands for interactive gaming, but now it's kind of become a term in and of itself, has been legal, for a number of years, but has been much slower to proliferate from a legislative standpoint. There are only six states in The US that currently allow legal online casino, blackjack, craps, slot machines in particular, which are the most popular.
Just for a sense of reference, the six states in which online casino is legal produced almost the same amount of revenue as the 36 states do from sports betting. The reason for this is that the unit economics from online casino, at least historically, have been a lot higher. You place a bet on a basketball game, it takes two and a half, three hours until you find out the result, and it only occurs during a specific season relatively within, like, normal waking hours.
Mhmm. You can play an online slot machine every seven seconds, twenty four hours a day if you want, and that's why the unit economics tend to favor, online casino. However, sports betting is is very normalized here in The US, and we often don't realize it's even more normalized than it is other parts of the world. The best example or data point I will give for this is if anyone ever goes to a betting parlor. They don't really call them sports books in The UK. They call them betting parlors.
You go to a betting parlor and even the nicest part of London, and it will resemble a kind of outdated post office, a very transactional location that is meant for you to come in, place your bet, and leave. Mhmm. Whereas at a Las Vegas sports book, you could argue that the odds are the least important facet of the entire customer experience. It's a it's a party. It's a social scene. It's a place for enjoyment.
And that really speaks to the vastly different sociocultural orientation that we have towards sports betting here compared to many other jurisdictions. And so maybe it's an adult form of entertainment, but it's a form of entertainment. Gam casino, on the other hand, is generally regarded as a a vice. It is it's purely advice. It it is gambling. And so if you're a politician with a large conservative or religious or evangelical base Mhmm. You might not wanna risk your next election on Yeah.
Angering that base by legalizing online casino, whereas sports betting feels a bit more palatable. And I think the most interesting you quest question you asked is what about this phrase game of skill that sometimes gets thrown around? Sure. Gambling is defined. And when I say defined, I mean regulators stipulate that if an activity fits the following three criteria, it must be regulated and provided by a company that has a gambling license.
Those three criteria are that you pay something of value to enter a contest. The outcome of that contest is determined by chance, and you have an opportunity to receive some form of consideration in return dependent on that outcome. And so the big question mark comes in on criteria number two. What games have outcomes determined by chance and which ones do not?
Poker was the biggest catalyst for an argument here where, of course, there is some degree to which a poker game is determined by chance because the stacking of the cards are random. But there's But there's still some skill in terms of how you're playing the card. I would say arguably more skill than chance, for something like poker. And one easy or common way to detect this is look at the distribution of profits and losses.
If everyone earns or loses roughly the same or it's randomly distributed, probably chance. But if 1% of the players win 90% of the money, there probably is some form of skill that that is causing that to be the case. Yeah. And so different states, mentioned this is all determined on a state by state basis, have different tests that they perform to determine whether a game is a game of skill. In certain states, if any element of the outcome is determined by chance Mhmm. It is considered gambling.
In other states, the outcome has to be primarily determined by chance in order to be considered gambling. And so poker was the first type of game that is gambling or gambling adjacent that generally was accepted as a game of skill.
Mhmm. And more recently, daily fantasy sports provided by DraftKings and FanDuel also succeeded in obtaining a game of skill designation, which means they can operate in all of the states that recognize this designation, which is somewhere between 25 to 35 states depending how you count.
And they do not have to pay the incredibly costly upfront price for a gambling license, nor do they have to pay the percentage of revenue that comes off the top for a sports book or casino that varies on a state by state basis.
Currently, there are a whole bunch of new games that people are building and claiming our games of skill because claiming that allows them to immediately launch their business, not have to go through an arduous arduous and costly licensing process, and not have to pay a significant amount of gross revenue and taxes.
And so one of the interesting regulatory headwinds that could exist or determinations that will be made in the coming years is taking and drilling down to a finer point whether playing Call of Duty against someone for money is a game of skill or game of chance or playing solitaire is a game of skill or game of chance. And so Yeah. It's a really, really interesting area. And I think that the game of skill carve out is one that has not been tested ultra rigorously outside of Sure.
A daily fantasy just yet, but likely will be in the coming years. Yeah. I mean, that's one thing that I noticed. I mean, I've been to, you know, a handful of casinos in the last, you know, maybe a year or so. Just kind of, you know, going through different cities like I was visiting, you know, Upstate New York and there was a there was a casino in Niagara. What I noticed was that, you know, the games haven't really changed that much.
And, you know, me being a kid growing up in arcades, I I would always just see these really cool games. But like the casino user experience hasn't really changed that much. So, I mean, they've got blackjack, they've got, you know, like a digital roulette, But, like, that that those games have been around. Those games have, you know, pretty much been the same since, like, the sixties, I would say. And there hasn't been Definitely. It it yeah. In the brick and mortar case, that's absolutely true.
Yeah. Casinos are notoriously slow to move. Yeah. It is evolving a bit in the online space, and one of the most popular types of online casino product that is relatively new, I hope I can describe it well succinctly, is typically called a crash game. If anyone listening has played the DraftKings rocket game, it's an example of a crash game.
And the way this game works is that you're in a lobby with a whole bunch of other users, and there's an animated rocket ship that's about to take off on the screen. And there's a countdown. And once the countdown reaches zero, the rocket starts moving up toward the sky. And right next to the rocket is a little number, and it starts out at one point zero zero x. And as it goes up, it goes to 1.01, 1.02, 1.03. And at any point during the rocket's flight, you can press a cash out button.
So if you bet a dollar and you press the cash out button when the rocket is at 1.05 x, you'd get a dollar 5 back, you'd make 5¢. And the way it works is that according to a random number generator, the rocket will at some point different in every lobby explode. And if you have not cashed out your money before the rocket explodes, you are left with nothing. And so this is an example of a game where it's totally random number generated. There's no skill that you can have whatsoever.
But for the first time ever, users are being given either a semblance or actual control and influence over the game. When you're playing a traditional slot machine, you pull the one arm bandit or you hit the the button and the real spin, and you either do or don't get paid out. That's it. Yeah. There's an interesting psychological mechanism that gets unlocked when you actually have a degree of influence over the outcome. In particular, it exploits this idea of the near miss.
You are about to cash out right as the rocket exploded, so you gotta play again because you know you're gonna So is that kind of a game of skill then? No. Because of the fact that the outcomes are purely determined by a random number generator. The rocket might explode the first time you play at 1.01. It might not explode until 20 x the next time. And so because that is purely random number generated, there is no skill that one can exert.
Yeah. And this is validated in the distribution of outcomes where there are no small percentage of players representing an overwhelming percentage of of the wins. And so a lot of people are now coming out with games inspired by crash games where Mhmm. The user does exert some sense of control or at least an illusion of control over the outcome, but there is no skill whatsoever that can be exerted, and it truly is a random number generated process.
Yeah. So I have a game that I've been thinking about for the last, you know, probably five, six years. So Tell me. Tell me. Tell me what you think about this. So it's, spin it's kinda like spin the bottle, and, everybody that joins, they can put a stake in. And, you know, let's say 10 people join and, you know, there's a dollar each. Right? So what happens is the bottle, it's like spin the bottle. So it's spinning around. And, at the end of the hour, it just ends up somewhere. Right?
But, like, you can pay a little more to tap it to, like, end on you. Mhmm. So then that kind of resets the clock. And then, you know, at the end of the hour, there's, you know, the the the entire the entire pot ends up with the person that it ends up on, like, spin the bottle. But, you know, you can kind of like reset the clock. You got to pay a little more and then the pool increases. So it could be a little viral because people may be like right before the end of the hour.
And then I think it would be really crazy is like, this is a global clock that like is ongoing. Like every hour there's a cash out and like you can have an app on your watch which has the same thing, you know, on your computer, you know, on any app, any device that clock is just always happening where it's kind of, you know, it is kind of chance, but like you can still kind of game the system and, you know, whoever kind of, like, figures it out gets the entire box.
I don't what your thoughts are on that if you would play that. Or if I love it. I love it. Look. There is a really popular site now that lets you bet on the flipping of a digital animated coin. That's not even a real coin. So if people are betting crazy amounts on that, I gotta assume that they would be interested in something of the likes that you're describing.
Mhmm. The tweak that I would make, I wonder if there is a way because one of the big trends in the industry is going toward instant gratification. Mhmm. Now maybe based on the way you described it, maybe 99% of users would only log on one minute before the hour is up. And thus Yeah. From their perspective, there would be instant gratification. Yeah. I wonder if there is a way to incentivize people to join the lobby earlier and still receive some form of instant gratification.
Maybe the answer is you have a one minute lobby, a ten minute lobby, a one hour lobby, a one year lobby, a ten year lobby, and people can enter based on the duration that they wanna play. Yeah. But I love that. I love that idea. And you can Well, I was thinking too. It's like that's a global clock. That's like so imagine, like, if there's just one centralized clock in the entire world, and there's, like, you know, 500 people in there.
But then what you can do is you can create little private groups, recreate your own little private class. There's like, hey, I got buddies from college. You know, before the game, we're gonna we're gonna do this random thing, you know, where we do a little private, you know, UCLA private clock. And, you know, look, you know, whoever wins takes the pot. It's our own little, you know, and you could maybe you could change the as kind of an enterprise solution or kind of like, you know, an upgrade.
It's like people can kind of set their clocks. It's like, you know, look, this is going to be a five second blitz. I mean, it's like maybe it's got to be at least like maybe one to two minutes because I think anything more than that, you're getting down to the microseconds.
But it's like, look, you can do you can do a two minute blitz clock where everybody throws their money in and, you know, whoever whoever wins takes the pot and they pay for drinks or something like that, you know, and integrated. I love it. Yeah. I'll tell you an example, and sounds like I got a fire engine driving by me back here in a minute, so forgive the sirens. I'll tell you an example of a product I did see that was similar in its intuition, sports focused and a bit different.
Mhmm. Essentially, this product I'm thinking of also put a group of friends or strangers in a sort of circular, you know, clock style lobby. Uh-huh. Yes. Except what turns the dial in this particular product I saw is basically every time a point is scored in the particular basketball game that is being contemplated, it goes from one person to the next person.
And so it is effectively random and whoever the the the dial is pointing to at the end of the game, they get the payout of everyone's state. Now that is dependent on a particular sporting event, which can be good if those group of people all wanna watch that sporting event, but would be disadvantaged compared to your product, which might have a bit more universality to it. I should also mention there are some challenges in in a purely regulated fashion Mhmm.
Allowing people across state, let alone country, lines to gamble together. It is very common in the gray market crypto enabled casino space. Yeah. And potentially what you would do to productize this is you would build a white label solution that any casino can easily integrate. Yeah. And some of those might be gray market and some of them might be fully regulated white market.
But overall, I love where your head's at, and I think that is definitely the type of gambling that might not even feel like gambling or look like gambling to some people. That is going to define the next five to ten years in this industry. So would you consider that a game of skill? Because people can control the clock. You know? Like, I mean, they can they can they can have it directly go to them or they can reset it or something like I don't know what it is.
Maybe you just reset the clock or something. Yeah. It would depend on the actual specific mechanism and and, you know, if someone can pay to increase their chance of winning, but their expected value doesn't change because they had to pay more to win more, well, then that still feels like a non game of skill potentially. But I think it it comes down like you're even contemplating out loud here a few different mechanisms.
And is the clock extended, or does the dial automatically flip to the person who puts in the extra bet? I think you could engineer it deliberately to either be classified as a game of skill or not. To give you an example of how people do that, for example, most people would never consider bingo to be a game of skill. How could you possibly exert skill in bingo?
Mhmm. The way in which there are currently, and there's a whole bunch of them, people can download in almost every state a number of real money bingo apps. The way it works is that you and another person both received the same bingo card at the same time. Mhmm. And you watch the numbers get called at the same time. The number of points that you accumulate throughout the match are determined by how quickly after you see a number come up, you tap it on your scorecard.
Yeah. Or how adeptly you apply your two x power up or whatever it is. And so that is a way that they take bingo, which has nothing to do with skill Mhmm. And actually pit you head to head against another user, and allow a skill element to determine the outcome such that they do not need a gambling license. So Yeah. This is exactly the type of thinking that you would do if you were trying to launch a product and either did or did not want it to be considered a game of skill.
What do you think is you know, so I really like that rocket kind of user experience. Like, what do you think could be the next generation of that? So certainly, there are already perhaps, obviously Mhmm. The DraftKings has the rocket game, but someone else will have it with a plane and someone else will have it with a helicopter and some other flying object. There are a few companies that operate a similar game using what I can only refer to as a a fantasy fake stock or security.
And effectively, the way this game works is you are looking at a at a what looks like the chart of a cryptocurrency or of a stock. It's moving up and down Mhmm. In relatively random stochastic motion. And even though you as the user are not actually buying shares in this stock or the cryptocurrency Mhmm. You can enter the position anytime you want and exit anytime you want. And so it's all random number generated.
There's no underlying security, but effectively, you are buying at eight and hoping to sell at ten and making $2 per unit even though there is no underlying asset that was trading at eight and is now trading at ten. It's just a it's just a graph on a screen that is being dictated, by a random number generator. And so I think other products like that give user a a sense of control or or interactivity, will grow quite popular.
Another recently popular game, if you remember, Plinko, the game where you drop a ball at the top and it hits a bunch of little rods on the way down and falls into any, of a few different slots at the bottom. You can now play a gambling version of that where effectively you pay to drop a digital ball from the top of the Plinko machine, and the center slots cause you to get maybe point one x your money back.
Mhmm. But the very outer slots, which occur much less frequently, might cause you to earn five x your money. And you as the user can customize how many levels and how variable do you want the distribution to be. Do you want it to be ultra high risk, high reward, or do you want it to be lower risk, lower reward?
And so I think games like that, taking familiar form factors and casual games, turning them into real money gambling products, and giving the user a sense of control, interactivity, and even customizability as to how the game runs, this is a lot of what we're seeing growth in in in new age online casino or casino adjacent products. Yeah. Okay. Yeah. That's helpful. I mean, I think there's, I mean, I think there could be some really cool things in the future with with AI as well.
Like, I think there could be agents that go out and, like, they play basketball on their own, you know, and you could spot you know, you could bet on that. I mean, I think it's almost like, you know, fantasy football, but, you know, with real, you know, because right now when you watch fantasy football, it's not they don't have, like, the video game experience. Right? It's just kinda more, stats that you see. Is that true?
Or do people actually watch, like, you know, AI generated players play games where they're just So it hasn't gotten that popular in The US just yet, and there is a big debate as to whether it will. But in other parts of the world, betting on what are usually referred to as virtual sports Mhmm. Is quite popular. It's kinda like watching a game of Madden or FIFA where the computer is playing against the computer and betting on the outcome.
And sometimes they shorten the game, and they only show you the highlights or or something like that. I'll give you another example. I thought a really clever project that that someone hacked together in just a weekend, and it probably is not necessarily something that would get regulated in The US, but they're based overseas. And hopefully this is at least an amusing example of what you're talking about. There's a site called, I believe it's called SaltyBet.
And what this person did is they took a, like a Mortal Kombat Street Fighter kind of game. Mhmm. Set the computer to be fighting against the computer and just let that run twenty four hours a day. They have it running in basically a Twitch stream with a chat room next to it, and people bet millions of dollars. You can see it in real time happening. You can go on the site.
People bet millions of dollars all day every day on which digital computer generated Mortal Kombat character will beat the other in this thirty second fight. There's no human intervention. It's completely automated. It's basically an AI or preprogrammed agent fighting against another with some random number generator component that decides the outcome. And there are people who love it. They love to bet. They love the action. They love the adrenaline rush.
And so I definitely think you will see growth in this area. I don't quite know. Certainly I have smart colleagues who think virtual sports betting will be incredibly popular in The U. S. I would say I'm lukewarm on it. I think it will be bigger in the future than it is today because it is relatively nonexistent. Yeah but those kind of things will be popular.
I had some friends who during the pandemic were so bored that they would actually play or have Madden or FIFA in their PlayStation set the computer to play the computer and bet against their friends on those outcomes. And so you can imagine a a much more productized automated version of exactly that. Yeah. Well, that's amazing. I mean, really appreciate, you know, all of the insight that you brought in today.
And, you know, I think it just definitely opened the community's eyes on, just the whole industry as a whole. So I think really appreciate you unpacking that.
One thing that I think would be helpful to leave with the audience is maybe just a professional learning that you developed in the last, you know, maybe month to quarter, something just as a business person that, you took took on as a as a new lesson, and then maybe just personally too, something that you that you wanna share that you learned or just a piece of advice that you have?
I think forgot if it was Paul Graham who first said or whoever it was who said play long term games with long term people, to be long term greedy. And, obviously, you have to be in maybe a somewhat privileged position to to truly do that. But I have found that, you know, giving up short term economic gains for myself in a way that benefits my LPs immediately will pay itself back so many times over the long run Yeah.
That you take care of your investors and you take care of stakeholders around you and do it selfishly. Do out of it. Do it out of a selfish long term greedy point of view that the ROI on your short term sacrifices will be positive. I I think that tends to be a a great way to view things. Yeah. And then the other that is probably said a dozen times in every room that you're in and has become so trite and obvious, but I really have internalized it a lot more.
When you're investing at the early stage, you're betting on people. The market will change. You're betting that you'll find the right people to take feedback from that market. And so I, of course, do all the types of diligence you would expect a venture fund to do, and we do outcome modeling and and reference checks and customer calls and all of that. But assuming a company passes all of those steps, I end up asking myself two questions.
Is this a person in whom I would want to own a future stake in their earnings regardless of what they were pitching me right now? And is this someone who makes me so excited about what they're doing that I wanna quit my job and go work for them instead?
And if the answer to those questions is both yes after a rigorous diligence process, that's the kind of investment that we wanna make because that's the level of inspirational capabilities and mental fortitude that you need to take a company from zero to one and beyond. And so, again, I think both of those are probably things you can read on blog posts that I had read on a million blog posts and heard in a million podcasts, maybe even on your podcast.
But until I really started doing deals, handling LPs money, which I consider an enormous honor as well as a burden that I take extremely seriously. Only through that process have I really come to understand how port how important it is to be long term oriented and surround yourself with long term oriented players and to really bet on people at the end of the day because that's where the returns come from, and that's where the outsized outcomes generate.
Sure. Well, appreciate all the wisdom, and thanks for being generous with your time and excited to get this out to the community. Alright. Well, thanks for having me, Joel. Love what you're doing. Keep up the great work. Yeah. Likewise. Have a good rest of the week. Thanks. You too. Alright. Take care.