The decline in sports betting and sports companies, both large and small, has turned in the right direction even as their stocks continue to suffer from investor attention after years of cash flow. and burning, said Paul Martino, general partner and founder. Venture capital firm Bullpen Capital and one of FanDuel’s first investors.
“The correction in sports betting stocks started almost a year before the correction in the broader market,” Martino said by phone. “I think the market is still going to go down a lot, but I feel like we’re probably going to be down in the sports and gambling sector – the companies have got a lot smarter … instead of burning money. had the fire.”
When the sports betting market in the United States opened in 2018, it was one of the hottest areas of investment until 2020, with companies spending to get customers. As an example of an overheated market, Martino said that by the end of the year, companies will pay $2,000 in both marketing and direct cash bonuses to get customers in Pennsylvania, where he lives, at a level that simply cannot be profitable at the current level. State tax of 35% on gambling.
Wall Street found out and the cracks began to show in the stocks of bets in March 2021 based on the costs of acquiring customers, broken by ruthless laziness since investors. This year alone, there are seven stocks that rely heavily on sports betting that have lost more than half their value, including Super Group (down 63%), DraftKings (down 71%) and Barstool Sports. parent Penn National Gaming (down 66%).
The problems of the stock market have decreased in the space of VC, where Martino invests, and all the ugliness means that American startups need to clean up and measure their business models, he said. Because of this, Bullpen Capital has spent much of the past year looking for live sports betting/fantasy sports in other markets. In 2021, Martino invested in three non-American companies: Rei do Pitaco, a daily soccer-focused fantasy platform in Brazil; Draftea, a Mexican daily fantasy offering; and Beryllium, a Singapore-based site with a daily Indian cricket fantasy called Sixer.
“Being international in 2021 made sense because most of the American companies were valued,” said Martino, “but in 2022 I have a very different idea – I think that all the deals I made in sports / gambling will be in the United States based on ’22.”
Martino has not yet revealed any specific investments for 2022. “[They’re] things that aren’t dead in the middle of fantasy sports and sports. They’re more peripheral, like services and finance, that aren’t on the [direct-to-consumer] treadmill,” he said. “U.S.-centric funding, next-generation fantasy models are very, very difficult – cost of living and taxes just don’t work.”
As an example of the types of companies he sees as potential now, he refers to a 2018 bullpen investment called ‘Swish Analytics’. “Swish does real-time online setup as a web service. If major operators want to offer something different during the game, they will always benefit from Swish’s online platform. That’s it.” “The kind of business I want to be in is more than a random 18th vendor in a free-to-play format,” Martino said.
Bullpen focuses on companies at the early stage of VC investment, meaning the long-term time to see a return on investment is three to four years, as opposed to a VC firm that may need to be quick. go to the public, Martino explained. This strategy has worked well in the past. Martino invested in FanDuel last decade when the company was valued at about $8 million. He said that then he could not convince other VC friends to join the organization with him. Ten years later, the 2020 equity purchase of its parent, Flutter, valued FanDuel at $11.2 billion, some 1,600 times the rate Martino invested in the betting business.
“I wouldn’t be surprised if a year from now we’re talking about the market, nobody’s talking about it being the new hot segment, or the demographics we’re not paying attention to being the new hot segment.”
