Gambling On Chain
In prior posts, I spoke about how NFTs and blockchain are beginning to impact the gaming and entertainment sectors. We are seeing exciting new projects that threaten to disrupt the in-game purchase model that has dominated the video game sector for more than a decade. Musicians and actors are going around the traditional gatekeepers and bringing their projects straight to the fans. The legal gambling market in America is still in its early stages, especially in the sports sector, but blockchain technology could lead to changes quickly here too.
A good place to start the discussion is the fantasy football sector. DraftKings and FanDuel got their start here when they popularized daily fantasy sports (DFS) about 10 years ago. In a traditional DFS tournament, a player picks a lineup including 1 QB, 2 RB, 2 WR, 1 TE, and 1 DEF. Each player is assigned a monetary cost based on their expected performance, and lineups are built subject to a salary cap. Players pay a fee to enter a tournament hosted by DraftKings or FanDuel. Entry fees range from $1 to $100 to much more, and prize pools can be $1MM or more. They get hundreds of thousands of entries in their biggest tournaments, and maybe the top 10% of entrants get some payout from the prize pool. DFS operators have inked deals with the leagues and players associations, or with data providers those groups are contracted with, and they get the right to use the players’ and teams’ name, image, and likeness (NIL) in their games.
This stuff is big business, measured in the many billions of dollars wagered each year. Innovation happens faster in the DFS space than the sports gambling area. DFS is considered a game of skill, which is not subject to the same complex state laws around traditional gambling. There is much more flexibility to do new things in the DFS space without difficult licensing issues to navigate.
So, how will blockchain impact the DFS landscape? We’ve already seen a few really cool projects jumping into the space. This NFL season I participated in The Owners Club (TOC), a blockchain DFS league from an innovative startup called Own The Moment. At the start of the season, TOC sold blockchain trading card packs to players. For $200, I bought a pack with 1 QB, 1 RB, 1 WR, 1 TE, and 1 DEF. Actually, I bought a couple packs. Each week, I set a lineup in a variety of DFS style tournaments with cash prizes using the cards from my packs. TOC gave out more than $1 Million in prizes over their first season, with thousands of players each week. They came up with a fun alternative DFS game for the playoffs as well. Like anything else in the blockchain space, the cards I bought were mine. I owned these card NFTs, and I could trade them on a marketplace. Pretty cool, right?
One issue to point out is that there are NIL issues with these type of trading card DFS games. TOC avoided this problem for the 2021 season. They labeled their cards QB Kansas City and not Chiefs QB Patrick Mahomes. The traditional DFS tournaments don’t allow you to own anything, so they are covered under the league’s data deals for NIL. This new type of NFT card DFS is a grey area, and TOC took a conservative approach here. Next season, DraftKings and the NFL have announced a partnership to bring an NFT fantasy game to the market. Not a lot of details available on this yet, but I’m guessing it will be like TOC but with player and team NIL included.
You can look to European soccer and a company called Sorare for a glimpse into what this looks like at scale. Sorare has cut deals with the big European soccer clubs and leagues, and they sell packs of cards with player and team NIL. Users set lineups in contests each week with prizes awarded in Ethereum and with rare cards. They set a record last week with a single card trading for $700,000 on their platform. Last year Sorare raised $680MM on a Series B at a valuation of $4.3 Billion. By comparison, DraftKings has a market cap of $17.5 Billion with a much broader product offering, user base, and history.
How will blockchain disrupt sports gambling? It’s still a bit too early to tell, but there are new offerings coming soon. Last year, the former CEO of FanDuel Nigel Eccles and a team at BetDEX announced a $21MM funding for a blockchain betting exchange. Last month, Aver announced a $7.5MM capital raise to build a peer-to-peer betting marketplace on the Solana blockchain. It sounds like the plan is for people to be able to trade their bets in a decentralized exchange, much in the same way you can trade Crypto or NFTs. Both new companies are based in the UK. This is unlikely to be legal in the United States right now but should work in other jurisdictions. With DraftKings embracing NFT DFS and already supporting a large NFT collectible marketplace, they seem well positioned to bring this technology to the U.S. in the near future.
The sports betting market is massive in the U.S. and is growing at a fast clip. Expect to hear lots more about how blockchain technology will have something to say on the future of this opportunity.
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