By now, most sports bettors know what to expect when they open a sportsbook. The format of the betting lines and the sports betting parlance is the same at every sportsbook. The odds, bonuses, and availability of sports vary. But if bettors understand one sportsbook app, then they have a clear understanding of them all.
However, there are other ways to conduct sports betting besides betting against bookmakers. Betting exchanges allow bettors to wager against each other instead, allowing them to (potentially) profit more than they would betting against the house. But for all the upsides that betting exchanges and new business models offer, there are so few of them in the American market. It’s a versatile model that’s been used successfully in several industries but hasn’t become widespread in the American gambling industry.
But Sporttrade is a betting exchange startup that’s making waves in New Jersey. It’s the first sports betting and trading exchange in the United States. It allows bettors to buy trades priced between $0 and $100. If bettors are right, they’ll be awarded $100 for each winning share. If bettors are wrong, then they get nothing. Since Sporttrade is an exchange, bettors can use strategies that can hedge risk and make money that’s unavailable at a traditional sportsbook.
We sat down with Sporttrade CEO, Alex Kane, to understand why there are so few betting exchanges in the United States when they have as much potential to succeed as traditional sportsbooks.
The Inspiration Behind Sporttrade
The idea for Sporttrade came to CEO Alex Kane after he saw how simple and secure apps like Robin Hood were. They were easy to use and just as easy to understand. However, when he was introduced to sports betting, Kane had a more sour reaction.
“I felt like it was the Sopranos,” said Kane. “I was like, ‘Why are we using these antiquated words?’ Like, ‘Lay the juice?’ C’mon.”
Kane enjoyed sports and betting, but he didn’t like traditional sportsbooks. So, he set out to build a product that appealed to a younger generation in a way that the traditional sports betting format couldn’t. It wasn’t the sportsbooks’ faults, either. Kane believes that different generations have different expectations from online services.
“It’s like a spectrum,” Kane said. “My dad looks at it [a sportsbook app] and he goes, ‘Well the betting is suspended right now. I guess they’re just recalculating the odds.’ And my younger audience is like, ‘What the hell is this? Why can’t I place my bet right now?’”
Kane is 27, so he grew up with apps like Instagram, Uber, and later, Tik Tok. These are sleek apps that excel at connecting users with the content or services they’re seeking in real-time. Consequently, the younger generation demands polish and immediacy from companies that deliver services through apps.
“I think our generation wants to feel a little more in control,” Kane said. “Whereas my parents’ generation paid $30 for a stock trade of Fidelity, and they got a paper statement each month and checked in on it, we need to check it every day. So, creating that for sports in a way that you have that control to get in and out of positions I think is something that may resonate with a lot of folks.”
The Two Types Of Sports Betting
As any startup founder, there are things about the sports betting industry that rub Kane the wrong way. Disruptive startup founders don’t launch ventures unless they’re confident they can fill an unmet need. Sporttrade offers a different type of sports betting that Kane believes is a welcome contrast to traditional sports betting.
“There’s two forms of sports betting,” said Kane. “There’s the casino game version where the players have to lose and if the players aren’t losing, there’s something wrong. And you [sportsbooks] bonus the crap out of them [bettors]. And they [sportsbooks] have new same-game parlays, and they [bettors] get burned out. And then you [sportsbooks] give them [bettors] another bonus, and everyone’s doing the same thing.”
Kane is critical of the losses that bettors must incur at every sportsbook. However, it’s not a grudge he holds against sportsbooks. Rather, he points the finger at restrictive state policies that only encourage one type of business model to succeed. He does take issue with customers having only one type of sports betting product available to them. So, the second type of sports betting appealed to him more.
“This [Sporttrade] is a marketplace,” said Kane. “Yes, this is entertainment. No, this is not a way to make money.” He wanted to make it clear that although he was using an exchange model, Sporttrade doesn’t systematically reward bettors like the New York Stock Exchange might. “However, all the same rules of how marketplaces are built apply here. Anyone can submit a limit order. No one gets treated any differently. You can’t get limited. You can’t get banned for winning. It’s not built so the customers have to lose.”
Eliminating betting limits on Sporttrade’s exchange also addresses one of Kane’s biggest issues with traditional sportsbooks.
Bonuses And Advertising
The biggest difference between a traditional sportsbook and a betting exchange is how they make money. Oddsmakers set odds that ensure that bettors as a group lose so the book can profit at an approximately steady rate. At an exchange, the company takes commissions on winning trades. So, bettors as a group can win, and the exchange can still profit. Kane wanted to ensure that his customers could trade freely on his platform without worrying about winning too much.
“You ask the hundreds of thousands of people who are signing up for these accounts, and they don’t know if they start to win, they’re out,” said Kane. “The corporate bookmakers will come out and say, ‘No no no, that’s not true. You can win.’ And no one’s saying you can’t win. Yeah, you [sportsbooks] paid out a jackpot of a million dollars last week.”
He’s referring to cases where bettors claim to have had their accounts suspended for winning too much. In some of these cases, bettors were suspected of arbitrage betting. Others were suspected or guilty of other violations of the sportsbook’s terms and conditions. But the disciplinary process is so opaque that it can’t be confirmed that sportsbooks don’t ban bettors who win too much. Sportsbooks probably do, but they have the right to. Sportsbooks rely on losses to remain profitable, and they can’t offer lines to anyone if they go out of business.
But it’s also easy to see why that’s frustrating to a customer-focused startup founder in the sports betting industry. There’s a missed opportunity to give sports bettors a new betting option that can minimize their losses. However, Kane hasn’t written the traditional sports betting model off completely. There’s one he admires.
Circa Sports And Price Discovery
The type of traditional sports betting that appeals to Kane the most is the Vegas-style of sports betting. In Nevada, bookmakers can and do place bets. At Circa Sports in Nevada, bettors and bookmakers can compete directly. However, the sportsbook app also has features that Kane appreciates. First, Circa Sports goes through a process called price discovery.
“They’re [Circa Sports] not going to look at where the rest of the world is in terms of what the odds are,” said Kane. “They’re going to open their lines before DraftKings, before FanDuel, before all of them, and sharp bettors are going to come in and help them shape the line.”
Bettor control is central to his vision of Sporttrade, so it’s no wonder that this aspect of Circa Sports inspires praise. Bettors on Sporttrade also shape the share prices, making this an important commonality between this traditional sportsbook and Kane’s betting exchange.
Circa Sports And Limit Transparency
Circa Sports and Sporttrade share a process that involves bettors in oddsmaking. But the second thing he admires about Circa Sports is its transparency on betting limits.
“They [Circa Sports] say, ‘These are our limits for everybody, whether you’re on the counter or on the app. This is the way we play and everyone gets the same rules. Everyone gets a fair shake.’ Obviously, that is a very clear way to run your business.”
Kane distrusts sportsbooks that have informal limits. Every sportsbook has some amount of risk that they’re not willing to incur. It’s one thing to place $100 on a +900 underdog. It’s another thing to place a $20,000 bet on that same underdog. Athletes with +900 odds have come through before. (September 2020 was a bad month for Colorado sportsbooks offering UFC lines.) So, sportsbooks won’t accept infinitely high wagers.
That bothers Kane on principle. He built Sporttrade with a business model that allows bettors to make whatever sized bets they want. Sporttrade’s “betting limits” are non-existent, so they’re also clear. By using a different model than the traditional sportsbooks, Kane has built a betting platform that solves the biggest problems he sees in traditional sports betting.
How Sporttrade Works
Sporttrade is a betting exchange where bettors wager against each other. However, they can also sell their positions on their teams like stocks as their values change. Uniquely, bettors can place limit orders, which set conditions that must be met before their trades go through. These features create new strategies for sports betting that are unavailable through traditional sportsbooks. However, Sporttrade clarifies that sports betting is not a reliable way to make money. Even though there are guaranteed money-making strategies on exchanges, they’re so low-yield that they’d barely cover a townhome’s utility bill.
An Example Trade
After exploring what set Sporttrade apart from traditional sportsbooks, Kane demoed his app with some dummy data to illustrate betting strategies that are unique to exchanges. In his example trade, the Phillies were trading at $47. That means that if a bettor bought a share of a Phillies win and the Phillies won, that bettor would win $100. So, that bettor would make $53 in profit. If a bettor bought 10 shares, that profit would increase to $530.
It also means that the market had determined there was a 47% chance of the Phillies winning. If the Phillies began to win, the price per share would increase. More bettors would want to buy a trade that looked like a sure win. Even when shares trade at $99, there’s a guaranteed $100 payout. So, the odds are clear, the risk is clear, and the payouts are clear.
However, bettors don’t have to buy in quantities of shares. Instead of buying one share of a Phillies win, bettors could buy $1,000 worth of Phillies wins and trade those. Bettors could also place a limit order and only buy if the price dropped to $45 per share.
Limit orders work for selling, too. Bettors can buy and sell in real-time, so bettors can sell their shares the moment the price hits the desired value. For example, bettors could buy Phillies shares at $47 and sell their Phillies shares at $70, guaranteeing a $23 profit per share. It’s a risk-averse strategy that awards partial credit for holding an uncertain position. That middle ground is unavailable in traditional sportsbooks and is a crucial part of Sporttrade’s appeal.
As we discussed his company, Alex Kane was clear about what he wanted bettors to get out of Sporttrade.
“You shouldn’t have to be a betting exchange expert to use Sporttrade,” said Kane. “Or even be a sports betting expert.” He went on to describe an ideal scenario where his mother could place a trade, see the Phillies make a home run, then “press this green button” when she saw the price increase to sell her shares. “We’re trying to pare it down to the simplest experience that we possibly could,” said Kane.
Kane’s customer-centric view of the sports betting market is the key to understanding Sporttrade. He connected with approachable and intuitive exchange apps, like Robin Hood and CoinBase. He also enjoyed sports and placing bets. However, he saw the traditional sportsbooks as archaic compared to the vibrant apps that he grew up using. Inspired by what the exchange model could offer sports bettors, he founded Sporttrade.
Sporttrade gives bettors ways to place sports bets that don’t depend on their losses. Whether bettors win or lose, Sporttrade profits. So, bettors can place trades as large as they’d like. The exchange’s design also tells bettors the odds, risk, and price immediately. It’s the version of sports betting that Kane wished he’d had when he was first exposed to traditional sportsbooks.