It’s difficult for a startup to launch in the gambling industry. There are hard limits on the number of casinos and sportsbooks allowed in a state or county. But even when there’s room, licensing costs can be astronomical. However, Sporttrade has been able to gain a foothold in New Jersey, where they’ve opened a successful betting exchange.
However, Sporttrade’s unique business model seems to blur the line between investing and sports betting. Bettors can trade on bets and point spreads like they would trade stocks on the stock exchange. Sporttrade looks like any other financial exchange that bettors would find in the investing world.
But Sporttrade is not an investment company. It has only taken a model that’s made investing accessible to millions of new users and tweaked it to offer a unique sports betting platform. We spoke with Sporttrade CEO, Alex Kane, to understand where he fits into the gambling industry and how he believes his company could evolve.
Sporttrade’s Status As A Gambling Company
Officially, Sporttrade is considered a sports betting company. It’s licensed by the New Jersey Division of Gaming as a gambling company, so it seems like a silly question. However, there are strategies that allow bettors to profit reliably on the platform. They’re low-risk, low-yield strategies like yield skimming. But conservative play can win bettors small amounts of money in ways that traditional sportsbooks aren’t built for. That makes the question of how much of a gambling company Sporttrade is a legitimate one.
“We are considered a gambling company—sports betting—which I think is fair,” said Kane. “At the end of the day, I’m risking something to gain something. I just bought over 10.5 runs. I bought one contract at $22. So I’m risking $22 to win $78. There’s no way around that. That’s a bet.”
Sporttrade isn’t an investment platform just because there are strategies that allow players to skim small profits from it. Bettors are still relying on odds that are often similar to chance. (There are sure bets like the Jets losing to a good NFL team, but that’s an exception that proves the rule.) Player and team performances can vary wildly, too.
That makes guessing on sports a wager in a way that creating an investment portfolio isn’t. Traders can rely on the world’s largest companies to continue growing at a safe, steady rate over several years. The binary choices offered to bettors in sports betting make sports betting a gamble no matter the platform it’s hosted on.
Deeper Differences Between Sportsbooks And Betting Exchanges
One task that consumes much of Kane’s time is educating lawmakers and regulators about how his betting exchange benefits bettors. It goes beyond giving customers different sports betting platforms to choose which model is best. Logistical differences behind the scenes are important in clarifying how Sporttrade serves bettors.
When bettors wager at a traditional sportsbook, bettors can only make the bets made available to them. Bettors can wait for the odds to change. But bettors set none of the betting terms besides the amount of money they’d like to wager. But betting exchanges have a different type of trade that gives bettors the possibility of betting on their own terms.
“On an exchange, you can have an open order,” said Kane. “I can say, ‘You know what? I want over 10.5 runs, I want to buy 10 contracts, but I don’t want to pay $22.50. I want to pay $22.’ That’s not a bet. It’s an unmatched offer going out into the abyss and saying, ‘If the price hits this, I want on the buyer for 10 contracts at $22.’”
The option to place an open order gives bettors the ability to set their own betting terms. That option is unavailable in traditional sportsbooks. The open order may not be filled if the terms are unreasonable and the market has moved on. But an open order isn’t a bit until it’s matched with shares at the available price. It’s only a bet when it’s fulfilled.
Sportsbook accounting is simple. When bettors wager, their bets are deducted from their accounts. If bettors win, then winnings are added to their accounts. It’s a binary all-or-nothing payment process. But because of features like open orders, betting exchanges have a few more layers of payment processing.
“Our account balancing stuff is more nuanced than a sportsbook’s,” said Kane. “You bet on the Eagles to win the game and they’re playing the Ravens. And then you bet on the Ravens, like they’re [sportsbooks] not gonna margin those two positions together. They’re going to count them as bets and decrement the bet amount each by your account balance. Versus ours, well only one of those teams can win. So, the higher of the two risks is what we should be charging you for.”
A bettor can place an open order, which could give them room to make a couple of types of trades. That bettor could buy at a lower price, then sell if it increased. That bettor could also buy at a lower price and hold onto it until they either won $100 per share or lost it all. A betting exchange like Sporttrade must account for these different types of strategies in real-time. So, Sporttrade’s account is more layered and fluid than a traditional sportsbook’s. That fluidity gives betting exchanges ways to service their customers that traditional sportsbooks aren’t built for.
Sporttrade’s business is built around a customer that Kane believes enjoys sports betting, but longs for the polish that modern tech companies build into their apps. Kane modeled Sporttrade on apps like Robin Hood, which makes exchanges and trading approachable even to users with little experience in trading, finance, or betting. Sporttrade is built around a customer that desires that offering from sports betting.
“Everything we do goes back to the customer,” said Kane. “It’s nice to align yourself with customers in that way.”
Since his company was built from the ground up to serve customers in a unique way, Kane couldn’t use the same technology that traditional sportsbooks used. His team had to build their own. That had important implications for the way that he was able to put competitive pressure on sportsbooks.
“We built this incredible team to build new technology that brings a new product and experience to the market,” said Kane. “So it’s a bit unfair for me to characterize what they’re [traditional sportsbooks] doing as wrong. Because what else could they do? If you’re a bookmaker and you use the same back end as, like, seven other competitors, how could you put the customer first? That’s not a crutch that you can lean on. That’s not a strength.”
Traditional sportsbooks offer the same type of betting in the same format as all the other sportsbooks. Although legal sports betting is new in the United States, sportsbooks have changed little throughout their history. However, that leaves room for Sporttrade to offer something new designed for the modern bettor.
Kane’s Outlook For Sporttrade
The gambling industry discourages radical innovation, and sports betting is a small example of that larger problem. Large companies can monopolize state sports betting industries, and some can skate by with mediocre products. At worst, land-based casinos lobby to limit online gambling. These obstacles inspired a clear vision for Kane to guide his company by.
“It’s [the sports betting industry] just like a huge mess of an interconnected web,” said Kane. He describes the “interconnected web” that makes up the current sports betting industry, then lists out how he wants to “cut through it.”
“We always call it the execution quality,” said Kane. “That’s so critical. Pricing, availability, frictionless trading. If we focus on those three things, we focus on execution quality, we focus on the customer, in some states, that’s going to bear fruit, we think.”
New Jersey is a natural starting point for a disruptive gaming startup. It has the largest sports betting handle in the United States, beating former sports betting Mecca, Nevada, by tens of millions of dollars per month. It’s easy to imagine Sporttrade in Pennsylvania, which is similarly competitive. It could also find a welcome home in Maryland, where sports betting licensing is expected to be competitive. If Maryland’s gaming regulations reflect that expectation, then Sporttrade could earn a gaming license and thrive there, too.
So, if Sporttrade finds success in New Jersey, it has some viable new markets nearby that it could expand to.
Sporttrade’s Core Difference
As a startup, Sporttrade was built from the ground up to address market gaps that irritated its founder. Building from the ground up gave Sporttrade the chance to align every part of its business with the customers’ unmet needs.
“It’s nice that there’s that alignment,” said Kane. “It’s nice that we can run a business and charge low commissions. It’s nice that we can have better pricing and still run a business. Have more availability and still run a business.”
That alignment comes from the characteristic nimbleness that startups can leverage when they’re at their best. Sporttrade’s nimbleness is on full display when compared with the business model that traditional sportsbooks use.
“Those things [low commissions, better pricing, and increased availability] aren’t mutually exclusive,” said Kane. “But for the bookmaker, they are. They can’t just reduce their margins. They’d go out of business. They can’t just make their markets more available. They’ll get picked up by sharps. They can’t make it more frictionless. They’ll get picked up by sharps. So, there’s this mutual exclusivity that exists for our competitors in terms of customer experience [and] business model. And for us, it’s just a total alignment. And that’s very fortunate.”