Power play: Paddy Power on plans for his sports trading exchange start-up

Paddy Power is a brand synonymous with gambling in the UK and Ireland. As one of the leading retail and online bookmakers, the firm has enjoyed a stellar rise to the top rung of sports betting. But what of the man behind the brand? Paddy Power has served as a brand ambassador for the Flutter Entertainment subsidiary for a quarter of a century, functioning as the public face of the company on many of its highest profile campaigns. Power has used this time to gain enviable experience of the industry and a media cachet that has allowed him to spearhead a new start-up brand, American SportZ Exchange (ASX). Built on a unique sports trading model, the firm has attracted more than €1.5m in crowdfunding-based investments in two oversubscribed funding rounds. With ambitions to launch into the hugely competitive US fantasy sports market later this year, Power’s workload is set to become very heavy over the coming months. Here, he chats to EGR Intel about the genesis of the business and the crucial differences between it and the similarly positioned, yet ultimately doomed, Football Index. EGR Intel: What made you first want to get involved with ASX? Paddy Power (PP): I spent a lot of time over the last couple of years thinking about the US market, and how it is going to pan out over there. It’s a relatively immature market compared to over here from a sports betting point of view and has a very strong heritage in fantasy sports. I guess this strong heritage is due to the fact there was no sports betting, fantasy was the only option for punters looking to gamble on their favourite sports. Some of the discussions that I was having at the time were on how you could see a similar journey in sports betting that we have had in the UK in other parts of the world like Australia and the US. It just seemed to happen quicker and quicker with new geographies because obviously the technology is evolving far quicker, particularly in the US, and that’s where ASX comes in. Behaviourally, we are dealing with a different generation and a different kind of group as a customer base. Fantasy sports is something that is obviously very popular in the US, but despite this it’s still relatively young and has not changed very much in a huge way since it began, so there’s still plenty of ways it can improve, technologically. I was thinking along the lines of a next generation, fantasy-type experience and there are a lot of buzzwords right now around things like gamification and other areas and those sites which have increased their access levels have seen improved player retention. It’s about the democratisation because now people can trade or play or get involved in areas that were previously confined to the experts. This is opening a whole new kind of element to the gaming marketplace, and I think the US is where that’s happening openly and quicker than anywhere else. EGR Intel: How does this fit in with your role as a Paddy Power ambassador? PP: I’ve spent 26-27 years with Paddy Power. I still absolutely love the place and I’m still thankfully heavily involved and enjoying the brand ambassador role. I am very grateful to Paddy Power for giving me the opportunity to have a go and pursue this. I would love if it gets to a stage where there is a conflict of interest but, at the moment, I’m not sure that Paddy Power are going to be too worried about ASX. If it does get to a stage where there’s a conflict, we’ll cross that bridge when we come to it, but we’re so early stage and it really isn’t an issue just yet. EGR Intel: ASX has had two oversubscribed investment seed funding rounds and obviously you have also invested in the business. Do you feel this vindicates your decision? PP: I would not say vindicated because we’ve not achieved our goals yet, but it’s definitely reassuring. I would be worried there was just a tumbleweed blowing through the crowdfunding websites after pledging to invest in the business myself as well. To give you a bit of the backstory, about two years ago I had this pet project knocking around, which at that point was something completely different which eventually developed into this type of thing. We entered it into a couple of accelerator programmes, the first was a Sportradar one, which we ended up being successful in, and we regarded that as a good endorsement of both the idea and the product. What that meant was that we got access to Sportradar feeds, which are obviously expensive and very important for an early-stage start-up like ourselves. The other one was the Hype Accelerator programme, which once again was quite a prestigious one, with something like 1,500 start-ups that we were successful in. At that point, it was very much like we’ve got to start doing something about this now rather than just having it as a project in our garage, so we decided to go down the crowdfunding route. EGR Intel: Why crowdfund? With your gambling industry connections, surely you could attract investors? PP: There is something lovely about crowdfunding in that everybody owned a bit of it, and it’s like having hundreds of advocates out there from the very beginning. People obviously want it to be successful if they’re invested in it. That generates good PR for the business and that’s important because the strategy that we’re pursuing is a partnership strategy. As a very small start-up, it is difficult to get in the door of huge potential partners. With the Hype Accelerator programme that we won, the main prize is not just the recognition but access to partners, and that has been very helpful to us. That is ongoing at the moment, and all of those opportunities are being pursued as we speak. I loved the idea of crowdfunding, when people said, ‘Why didn’t you try to get a couple of heavy hitters to throw some money at the product?’ I just replied saying that it was not a conscious decision at this stage. First of all, I tested the product and, scarily enough, I tested whether people might be interested in the product and, secondly, it does actually add a bit of nice pressure. I think when you are responsible for more than just your own investment and your head is above the parapet, so to speak, you’ve really got to make this work. There are obviously risks involved for everyone who’s put money into the project, but I think it’s got a real chance now and that’s exciting. If we can get that trundling along nicely with good momentum, I think that it’s going to be a good journey for us all. EGR Intel: Do you think you will reach a point where you will need the larger higher profile investor? PP: Absolutely, yes. 100%. It’s been a learning process for me as well, an unexpected start in that we raised a few million in a couple of minutes, that’s a lot of money and I’m very appreciative of that, but at the same time that’s nothing in the grand scheme of the US market. The reality is that money has been spent to get us to a stage where we can have a Series A or a more grown-up fundraise where it’s somewhere close to the tens of millions the business might need to properly explore and exploit the opportunity. At the moment, the whole point of the seed fund is to get us to a stage where we have got partnership deals signed up, and we’ve proven ourselves to potential partners, which delivers the metrics that’s required to then go off to serious, bigger fundraisers and hopefully it makes you seem like a safe bet. We are still, to some degree, in the early stages in our pilots and early partnerships, so we won’t be initially releasing real-money exchange betting. That could be something for the future. However, that is something that’ll be very expensive to develop and will need a lot of liquidity and things like that. People are taking a punt on this now, quite literally. They are buying into three things at these early stages as the textbook says: the product, the team and the opportunity. We have put together a decent team and it’s reassuring that some proper people have left good, high-paying jobs to come and take a chance on ASX, which is reassuring to investors, and the product is pretty good. Sorry, I should say, the product is great. I am under-selling us and it can only get better with further investment to optimise it. That is being done at the moment and then it’s just getting it a bit slicker. The opportunity, particularly in the US, is mindboggling and there’s no reason why ASX can’t be a part of that. EGR Intel: Can you explain a little more about the development of the ASX sports trading model? PP: The various elements of how the trading model works could be things like around peer-to-peer, and putting up prizes, whether it be a cash or experiential prize, or things like that with partners. A good analogy we’ve used is that it’s like a corporate box at an event; you set up a private group for the 20 guests that are there, you put up the prize, everybody registers their interest and then you set up the structure. You have the prizes for whoever’s portfolio is worth the most at the end of the day. So that is effectively how it works, it’s a virtual stock exchange whereby you spend a specified amount on building a portfolio of players. With the Sportradar feeds, it includes things like the volatility and the price movements happening during the game as well, so unlike fantasy sports you don’t have to have your team in by the kick-off, you can actually trade during the game as well. At a specified point, whether it’s the end of the match, end of the weekend or end of the first half, the game checks the value of your stock portfolio and the highest value wins from a game point of view.

EGR Intel: And what about the social element? PP: The game is geared in such a way as you could do it with a group of friends, or you could have a public game where anybody can join if people pay your specified fee at the start. You might put in 50 quid each at the start, the platform takes a fee like a poker room, you set a prize structure and you get a virtual 10 grand to spend on players and you build your portfolio from there. It is important to point out the players’ performance on the pitch is based on fantasy sports rules, and this dictates the fluctuations in the price. There’s a small element based on market activity. For example, if everyone buys Harry Kane or whatever, that will have an impact on it, but the algorithm is built in such a way that 80% or more of the value is derived by the player’s performance. So, if Harry Kane scores a hat-trick, he will definitely not go down in value, but if he performs well, you as an investor will see your value rise, and that’s important. EGR Intel: Can you expand on this, what’s the rationale involved? PP: It’s all geared around keeping your second screen active, and that is what is very much of interest to the potential partners we’re talking to. It’s all about keeping people engaged on their platforms, rather than looking at the match and then going to somebody or something else. For example, if you’re a New York Giants fan, they want you to be fully engaged with New York Giants stuff during that game and even your second screen should be New York Giants stuff. That is an important kind of opportunity there. This will be one element of that, and it is not going to be the Holy Grail to our partners, but at the same time this will be one element and some of the big media companies are interested in developing a suite of products that keeps people engaged in their platforms and this could be one of those products. EGR Intel: How is ASX structured in terms of personnel and offices? Do you plan to expand this as the business develops? PP: We are an Irish-registered company and we’re based in London and Dublin at the moment. We’ve half the staff based in London and half in Dublin, and we are going to be opening an office in Miami very soon, and probably a smaller satellite office in Boston because there are big opportunities there. We think Boston is a key area for us with big interest in the sports betting space up there, and maybe we will be able to play on the Irishness as well in the stereotypical way, but who knows. Miami is quite amenable for start-ups so they are the two places where we’re opening offices in the next month or so. From a structural point of view, we have seven key management positions, and we are building our teams below them. The sales team in the US is still being developed. We have got one person on the ground building a team of three under him. Then we have a development team working on a contract basis but under a full time CTO and then the CEO, and myself and my co-founder have put him in charge of the purse strings and driving the organisation forward. EGR Intel: Do you envision expanding the business internationally? If yes, where would you look to expand and how would you position the firm there? PP: There is obviously an opportunity in the UK market, something that conceptually was proven by Football Index (FI). It may have since had its issues, but ultimately, the concept and the demand for a virtual football exchange was proven by FI, so the UK and Europe is certainly an opportunity for us. I think the US is the best opportunity for us to be going after but it would be remiss of us not to be looking at the UK too. I think that is something that we have our eye on for the end of summer as well. EGR Intel: You have spoken about the parallels between the ASX business model and the Football Index business, but for you what are the key differences between the two? PP: The main thing to stress is that it is a very different business – the main difference is that ASX is all about fantasy, gamification and prizes. At this stage, certainly this iteration of the ASX business, it is like an evolution of fantasy sports rather than the creation of what was ultimately a flawed stock exchange, something which led to the downfall of the FI business. The key difference for us is that it is based on fantasy sports, based on performance in real-life sporting action, about the gamification of that, plus the opportunity to win prizes and peer-to-peer gaming. EGR Intel: What lessons have you learned from the failure of the Football Index business that you have translated to ASX? PP: Without being an expert in it, it seemed to me like their mathematical model was flawed in that the way that there was an infinite number of shares, ultimately by theory they had to be valueless, so I think that was an issue for them. I think the fact we are dealing in virtual, fantasy and the gamification of that, what we have learned from it is there’s an appetite for this kind of product and I think we’ll have a little bit of work to do to demonstrate why it’s very different from what we’ve had before. EGR Intel: Are you worried customers might loop you in with Football Index due to the similarities between your products? PP: We did a little body of work on it, and when the results came back they rightly said trust is a problem, which you would have expected but the other thing we are considering is that Football Index left a bit of a void there, even with regard to a little kind of cottage industry of affiliates and who are left with nothing now. I have heard Football Index is going to relaunch and, if that is the case, then it’s going to be a big trust issue for the relaunch. From our perspective, a lot of the educational work has been trying to put a positive spin on ASX, stressing that we’re not paying dividends out of money that has been funnelled in from new users. If we can successfully stress that this is a totally different mathematical model that has all the funds ringfenced and just come at it from a more reassuring angle, then there is definitely an opportunity there. EGR Intel: Sports trading is a business model that is, based on the experience of the Football Index business in the UK, something which is not very well understood by regulators. As a new business operating in this vertical, how do you plan to address this? PP: There will be some comfort and reassurance in the fact it is based on fantasy sports, that it is in the first iteration. People will be in control of the types of competitions they create and set up and things like that, so there’d be a lot more control from the player’s perspective. From another perspective, the valuations and fluctuations of the ‘shares’ will be easier to understand for players, in terms of how it’s calculated and how performance on the pitch translates into those actual prices on the exchange. I think it is going to be a little bit easier. Not easier to understand, as that is patronising, but I think it will be a little clearer for regulators to understand in terms of things like transparency. There will be no hidden intricacies or things like that, so I think from our perspective we feel it is quite an open book. There is probably a trust issue, I would imagine, among punters because of the way Football Index ended, but we feel, with our transparency and clarity, we should be able to overcome that. What FI did prove was that there was a demand in that it was a successful social betting product for a time in the UK, which was unusual. I think this is mainly a next-generation type thing because while there has been a lot of technological advances in the market, the core of the bet has not changed much over the last number of years. It has always been quite binary, apart from spread betting and things like that. I think there’s potentially behavioural shifts among punters, which do create the sorts of opportunities we saw at FI, and I hope potentially for ASX as well.