Episode 126: Does DraftKings Have A Right To Win In Predictions?

[Music] Hello and welcome to Zero Latency, the Podcast from Pile's and Cry Check Gaming. I'm your host, Brad Allen and this episode is brought to you by Optimoof, the creator of positionless marketing and the number one player engagement solution for eye gaming and sports betting operators. Now my guest today is Janine Hightower, Silito, GM at Drawfking's Predicts and so therefore today we're going to talk about Drawfking's Predicts. Janine thanks for joining me. Thanks for having me. A pleasure. So let's start with a bit of your background if we can. Being at Drawfking's about a year and before that you were, I would say in like crypto/exchanges, some time at Gemini, the crypto exchange, some time at EDIX market. So how did you come to Drawfking's and then how did you come to GM of Drawfking's Predicts, which is I would say a very, very important part of the company right now. Yeah, I'm super excited about it. I just celebrated my first anniversary at Drawfking so it's been exactly a year since I joined last July. And I did come to Drawfking's after a long career and I'd say traditional as well as crypto finance, spent nearly 30 years in markets and financial services really cutting my teeth for most of my career at an options exchange, which was super new and innovative in the first decade of the century, bringing electronic trading to options in the US. I spent a long time doing that, moving on to crypto and now yet another new asset in prediction markets. I think my strength and my interest has always been in innovative financial markets, a little niche market as much as that might be, but certainly one that's exploding right now. And so when I got a call from Drawfking's last year, certainly was really interested in working on yet another new asset, and it was growing but not certainly hadn't exploded yet in the way that it has in the last 12 months, but was really interested in still trying to figure out and build something new. And so it was a really good fit. And then on the sort of Drawfking story, if you're a market operator, you've sent your career building and operating markets, the key challenge you always have is that touchpoint with the end retail customer. It's the hardest thing. Most markets are not direct to retail. You have no touchpoint with the customer. So when this opportunity came about where not only where we were going to have a market, but we had that direct access point and that knowledge base and that touch with the customer, it is a market operator's dream to have that. And so it really was, you know, certainly something that I was super excited about coming over to Drawfking's. So a lot of people we have on this podcast talking predictions started in sports, started in sports betting, and then have come to this sort of more market-focused version of it. And you've obviously come the opposite direction, you know, options markets first. So what's it been like sort of getting into the sports world? You know, it's funny how similar market behaviors are across assets. And so coming into sports, you know, for me, it's thinking about another new tradable asset. How markets operate, how they're configured, the event contract for predictions is a binary swap rate. We know what that means, but it really is just another asset. And as I learn more about the sports world, the sports book business at Drawfking's, it is, you know, for me, many ways just a different style of market. It's one that's different than predictions, but it is its type of market. It's a single dealer market in many ways that you can create a lot of parallels to what's being done in another asset. So I think fundamentally, you know, coming into sports as an asset, predictions as an asset, but primarily sports. If you look at it through an operator's lens, you know, you're facilitating price discovery for an event that might happen in Resolve to, yes or no in the future. And so if you kind of break it down to the fundamentals, it operates like any other market system. Each market has its own nuances, crypto is different than futures futures are different than equities, equities are different than options. Prediction markets are just a new flavor of markets, you know, whether they're sports or whether they're, their other events. And I think, you know, you can kind of look at that through a traditional lens and kind of find, find your path through that and how things should work. I think the thing about sports that makes it really interesting is that they're one really fun. So, you know, that's definitely a big part of it. It's a fun asset to look at. There's a lot of volatility in the space. There's a lot of new and interesting innovations taking place. And customers are really, really engaged in what they're doing. So it's a little bit different than maybe some of the other assets I've worked on in the past. But fundamentally, you know, you can look at it through a market lens and kind of really discover how, how things are supposed to work, whether it's sports book or whether it's predictions. So we're roughly a week or two into the launch of DKX, I think it depends on DX, formerly railbird. So what was that launch, like obviously a quiet X exchange a while back and just getting off the ground now. What was that been like to get your own exchange life? Yeah, I, for an exchange operator launching new exchanges is always really exciting. And for us, we acquired railbird last October, really in a very early state. We had received their designation as a market, but really we're very much in a pre launch state, you know, a small team coming to us when we acquired them. And so we spent the last eight months, but really the last six months, a hardening the technology, preparation for launch, getting all systems ready so we can go live successfully when we launch a DKX. I'll point out that it's a second major launch for draft King's predictions in six months. We launched our app in December of last year, really launched our super app. Again, more recently, and now we've launched DKX, formerly the railbird DCM. So we've had a lot of really big launch that have taken place in six months time. So I'm super proud of that and super proud of the team in terms of what they've been able to accomplish. But in terms of launches, you know, the quiet study state, you know, move forward without any hiccups is really what you want in terms of exchange launches. You want a super deliberate rollout. You want a stable study, a fully functioning market as you move into scale. And it's really what we've been able to accomplish to date. It's gone incredibly well. The rollout is, you know, on target and on plan, we are adding new markets. We're going to be scaling in new features and we're adding a lot of market makers as well. And so we're really getting ready to do pretty serious transitions from from our current partners on to DKX, but the launch has been going going really well. Yes, it took me through the kind of ramp up plans because from what I can see at the minute, it looks like some baseball has been is going now through DKX and it's a kind of couple hundred thousand contract volume at day. So still early days, still fairly small. What's the plan? Is it ultimately just keep adding sports until everything is through DKX? We still have other partners. Yeah, so we do have two other partners right now and they've been great partners for us, but we have really committed to building out our own exchange and making that our primary exchange for sports as well as for non sports products. Right now we have a baseball. We have first five innings MLB along with Korean and Japanese baseball. And our strategy has been to add on markets, not currently available from our other partners. So we're improving ground. We're able to help our market makers test the waters. They're actively trading in markets that are creative to what our platform has been able to offer to date. And then as we start to ramp up, we will start to move markets over from our legacy exchanges on to DKX in the coming weeks and have almost everything funneled through DKX in an short period of time. Has anything surprised you about the activity you've seen so far, like what people are betting, how they're betting or trading? I think I'm maybe surprised by how invested customers are in Korean baseball. But I think it's a matter of the time of day that they're playing a relative to the US games that are being played. The KTWiz are five games off first and I think people are paying attention to that. So that's definitely one. And I think that's again back to the sport customer looking for activity, looking for products and certainly making sure we want to deliver to our customers products around the clock that they're interested in and not necessarily just on the US calendar. That's one thing. But I think the thing that's probably again from a market operators perspective that has surprised me the most has been the high level of interest from market makers joining the platform. You know, when when you work in legacy exchanges, getting market makers is some of the hardest things you've got to do to get them to commit to a new platform to get them to join. And I we've exceeded my expectations in terms of a level of interest from the marketplace in joining DKX out of the gate. And I think for us again, because we were able to launch our customer app, you know, months ago, and we already have volume coming through the platform that we can port over to DKX. It's not a cold start for the exchange will be able to deliver to our market makers pretty significant volumes in the short term. So I think it's sort of been easier than I had expected in terms of garnering your interest from market makers. Can you give us an idea of how many people or how many market makers might be running on the platform? I feel like people will know some of the big names like Susquehana, people like DL trading or jump, but how many people that want to get plugged in right now. Yeah, so we're not disclosing who's joined the platform, although it'd be safe to assume that the the draft king's market makers joined. We have a couple of others already trading on the platform and we have a lot in pipeline to get going and we're just trying to move them through the funnel as quick as possible as we start to open up more markets for DK retail customers. We want to make sure that we've got significant liquidity on the platform as well. And is draft king's market making on any other exchanges yet? Yeah, so draft king's market maker is headed up by another person within our firm, so it's not my area of focus, but yes, they are active not only on DKX, but also on CME and Calche as well. And they're also rapidly growing and scaling into their business with a ton of experience in terms of sports book and sports pricing to lean on, but yeah, they're growing for sure. And is that team, although not directly your your area of focus, is that again a mix of sports and finance exchange people as well? Because it seems like obviously a lot of sports betting operators have had to build this out recently and there's a kind of acknowledgement like we can't just have our sports trading team move over, you know, it's a different bit. Yeah, so coming up on nearly his almost first year anniversary is a guy by the name of Rizwan Awan who was hired to head up the market maker business and he comes from traditional finance, he comes from the Toronto Stock Exchange with a background in trading and so that that's his area of focus again, another trad by person coming into the space that DK has invested in. Learn how Optmove's positionless marketing is changing how eye gaming teams operate. Discover how operators using Optmove's positionless marketing platform to launch Personalized Serum campaign, dynamically change casino lobbies and bet slips and create engaging gamified experiences. Learn more at Optmove.com. Let's talk about customer metrics now. I'm sure one of the one of the things people are trying to work out still is what an exchange customer is worth and you look at some of the sign-up offers, they're a lot lower, it's $10.25, you know, compared to a sportsbook new customer might expect $250 free. So what sort of data are you collecting? Have you any idea yet what an exchange customer is worth? Yeah, you know, we're still learning. It's pretty early on, you know, in our role light has been progressive and growing. We've made a bunch of changes in terms of how we've even approached the business, going from a standalone app into a combined super app across sports for all of trafficking. So we're learning a lot not only what the customer is worth, but also what it takes to get them through our door. And so I think we're still still testing and learning. You know, for us, we've definitely seen our costs for acquisition decrease as we've been able to leverage our national brand and marketing campaign. So for us, that's been super important in terms of our growth story to be able to lean into that. And then on the offer side, you know, it's a key driver for sportsbook. I would say that drop kings is really well positioned because they have years of experience knowing what it takes to convert these customers, to attract these customers, and also to retain these customers. So we're spending a lot of time from historical learnings, from sportsbook, you know, the Robop's team that manages that really being able to lean into predictions and you know, look at this through historical lens, but also again, look at as a new product. We've got a great offer out there right now where it's, you know, you spend $5 and you get 200, right? That's a world cup promo we're running right now. And we're testing and learning from a lot of these offers that we've had over the past couple of months. So I think it's, you know, in summary, I'd say it's still too early to say what value looks like over the long term, but we're definitely learning and I think we're leveraging all of draft kings capabilities in terms of growing this business effectively. Yeah, I would say that already feels like a bit of a step up in bonus money that, you know, I was looking, I think a month or two ago and it was $25 was kind of standard. So is that kind of recent step up? It was definitely a step up for a world cup. We saw that as a big acquisition moment for for draft kings predictions and in line with our overall national messaging for drafting sports. And so it was, you know, really important for us to get that message out there and have people take a look. And it sounds like definitely by some of the public volumes, world cup has been huge. Well, cover has been huge. It has absolutely smashed expectations internal for what we would have gotten in terms of acquisition and engagement from our customers. It's been really tremendous for us. Do you feel any pressure, as I say, of it, you know, the story of draft kings, the stock has been prediction markets now, probably since you joined the last year. Do you ever feel like, oh, I really need to make this work? Oh, well, of course, 100%. I mean, that's what I came here to do. Not, I mean, for the stock, I'm sure, but also just personally, like, you know, I came here to make this business work, make this business grow, make this a really big business for draft kings. So, so just, you know, personal pride in all of this absolutely. But, but I think our story is, is the right one, right? This is sort of an expansionary moment for draft kings as a company. You know, yes, there's there's pressure from other prediction market operators in in sportsbook states. But I think everyone, you know, needs to remember this is also, you know, almost a 50% TAM expansion for draft kings as a company into states that don't currently offer, you know, sportsbook. And so for us, it's, it's a huge opportunity to grow our business overall. And so, so yeah, definitely, you know, we're, we're, we're going to make this work. We're going to be the leader in sports prediction markets, you know, without it out. Where do you see your product now versus say Cal she is, you know, currently the biggest operator doing the most volume. Do you think you're still always behind? You're going to close that gap. Where do you see yourselves currently? Yeah, I think there's, there's two, there's two areas of focus, right? There's customer acquisition, marketing, marketing, spend, brand recognition, retention, and sort of the, the business of, of the prediction market space right now is going on. And then there's, you know, knowing sports, knowing the customer, having the right tools, the right optimizations. And I think when we look at these combined, you know, we have the right to win in sports. I think we've earned it. We know this customer. We know how to optimize. We have all the data. We have all the tools. And so I think from a product perspective, you know, apart from, you know, marketing retention spends all that part, the actual building of the actual product, like the thing you log on and you see and you touch and you feel and you onboard with and you, you know, settle against and you deposit it withdraw from all of those tools for our customers are super important. It isn't just sort of the breath of market. It isn't just, you know, some novelty, you know, market that they're putting up. It really is knowing that sports customer and knowing what's been important to them in terms of quick elements, be able to withdraw quickly, be able to have all the data, have live game tools in the space. And so I think we are catching up really quick in terms of parity on content. But when I think about the product itself, some areas were already sort of ahead. And I think that's sort of where our customers lean into. It isn't just sort of how many markets are out there, but, you know, we will have exceptional lead coverage, we'll have exceptional live game product, we'll have exceptional combo product, we'll have fast withdrawals, we'll have all the things that customers in the sports arena really, really want. And I think we will definitely be the clear leader in sports prediction markets. It feels like obviously given draw fangs background that combos, SGPs will be a possible area of edge. Is that what you expect to know? Do you think you can get close to a OSB style SGP product? I think their death, combos are, I mean, they're a really big part of our business already, right? In June, more than 30% of our volume was in combos. And we just launched these, you know, very recently. So, so I think, you know, when you think about that interest in the customer, it's a huge part of the business. I think we have a lot of work to do to match an OSB experience for combos. And structurally, they work really different than they do from a sports book. This is one area where, you know, when you get under the hood, right, you know, prediction markets, market makers were the selling side of the trade needs to be able to fully fund what the customer's buying. So if the customer's buying a lot of long odds contract, you know, and it's a penny or less, someone else has got to fully capitalize that side of the trade. And so it does become a capital concerning product relative to sports book, which doesn't experience all of the same constraints. But I do think, you know, part of the benefit of having the exchange allows us to be really innovative in terms of building out an experience for market makers as well as the customer that allows customers to benefit from that overall pricing and overall development in the marketplace. So, We haven't rolled out combos yet on DKX. They are coming. We are working on them. They will be delivered in relatively short order, so I can't tell you when, but we're really excited about them. And part of the reason for that is just being able to improve upon that experience. And whether it gets to the full OSB style experience, that's what we're aiming for. We want our customers to have, if they come to Dropkings and they like OSB and they've had a great experience in same game parliés, we want them to feel that same experience in predictions. And our goal is to make sure that that happens. But there's a lot of work to get there. I'm just based on how the products are constructed, how they trade, market maker participation, but we're really committed to all of that. What's your view on how the market structure plays out in terms of competition? Do you, I think we'll be sore in the UK with exchanges that there's room for a couple, two or three, maybe do you expect kind of similar consolidation that we've seen in sports betting to, you know, two big companies and then another tier? Because the minute everyone is launching, everyone's trying to get a license and there's eight new exchanges in the last three months, right? Yeah, I mean, I don't, sports betting, yes, you're right, but also the history of markets, right? You know, it's the same narrative that exists across most markets where there's two big players, and then there's a bunch of tertiary markets that exist over time. Maybe there's three, but but everyone else is really tertiary. And I think you'll see the same thing happen in prediction markets and I'll tell you why. But I do think that draft kings, you know, part of our focus to come out early and come out strong is really to be able to be there as part of that top tier market places with DKX. And, you know, we didn't wait to launch the customer app until we got the exchange going because we wanted to start the customer acquisition because customers are what drive the marketplace. And so I think what you'll find is that in this space where market makers are committing a ton of capital to trading and there isn't centralized clearing across all of these marketplaces that market makers have to deploy their capital and select number of exchanges and they're going to deploy their capital on where there's customer interest and value for them from a trading perspective. That's what draft kings brings to the table. We've got a really healthy marketplace already today in terms of our customer business. We're growing really rapidly. And so I think you'll find there'll just be a handful of players that have captivated the customer experience, not too dissimilar from, you know, from sports book, not too dissimilar from, you know, futures markets that exist in the US today where there'll be just a handful of players that really are dominating the volume landscape. And others, it's just hard to sort of grow as rapidly once we've taken market share from an established kind of more solid footing mature market landscape. Yeah, yeah. I suppose a market makers ultimately want access to retail flow and draft kings is pretty well suited to give that. That's right. And market makers, you know, there's there's lots of, you know, this is still really early in prediction markets. And I think everyone kind of forgets that, right? But, you know, there's sort of a land grab going on right now for customer volume. There's new entrants that, you know, people hadn't heard of two years ago coming into this space. There's so there's a lot of, I don't call it noise because I don't think it's noise necessarily, but there's a lot activity going on in this vortex of prediction markets. And I think over time, you know, we talk about value of the customer being able to monetize that, being able to find synergies and efficiencies in your operations, all of these things will come to bear. And it's why you see over time consolidation amongst players because they simply can't maintain the customer acquisition costs or the operation costs if they can't scale fast enough and they can't attract enough liquidity to grow their market because they just don't have customers there to to interact with their their participants. Market makers will come to exchanges for incentives, but ultimately they come because they want to trade and they want to trade with a good healthy mix of order flow. And so I think that's that's super important in terms of how this market's going to develop over over the medium to long run. So just thinking beyond sports quickly, again, given your background, we would maybe think draftings would look at crypto markets and you we've seen 15-minute Bitcoin markets do quite well on Kerala Street recently. I think drafting CFO has said there's thought of maybe adding stock markets at some point. So how do you think about expansion beyond sports? So we we already offer a whole lot of markets beyond sports. So it's not necessarily even sport restrictive today. Through our partners, we do offer crypto, we offer hourly markets on different indexes, we offer commodities. So there is a lot else on the platform. We have cultural markets in some of our some of our states as well. So there is a lot there. I do think for us, one advantage for using like crypto or even commodities or hourly stock markets is that they offer products that treat 24 by seven. And our customers want to be on our app. They want to be engaged with us. So I think for us, it's definitely expansionary content for us that we're super interested in and will eventually have on DKX. I think right now we're first focused sports and then we'll be adding other markets on as we continue to grow. But yeah, they're in they're in the app. We have customers trading them already. You know, we had the the Kone Island hot dog eating contest on Saturday. You know, so we definitely have a broad range of content and it allows us to pour into that customer activity as we start to grow the exchange itself. To expect that long term source, I don't know at the minute, it might be 80% sports, 20% the rest. Do you expect that to persist, do you expect non sports to kind of grow and even out of it? I think that non sports will grow. But sports is such a dominant business that I don't think it's going to be evened out by any non-sport category. I think sports have proven to be such a tremendous opportunity for the other prediction markets in this space that their growth story is is sports. It isn't that they've been growing all these other markets at the scale that they've been growing sports. And so I don't see the markets evening out. I do see that there's other content that sports customers are interested in and then for a lot of customers, maybe they're not trading in an options account because options are complicated. That's my background. They're complicated products. So maybe there are tangential products that they can access and easy to use simple format that makes sense to them and that are available in easy terms. But I don't see those substituting for sports over the long term. Yeah. I feel non sports is maybe similar to Korean baseball that you were talking about earlier. Sometimes it's midnight or it's 9am. There's no baseball on there's no pro-proport sports on. People want to have a little gamble for 10 minutes, essentially. Yeah. They're on your app. They're looking around. They see something interesting. Maybe they hear news about a world event. Certainly politics are a big area that are very cyclical. No one's really trading politics in February. But come November, come October. They can be a really big opportunity for us. So it doesn't necessarily mean that all these markets are going to be the same 365 days a year. But I'm certainly making them available to our customers is something we want to do. We don't want to over one customer to have to leave our app to go trade somewhere else just because we're sports focused. We want to be able to service them with all the products that they would want to trade. Do you look at someone like Robin Hood is in like a good example of more of a financial super app trade anything? Do you look at them and think we could be like that? You know, I don't think we're looking at Robin Hood and saying we want to be like Robin Hood. I think we look at Robin Hood and say they are entering the Christian market space. They have a sports offering and how do we make sure that we are attracting and retaining our customers for for the business that we're in? Interesting. Right, Jenny. That is all the questions I had written down to ask you. Is there anything else I should be asking about? No, I think you've covered all the great topics of things that we've been working on in the last six to eight months on Undraft King's predictions. And we're super excited for DKX to continue to scale and our business to continue to grow. We've got a lot ahead of us in terms of the next two rounds of the World Cup. I'm sure we'll be pushing to more new heights in terms of records and happy to keep you posted of all. That's to come. Brilliant. And thank you very much for your time as ever. I know you're very busy, so it is much appreciated live from the Jersey Shore. Thank you to Janine and to our listeners. If you'd like to hear more from IZ and Crycheck and the work we are doing on prediction markets, we have now a monthly dedicated prediction market report going out. Please do drop me a line or LinkedIn. I'll put you in the right direction and thank you all for listening.