Read the full interview HERE
We recently interviewed a former Director and the first employee in the US at Kambi Group, one of the leading B2B sportsbook suppliers globally.
In the full interview we explore:
- The scale advantage of Penn and Boyd and how operators look to choose online operators
- What land operators care about when choosing a sportsbook vendor
- Kambi versus SBtech and other sportsbook suppliers
- How land operators look at front versus back end solutions in the stack
- Why Kambi may have an advantage setting in-play lines
- The LTV of sports versus online casino
Moving on to look at Kambi, versus competition and, I guess, SBTech and the recent deal with DraftKings, how do you compare the two solutions?
I think there’s a bunch of similarities and there’s a lot of differences. I think the best way to look at it is who their customers are. Kambi has quite a few Tier 1 customers, in multiple jurisdictions. SBTech has quite a few Tier 1 operators, in multiple jurisdictions. It’s tough to analyze the financials as a publicly traded versus privately traded company, specifically for the reason of analyzing margin. You look at a company like Kambi, who has extremely steady margins, for their operators, which I think, is probably the largest feather in their cap. If you want to make money in sports betting and have a steady margin, somewhere between 5% to 11%, on the ultra-high end, it’s a very strong supplier. Whereas, someone like SBTech, we don’t exactly know what their margins are or where their revenue is coming from; it’s just hard to gauge.
You can look at any of these awards in our industry and Kambi and SBTech are constantly neck and neck there. If you look at them from just one operator, who wins that business? It’s very hard to decide and to understand who someone selects. In some cases, it’s a coin flip. At that point, the decision gets made on commercials, which are also very difficult. As a premium-priced product, Kambi is definitely at the top end of cost, but with that, you get a premium product, in comparison to anything else on the market.
You’re operating on limited information, on the nuts and bolts of exactly what’s happening. But ultimately, it needs to be bought in, philosophically, with the relationships that are built through the sales process. The industry is pretty small and everyone knows everyone. So decisions are made, for the most part, anecdotally, which operators have been successful and used XYZ product and how are they similar to the specific target that we are discussing. It’s really hard to compare and contrast them, without having the total picture. If you’re looking at it from a meritocracy, just look at who is making the most money for their customers. A lot of that is publicly available, in white, regulated markets.
If you have a level playing field, you look at specific operators in New Jersey or Pennsylvania or the UK, Sweden. You look at lottery revenue; you look at social revenue. You can look at a whole bunch of different metrics. It’s really hard to define who is better, because it really is a case by case basis, because it’s not too large of a market. As an enterprise software company, effectively, Kambi has somewhere between 20 and 30 customers, whereas a traditional tech company may have hundreds of customers. So it’s a limited size, where it’s more focused on building deep, long relationships with several providers.
Who is better at offering live bets?
If you look at live bets, you’d have to do a market by market analysis. But if you want to look at sheer quantity of live markets, this is something I do on a regular basis in New York, New Jersey and Pennsylvania, where I live, it’s more that Kambi has a significant amount of live markets available, larger than anything you see in this country, so far. I would say that Bet365 is the closest, in New Jersey and FanDuel is very strong in this category, as well. But I would say that Kambi has significantly more live markets than SBTech.
Does FanDuel use Playtech or IGT?
They have a bunch of providers they use so it’s a little blurry, from my perspective, to understand where the ball goes, from provider to provider. It’s an amalgamation of GAN, IGT and the existing Paddy Power infrastructure. They work with various strong providers but I don’t specifically know where it changes from GAN to IGT and from IGT to existing, in-house tools. But I do know where the other operators sit.
What makes Kambi so efficient or good at offering live, in-play bets?
I think that goes back to the point of the human capital piece. Having markets open, 24/7, with traders working 24/7, around the clock; not as individuals but, collectively, as teams. That really helps. They’re able to trade off sports that don’t necessarily have official feeds so they can trade off pictures, to understand what the market is doing and what is happening, at a given instant. I think there is not only the size of the team, but it’s also the expertise within the team. That’s really where they thrive, being able to understand, not just algorithmically, what this line is supposed to be, with two minutes left in the first half, of a Saints, Bucks game, but is also needs to be, situationally, what’s happening and how do we derive the appropriate price that’s going to be attractive to betters, but also be attractive to the operators, as well, to make sure it’s a fair and probabilistic bet. I would say that it’s expertise and experience.
A good example is that Kambi has been trading live sports, in the US markets, for years and years; decades, almost. This is in comparison to someone who has been doing it for six months or since PASPA was repealed, two years ago. There is a steep learning curve, but then there is also the experience of having been there and done it, for quite some time, and they have a much better pulse on the market.
What do you think is the biggest challenge for Kambi, going forward?
I think it’s more scale. If you have a premium product and a strong set of operators that you are partnered with, how do you scale that, whilst maintaining the level of support, the level of exposure and really replicating each success? It needs to a constant, vigilant process of making sure that you are changing with the market, changing with customer demand – and by customer, I mean the end user – to make sure that the product is strong and allows your operators to be market leaders, if they choose to be. I would say that scale is, probably, the most difficult piece. How do you scale from 20 to 30 operators, to 40 operators? How do you maintain scale, to be a market leader in Michigan, Colorado, Indiana, Pennsylvania, New Jersey and then another 10 states, in a few years?
How do you maintain the scale to be the first one to take a bet online, in nearly every state? So far, in the US, that’s a tough process, to keep continually making sure you are better than the competition. So I would say, keeping up with scale and maintaining the results that are expected. Continually meeting those expectations that are significantly higher than the competitors.
How much do you need to scale the fixed cost base? For example, I think they’ve got roughly 200 traders, 200 developers; let’s say a new state opens and they want to enter that state, do they need to hire more traders? I suppose there are nationwide sports.
Yes, there is definitely some scale there that you can economize and the unit economics change, significantly. There’s certainly an element of that, but a company with 10 client operators, versus a company with 30, 35 or 40, there’s administrative impacts, there’s localization impacts on where you have offices and where you make sure that there is a lot less latency from an operator that is, potentially, in California, working with folks that are based in London. It’s a big difference to have them work with folks that are based in Philadelphia and, potentially, even on the West Coast.
The unit economics get much more attractive, when you add more operators, but you also have to keep up with the maintenance, from a development perspective and a roadmap perspective. The product isn’t always the same. The product, today, will be different in six months and, six months after that, it will be even more different. You need to maintain that and that requires some significant investment and thus, that investment effects the unit economics. It’s not just one product that will always work the same way, for every operator. It takes quite a bit of vigilance and attention, to make sure that each operator receives, ideally, even better support and service than the operator before.
How, exactly, does pricing work? Let’s say, I’m an operator, you’re Kambi and I’m coming to you; how is it set?
It operates, mostly, on revenue share. It makes sure that the supplier that the operator chooses has a stake – they have skin in the game – to want to be successful. You don’t want an apathetic supplier that doesn’t really care what happens. You want someone to make sure that they feel the pain as much as you do, when things aren’t going well. Therefore, they will work hard, to make sure things go according to plan. The commercial structure is very basic. It needs to make sense for both sides. Typically, the best way to do that is to have commingled interests.
So it’s 6% to 8%, roughly, of the net revenue?
I can’t comment on exactly what the numbers are, but it works on a revenue share agreement. These operators are paying platform, they’re paying geolocation services; the costs add up, significantly. You don’t want a sportsbook supplier to be overbearing and cost-prohibitive. It’s the responsibility of sports betting operators to make sure that they’re, not only competitive against the other sportsbook suppliers, but that they’re also competitive, taking into account the other costs that the operators have to incur, even before they take any bet. How quickly does that dollar diminish, once you start paying each one of those suppliers? They have to constantly toe that line, to make sure that they are profitable, but also making sure that it isn’t cost-prohibitive.
Read the full interview HERE