The long game: Why Genius Sports is slowplaying its US hand

The weeks and months immediately following the fall of PASPA were hardly characterized by caution and sober critical thinking. Indeed, operators and providers fell over themselves in a rush to be first to market, hurriedly inking deals along the way. Marry in haste, repent at leisure, or so the saying goes.

However, a notable absentee from this rush to market was Genius Sports and its Betgenius subsidiary. In fact, at the time of writing, the company has still not announced a major deal for its sportsbook platform or its sports data feeds. But speaking to EGR NA at a hotel located in London’s Covent Garden, Genius Sports CEO Mark Locke comes across as wholly unbothered by the hitherto dearth of announcements.

“I’m not remotely concerned,” he says. “There’s some real challenges in the market at the moment that aren’t even being talked about, one of which is the Wire Act. It presents a significant consideration. What concerns me is that our regulatory approach and commercial partnerships are done properly, and that we do everything within the bounds that are allowed.”

Locke refuses to be drawn on the specifics, but legal experts contacted by EGR NA agree the application of the Wire Act is a huge unknown, particularly as more states come online and bets are beamed to servers in different states. “As written, transmitting bets like that would seem to be a violation of the Wire Act,” says one lawyer, speaking off the record. “Although it still requires someone to bring that case to court to clarify the interpretation of the Act. If it is illegal and you have to run individual betting business with traders and servers in each state, that’s going to be very, very expensive.”

Biding its time

That type of uncertainty has played a key role in Genius’ hesitation so far, but the firm also doesn’t think there’s any need to rush. “I’m not that bothered about first-mover advantage,” Locke says. “If you look at someone like Sky Bet, they certainly weren’t first-mover, but they’ve taken the market by storm.”

Indeed, Betgenius provides pre-match and in-play pricing and trading for Sky Bet in the UK, so has a pretty decent insight into what it takes to appeal to the type of recreational customers that will likely make up the US market. “We’ve been working for the long term,” Locke adds. “We started looking at the US four years ago and we set up and office there in LA two and a half years ago.”

The company already monitors the integrity of betting patterns on MLB games for the league and distributes official data for La Liga, ATP and WTA. The links with the sports leagues would appear to put Genius in a strong position going forward, particularly if the partnership between the NBA and MGM – which called for the use of NBA-approved data feeds – become the norm going forward. The NBA is understood to have held an RFP to provide that data feed, and Genus Sports is conceivably a front-runner, although Locke is non-committal when asked about the deal.

“The entire MGM/NBA deal is a really good example of being forward-looking from the NBA,” Locke says. “Adam Silver was the first to say betting should be brought out of the darkness and this is a good example of two major US corporations working hand-in-hand for the benefit of all. We endorse those relationships and if we can be the technology providers that can facilitate that type of partnership, we’re happy to do so.”

Mark Locke

Whether the other major pro leagues will follow with similar betting partnerships remains to be seen, although the NFL at least appears to be visibly softening its anti-gambling stance, allowing players to take casino comps up to $250, while the Dallas Cowboys recently inked a partnership with WinStars Casino. “It’s obvious to say most sports leagues are considering this,” Locke says. “Where we come in? If there’s an opportunity to supports the books and sports, we will do that.”

That’s not to say the conservative path chosen by Genius is without its risks. It is undoubtedly leaving some money on the table – and has done in the past – that other providers have scooped up by supporting offshore books. Whether those rivals will pay the price by being shut out of the regulated market is still very much up in the air.

The tortoise and the hare

There are, of course, other benefits from slow-playing the US, not least the chance to really think about what an ideal US product looks like. “One thing America has is an almost blank canvas,” Locke states. “It’s a huge opportunity to create something brand new as a product. FanDuel and DraftKings have talked a lot about how hungry US fans are for data and statistics, so that’s something we’re thinking about a lot.

“For instance, there’s technology that produces biometric data. There’s an enormous opportunity to build products using that data. How high can a player jump, how fast can he run? There’s some really cool stuff out there, and we’re investing heavily in areas that will allow us to provide products like that in future.”

There’s also a question to be answered about the sturdiness of US sports trading, at Genius and across the European sportsbook industry as a whole. “Most of the in-play products on the market for American sports are laughable and easily beatable even with the 7% hold,” claimed industry veteran Ed Miller on Twitter, although it should be noted Miller is offering his own trading models as a service. The criticism is not without foundation, though, with most European operators aware their US sports trading is not quite on a par with soccer or tennis, for example.

“That sounds like a challenge,” responds Locke when Miller’s criticism is put to him.

“The investment we are putting into our US product is significant. Is anyone where they need to be at the moment for US sports? Probably not, but we’re going to get there fastest.

Fundamentally, it comes down to quality of data, product and the expertise of the business creating the prices. Take basketball for example. We already have the sharpest pricing and models in the market today, and that has produced some amazing results for our partners. With 15 years’ experience in trading, we back ourselves to repeat that success.”

The necessary firepower

At this point, it’s probably worth highlighting the aforementioned absence of major Genius announcements isn’t quite accurate. Back on 30 June, the firm announced it was being acquired by Apax, one of the largest private equity firms in the world with a long background in technology and gaming. Indeed, Apax was an early investor in King, the Swedish games developer behind mobile smash-hit franchise Candy Crush.

A takeover of Betgenius had been rumored for several months, with other major providers including Playtech thought to be in the running, but the PE deal avoids the need for any major technology migrations and will see day-to-day operations largely continue as before.

The main benefit will be a significantly increased war chest that will see Betgenius invest in organic and inorganic growth, with a particular focus on the US.

“There was strong interest from several other parties, including within the gaming sector,” Locke says. “However, once we began talks with Apax it became obvious that their understanding of our business and the sectors we operate in, along with the expertise and financial resources, made them the perfect partner for long-term growth.” In particular, the chance to finally wield some heavy M&A firepower is a tantalizing prospect for Locke. “As you grow a business organically over the years you don’t always have the resources to make some acquisitions that would speed up your development. Apax changes that for us.”

The CEO refuses to get too specific on exact targets, revealing only that Genius is looking for organizations with a good technology base that can speed up the growth of the business.

Instead, he offers an example from the past when Genius acquired DataProject, a company whose software and technology is used by over 80% of volleyball leagues worldwide.

According to Locke, the deal gave Genius access to the “highest quality, official data for one of the fastest-growing betting sports, in turn benefiting our vast network of regulated betting operators.” He adds: “That has been a hugely successful model and one which we may look to repeat in other sports.”

Under pressure

But does the acquisition also bring a new pressure to produce short-term results, and perhaps move faster than Locke and his company would like? After all, private equity firms are hardly known for their relaxed, ‘take your time’ approach to profits. “There’s definitely a pressure there but I’m not sure it’s new,” he responds. “We’ve always pushed ourselves quite hard but now we have more firepower to speed up the growth of the business.”

Acquisitions mean a major hiring spree in the US, at a time when there’s a growing concern around the industry about the amount of sports betting expertise available. With US betting historically confined to Nevada there’s not an abundance of executives with a knowledge of modern bookmaking operations, while conversely there’s not many European execs who truly understand US sports and customers. “That’s not really a concern,” Locke says.

“We’re looking to be a technology enabler, which means we don’t need to find people who’ve done this before, because there is an opportunity here to do something brand new.

Our experience, having opened an office in the States, is that you can find that talent, bring it in and you can learn from them about how the US works, but you can educate them on how it’s done elsewhere, and you can create a better solution.”

The plans for US expansion are indeed massive, and Locke says he glad to be back on the operations side of things after a few months spent talking to investors and bankers. Talking to him you get the sense the US strategy is a classic slow-play, with Genius Sports holding all the right cards. “[The US] is arguably the biggest opportunity the industry has ever seen, and we’ve been preparing for this for years,” he asserts. “We’re ready to take it.”