Chit Chat Stocks - Gaming & Gambling with Will Hershey

Episode Date: October 13, 2020

This week on Chit Chat Money your hosts, Ryan Henderson and Brett Schafer, welcome on Will Hershey from Roundhill Investments (23:12). The three discuss the world of gaming and gambling. Catch Ryan and Brett before the interview (1:50) discuss their favorite stories from the week. As always, on the back half (1:15:52), find Hot Water, FMK and Anecdotal Evidence. Enjoy the Show! Visit our website to see more from your hosts Ryan and Brett. https://www.chitchatmoney.com Follow Chit Chat Money on Twitter: https://twitter.com/chitchatmoney --- Support this podcast: https://anchor.fm/chit-chat-money/support Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

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Restrictions apply. Welcome to Chit Chat Money. Today is Tuesday, October 13th. Today we have an interview with Will Hershey, CEO and co-founder of Roundhill Investments. Big time interview. Yeah, it was a lot of fun. It's really interesting what they do. It's, I mean, he'll dive into it, but it's the ETFs.

They've got two ETFs. It's the Bets and the Nerd ETF. And don't forget Deep Value. And Deep Value. and those are the bets and the nerd are gaming and gambling yeah so they're they're not factor focused they're uh thematic focused they're kind of a startup going off of that and they've had a lot of momentum and it's exciting to hear what they're doing yeah and then we have our own stories before that what are you talking about uh mine i mean it's it's kind of tough to say what

it is it's a it's a paper from morgan stanley talking about how to actually classify free cash flow and intangible investments. So it's going to be a real fun topic. Yeah, really exciting. And then I've got the Twilio acquisition of Segment. So that should be a lot of fun. And then as always, we have our current state of FinTwit. We have Hot Water, Fuck, Marry, Kill, and Anecdotal Evidence. Let's go. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investment. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are not financial advisors. Anything

discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. Should I kick things off for you? You go ahead, yeah. Okay. Take that out of the way. This morning, Monday morning, so we're recording on Monday. It's coming out on Tuesday.

Twilio officially announced that they are acquiring Segment for $3.2 billion in an all-stock deal. A quick breakdown of both businesses if you don't know either one. Twilio owns a library of APIs that developers pay to use when building out communications tools on their apps or websites. And some of that was mumbo-jumbo. I'll explain it. And then Segment also runs a similar model except the APIs are built to help better collect and use customer data. And so they're pulling together data from a lot of different apps as well. So think about if you're building a website to sell purses or something like that and you want to have instant messaging function on there and you wanted to see how your users spend their time on your website, how you could better market towards them.

you'd be using a Twilio API, you'd be using a Segment API, and all that stuff. It'd all be embedded in there. But as far as the actual deal goes, Segment's latest private round was at a valuation of $1.5 billion. That was in April of 2019, and they obviously got bought out for $3.2 billion in an all-stock deal. The deal was financed in Twilio Class A common stock on a cash-free and debt-free basis. basically what that means is that when a buyer purchases a company and its assets it is on the basis that the seller will pay off all the debt and extract all excess cash prior to completion of the transaction did you find that on investopedia oh yeah big time um i did not know

what it was so i was like i'm gonna look that up classic investopedia right there um okay but without knowing any of the financials of segment do you think twilio overpaid or does this look good on an absolute basis perhaps but it seems like the acquisition makes sense and then when look at the fact that Twilio has a premium stock price a lot of people are celebrating management which I think I agree with for using that expensive stock price as a currency to acquire other companies now the catch there is like if you're an investor of Twilio are you just admitting that the stock's overvalued maybe but it kind of shows that management is willing to think all right we're going to have to dilute shareholders here but it's the right thing to do because our

shares traded such a wild valuation right and as of this morning twilio i believe is about a 50 billion dollar business i didn't know that market cap wise yeah i mean it's had a fantastic run um do you think twilio will be like the backbone of most websites and apps going forward it's tough to say they're building out a lot of functionality in the api space yeah i mean it seems like they're trying to be they're trying to own everything in that so it's really hard to know a huge market uh it's it's out of any expertise i have i i don't have it in apis so it's tough for me to say but all i can say is they have a lot of momentum here's the thing and this always either makes me think the market is wildly overvalued or we tend to misprice a lot of uh software companies

because like a year ago we were like oh we've missed the boat on this thing and now we look at it and we're like oh we missed the boat is this one of those where i say that over and over and then it ten axes it could be it could be and the thing is with investing is if you lose you know on this one we chose not to invest and it didn't work out uh because we chose not to and it turned out to be a market beater it doesn't mean you can't beat the market investing in other things you don't have to swing at every pitch and if you don't understand twilio you might not want to invest in it but if you do understand it and you think all right twilio is going to dominate this market i actually know how all these software apis work um you got a clear advantage at least

from my purview i mean you don't really get a first-hand experience of the customer value prop unless you're a developer right right or you're just really smart at learning these companies i tend to like companies where i can at least get my hands on the product and understand it it's pretty hard to do um if you aren't building out a website agreed agreed okay uh that's all i had so All right, mine, it's going to be a little more of the eat your veggies, as they say. So it's from Michael Mobison and Morgan Stanley. It was a paper published mid-September, so it's about a month old. And I didn't really see it until recently, but lucky I did because this might be one of the best papers I've ever read.

Most papers you read are like, gosh, this is just boring, dry stuff. There were so many nuggets in here. I'm probably only going to hit like a third of them. But it was on intangible investments and free cash flow and how to classify things correctly. so he starts out um i guess with an anecdote on walmart if we go to the top here of the paper it's only like 25 pages so not even that beefy and like a third of that is graphs and the index or whatever the annotations so not even that long he talks about in the intro here though that there's a company that's profitable for the next 15 years it's going to have steady profit it's

going to grow those profits at a 40 compound annual rate and it's going to initiate a dividend which will grow at a 50 compound annual rate but the same company is going to have negative free cash flow for the next 15 years the level of debt will grow at a 34 compound annual rate over that same time frame would you want to invest in that company i'm having a little bit of a hard time following you verbally um okay sorry that's a lot of numbers but say yeah terrible cash flow good earning no well that company is walmart one of the best performing stocks of all time wait so they terrible cash flow but good on a basis think of it yeah think of it like netflix right now so they're technically earning money but on the cash flow basis they're investing more

into the business so the capital expenditures are a lot larger but they're getting a high return on invested capital which i think for walmart was 18 so it's just showing that on a gap basis even if you have a ton of negative free cash flow it doesn't mean it's going to be a bad business and also shows that gap accounting can make things seem like a company's really profitable or not um and there's just a ton of nuance there so he has that anecdote just a classic amazon thing right where no one really knows how profitable they are because they're pouring so much into capex yeah and the classic example of when is someone says well amazon's never made money and it's like well technically they haven't stated any earnings um but they have had a lot

of operating free operating cash flow and cash flow um but that's that's just an example you wanted to use on how things can get distorted and each business is unique but it does go into different things here so the overview of the entire paper was how should investors classify research and development and sgna expenses like to properly account for these are the intangible investments i.e should they be expensed in the income statement or should they be put in with capital expenditures as a financing operation and he kind of thinks that a lot of stuff that is being put in the income statement which is decreasing operating income should actually be put in capital expenditures and instead of uh so operating income would rise

in that case correct what what was he like what was he highlighting that is often in the i'll get into it but one of them he says first off every company you should uh add back stock-based compensation yeah right so stock-based compensation is a way that these capital life businesses kind of cheat but not on purpose it's just the gap accounting they kind of cheat and make the free cash flow higher than they think so he says you should take the free cash flow number you get from a gap basis and subtract out any stock price compensation right and it feels like they're kind of cheating it but bill brewster had a good point on value after hours uh this week and was like if you were in management shoes why don't you do the same thing oh he's not saying it's a bad thing

but he's just saying that you should add back because it's it's not expenses it's the way you finance your and i'm going to say property and equipment but the property and equipment for these capital light software companies are the brains of the developers that are building this these things and that should be amortized as an investment but not an expense so it just makes that for you that cash flow numbers uh seem higher than it actually is do you agree with that does that make sense yeah it feels like a lot of it is like you just have to look at the expense on sort of a absolute basis yeah because a lot of it you can kind of add back here and there and there's like gray area like would you especially with the software businesses there's so much

there's so many expenses that are in between like where that would actually go and one note he made is that gross margin sorry if a company has high gross margins it's an indicator that they're hiding a lot of their investments on the operating expenses line so a lot of the companies we look at often software as a service you know 70 to 90 gross margins they can be hiding a lot of things in the expense line that is actually capital investment so okay yeah i've had a gripe with this before yeah you would like the paper goes into a lot more detail and it's really hard to discuss it like verbally um so i'm gonna make it kind of dumbed down but yeah that's kind of the way you put it there are operating expenses that scale with the business people tend to forget that

people i mean i've maybe done it before too you see like 91 gross margins and you just think the margin conversion over time once they hit scale operating will be really close to gross there's a lot of times when there's nuance to that and that's not true yeah and i mean he sums it up like this so here's a quote directly from this the recording of investments has largely migrated from the balance sheet to the income statement an investor's job has not changed but the analytical approach has so if you want to cheat yourself you can just use the standard gap stuff and just calculate the cash flow and calculate it using a simple formula but in reality you probably need to do it on a case-by-case basis one note he had here is that in 1974 the financial accounting like

standards board whoever classifies everything they decided that r d expense should be expensed as i just said sorry and not capitalized which means that it's put in the operating expense line but it's not put in the investment line so mobison says in the paper that he argued that for these capital light businesses the r and d is the intangible investment of that most of the time 100 of it should be taken out of the expense line which boosts operating income right but it should be amortized or you know a lot of it will be taken out of the expense life it should be amortized over the life of the contract five years ten years and then added back into the uh cash flow statement it's really hard it's really hard to do this not visually like not looking at it um so

i'm sorry to the listeners if we're like not if we're kind of rambling but i think does that make sense though yeah i mean yeah and i saw this on twitter so i i do agree i think you tweeted this tidbit out right yeah that one especially yeah and then what about advertising expense people estimate that should be about 50 of advertising expense depending on the company should be capitalized and therefore instead of expensed on a directly amortized over the life your contract yeah yeah i could argue that that's basically an investment it's but the thing is you got to do it as a case-by-case basis but if you're a software company like sometimes that's literally the like that's a cost that is an operating cost like that's how you do business is by marketing

to get revenue like i don't know it just it like i said there's nuance to everyone and he was saying in the paper there's isn't there's not a perfect way to do everything i mean you have to make a ton of assumptions and i think the best way is that you have to look at every company on a case by case basis and start at gross profit and say okay what assumptions do i make here what things make sense because some companies like walmart are different but if you're looking at microsoft it's going to be entirely different how you look at the cash flow statement yeah and fyi if you're wondering what all is included in those operating expenses they usually on the 10k they break down every line on the operating expenses yeah so that's a good place to start if you don't know

where to go um okay is that it for you yeah and like i said only covered about 20 of that um so i'd recommend reading the paper um to get the full thing because we're kind of top level here okay that leads well into my current state of fin twit go ahead then um first of all like isn't financial twitter just boring when it's all-time highs yeah like and we're on the west coast and so every morning i just wake up to like everyone with tickers and rocket ships eyeballs and it's like that's not what i want to see in the morning i don't know it's very it's very much the same every week when it's all-time highs and i'm happy everyone's making money but you know a little more analysis would be good yeah i agree but anyway i posted a poll this week on twitter

and asked whether a dollar in profits from a software business was worth more or less than a dollar in profits from a manufacturing business which it's what i was aiming for was the whole what weighs more a pound of bricks or a pound of feathers and you know classic kind of trick you know right little trick for the brain and i think people were either misunderstanding what i was asking or a little delusional about it well they were instinctually going for that software like instinct right they were going for the earnings quality or so or the future value of each dollar they earn because let's say it gets down to the past the bottom line for a software business technically you know that's worth more when they reinvest it and we just learned that it might not

even be we just learned it might not even be real profit right yeah and here's my thing but those dollars are needed to pay for things that isn't always different so let's say you have debt that you have to pay off you don't get to pay less as a software business office space office space salaries i mean i guess you can use stock-based compensation which a lot of them do but and it depends what your valuation is or else it might not be as worth worth it yeah it just i don't know on that when it go when it comes down to the balance sheet the dollars are worth the same also software companies don't always have high reinvestment some software companies are bad yes that is yeah um anyway it just made me think there is a lot of froth around software yes i

think you were not taking a bold stance there no i guess it's not it seems contrarian to say all right we just want to solve business no matter what type it is but there's some people that will i feel like only invest in software and that's just limiting them and they're just seeing software they're putting it on a pedestal that's especially software as a service that's the other thing okay not every software business is higher margin than a manufacturing business okay we were just doing we're just researching altria altria 65 something percent gross margins even a margin 55 name one software business other than maybe mastercard that hits those even margins yeah i guess there are probably but i mean people could argue reinvestment rates but yeah okay all right

uh what do you have okay i got a three here um let's see first one from pithia capital great fall if you haven't seen this all right he tweeted a basically about disney plus he said if you think disney plus is a good business and a key part of disney's flywheel quote unquote even though everyone overuses flywheel right yeah um it allows them to earn superior superior ryc than netflix why wouldn't you support a massive additional reinvestment against that moat right does that make sense yeah and we just we just got an announcement that they are doing that after that activist came in but there was a ton of people arguing that they shouldn't do that what do you think wait they were arguing for the dividend like a lot of people were asking

not specifically for the dividend but more of like balancing the investment across you know traditional movies cable and disney plus but a lot of people are saying no no no it's time to go all in with disney plus and the streaming services and that's what that activist uh dan loeb was saying too that is yeah that is true because i know a lot of tesla or not tesla disney yes i do very different businesses i know a lot of disney shareholders that are like well disney plus is going you know that's going to be a huge catalyst huge growth driver for them but then they're like but they also have the parks and all that stuff so you know they you know having that balanced approach i'm like yeah why wouldn't you want

it's you know it's the software thing again it's true if it's worth more reinvested in there why not have that money there but then if there's too much money chasing off so there's going to be so much don't get me wrong the supply of streaming is going to be so high i don't buy the disney plus hype i wish a lot more money i mean obviously it's hard times for the parks right now yeah but i don't know i mean well it is a bigger business than streaming yeah you may this may feel a little anecdotal but don't you feel like the supply of streaming content is just getting so saturated like way overly saturated where the returns on it are going to decrease substantially for all these businesses i'm not complaining as a consumer no right yeah the demand is constant and it well

i mean growing a little bit but and i guess that's part of the bull thesis for like a roku you know i guess making it all that stuff really easily accessible um okay any other uh yeah so there was yeah there was a tweet from gavin baker who was a investment manager very good another good follow there was a forbes article about this low code platform um that came out of stealth and it basically is like an api kit type of deal so he said that he thinks we're going to see a lot of low code versions of every category of application software as a service and he said it could be quite disruptive do you agree with that where there's going to be these companies that make it so someone like us could say use twilio mongodb etc yeah i mean i think that's the way the world's

head in and it's like it's even to go like a step further low code even to no code like yeah wix uses low code let's say and makes it really easy that we don't have to code at all i think compared to what wordpress or something like that well yeah i mean did you have to code for wordpress at all i mean if you want to customize any design you have to code which makes it difficult so they like i mean wix is a little different where you can customize the design a lot easier by just dragging and dropping uh picking things not actually typing in the coding language i think it's yeah i think they're making it easier and easier to build that's becoming pretty obvious yeah i would agree with gavin and that just uh yeah i agree as well and that just i mean it shows to me that

on aggregate a lot of these software companies are valued like they have no competition and they have these giant moats i mean it just concerns me because we we know a lot of people that are investing in these businesses they know a lot more than us but it just it concerns me these valuations yeah what's your last one okay we already hit on it but there was a ton of talk about the flywheel being the most overused investment term over the last five years should we cut out the term flywheel except for making fun of it we can't seriously use it because i think it's a cheat code people like every company has a flywheel our podcast has a flywheel we use the podcast and then we post it on twitter and then we get some more followers on the podcast

and then it gets more followers on twitter it's a flywheel oh my god i don't know it's uh is it as bad as synergies synergies is old though that's like synergies is the godfather it's honestly people are starting to interchange those two and they shouldn't yeah i mean if you interchange those yeah like our twitter accounts and our podcasts have a lot of synergies yeah so many synergies yeah or the youtube channel you can post videos at the same time that adds to the flywheel effect yeah so i think it's cheating to use flywheel because it's like you're not actually doing the analysis if you actually think hard you you can come up with a better bold case or bear case okay next we have an interview with will hershey what was your favorite part about

the interview i like talking about roblox i like talking about nintendo i think he's you know i think he may be wrong on nintendo that it actually is you know we like nintendo a lot but he did give the case where yeah they are they're in a hardware business that is a lot of first party hardware but i thought it was a good discussion i mean we hit everything on gaming we hit a lot on gambling um his theories on that he's kind of more of a like he has like a longer i guess longer term time horizon on the the gambling and sports betting things like that so there's a lot of good analysis there and that's what he spends his whole day doing so he's kind of an expert on that stuff he's really well informed with like the whole industries yes you know yeah and a and as someone

that's created an etf you don't have to be neck deep in the fundamentals of each business but you just have to understand the industry as a whole yeah a lot of the adjacent type products the industry tailwinds like twitch esports that whole gamut um okay uh here's our interview today we are welcomed by will hershey will is the ceo and co-founder of roundhill investments we have a lot of questions for will so before we get to that will welcome to the show yeah thanks for having me great to be on so how did just right from the bat right off the bat how did you get your start in investing um not round hill specifically just investing as a whole yeah so i actually i mean both of my parents worked on wall street so um neither of these

firms exist anymore my dad spent most of his career at merrill lynch my mom was at lehman brothers um so i kind of grew up very much so you know cnbc on the tv yeah um and kind of just interested in the markets from from a really kind of early age i forget when my dad helped me open a scott trade account but i definitely was not 18 um maybe kind of reminiscent of what we're seeing with robin hood right now but uh i was i was introduced to it from a really early age both my parents were in fixed income, corporate bonds and munis, but always kind of love washing the markets from an early age and knew, kind of knew almost from day one, that's what I wanted to do. All right. Well, you've started Roundhill. I don't know what the established date was,

but what is it? And then what urged you to start it and kind of go off on your own? Yeah. So Roundhill, we're a registered investment advisor, SEC registered investment advisor, based in New York. My partner's actually in San Francisco. And really our core competency and really what we're trying to do is issue thematic equity ETFs, really targeting what we believe to be secular growth trends that really appeal to kind of a self-directed younger audience where people are passionate about these themes. They understand the companies and what the companies do, but really maybe should be more playing in a diversified basket as opposed to kind of stop picking.

And that was kind of the groundwork for starting the firm. What made me decide to start it? So I actually connected with my co-founder back when crypto was going crazy. He was at his old desk, trading investment grade credit. I was at that time, we were winding down an energy long short fund that I lost all my hair doing that because this was people forget like energy's had such a rough go for longer than the last couple of years here um i wasn't i wasn't on that desk for minus 37 dollars a barrel i'm prompt but i was there for 26 and that felt just as painful um but we really said even though

there's thousands of etfs out there and there there literally are at this point um we thought there we could kind of do things really differently um really build expertise in the etfs we're launching as opposed to kind of the other model, which is throw out whatever's out there and hope something sticks that's kind of employed by the larger players, really kind of take that expertise and package it into content. And one thing I'll say that's kind of interesting about the way we approach ETFs, which at the end of the day is about raising assets, right? We're not active managers. We're not fundamental stock pickers per se, is not doing any traditional outbound sales and not doing any traditional outbound advertising, if you will, but instead focusing on that content.

And so far, it's been going well. We're at about a little bit over $200 million in assets under management. Most of that is in those two ETFs, or two ETFs, one on esports and video games, the second on online betting. And we actually also did, I don't know if this shows up, it's not prominent on our website, we actually did a private investment as well, an SPV investment. So, OK, there was a third ETF to write the deep value ETF. There is a third ETF. That's exactly right. Deep value ETF for our e-sports, which is which is nerd ticker symbols nerd for our online gambling, which is bets. BETZ, we're actually the advisor to the funds. So we started those from scratch and launched them. In the case of Deep, it was actually an existing fund that was around for about five or six years. I think it was launched in 2014. And our kind of core thesis is around

these thematic growth sectors. Clearly, Deep Value doesn't fit in that story. But we were given the opportunity to really take over that fund already with 20 million in assets, partnered with Tobias Carlisle, who you guys might know from FinTwit to help us kind of pick the value basket and saw, even though that's not going to be our core competency, and we're working on some pretty exciting, I think, thematics that fit in that bucket, it was just opportunistic. And, you know, value is going to turn at some point. It kind of just, it was too hard to say no to take that over. And you're giving people the opportunity. It's not like you're betting on deep value in itself.

You're just giving people a vehicle to invest in it if they want to, correct? is that how you kind of go about it? Exactly. And Tobias could speak better to this than we can. Really, we're the fund's sponsor, so our name is on it, but he's actually the index provider that we're partnering with him on. But really the thought there is, it's a pretty fundamental screen trying to identify undervalued companies. Factor-based systematic value investing hasn't works we'll call it i don't know five ten years um eventually it it will i don't know what the catalyst will be um but it's it's it's basic and we're actually undergoing a pretty interesting shift in that strategy now i don't even know if i can well we're gonna shift things up and smooth

move to kind of small even smaller cap than what the fund does now um that's where he sees the opportunity and so he tobias sort of picks who ends up in that index and the etf is just based off that right and is that basically acquires multiple stuff that he's been doing for years and years you got it that's exactly right cool okay and then there's uh oh yeah there's one more question uh you've been talking about this on twitter it's the stonks app i don't know if this is a social thing it hasn't launched yet do you have any uh do you have any news about that or anything so we haven't launched yet hopefully we'll have it in the app store for kind of a closed beta uh by the end of this month but really what we noticed when in in the sense that our

our model is really going after the end client of etfs right whether people have advisors going to the end investor or whether even institution like trying to connect with people uh we didn't really have a way to kind of interact with who the end investors were or even to really know who they are um so we're working on stonks app which is kind of and the name we think the name is great but we'll see what the response is there um the whole thought is kind of playing off of this concept of creating a place i think a lot of it takes place on twitter now a lot of it takes place on reddit but kind of creating this third place for people who are passionate about investing to talk about and and and to create a community around what people actually own um and almost act

as kind of a third party verification so i'll give you a little bit in the way that it works but it connects via plaid into people's actual existing brokerage accounts um and then we're doing things around what do people actually hold where do they where do they place trades um and And building a community around real portfolios, as opposed to what I think has been tried before, which is fantasy investing, which everyone ends up with the 3x levered nat gas ETF. And it's like, would you have done that if you were playing with your real money? I don't know. Yeah, yeah. That's an interesting idea. I'm excited to see what it's like. It's like adding a social media aspect to your brokerage or almost like spinning off FinTwit on its own, but you're actually verifying it. that's kind of the idea. And I think you're starting to see this concept of social brokerage

pop up, right? I don't know if you guys have ever come across public or eToro. We don't want to compete with the brokers because that's too hard of a game, the customer acquisition, like that's not where we want to play, but to kind of have this third party that sits on top, whether you're, you know, if one of us is on Robinhood, the other guys on TD Ameritrade, have a community to talk about real positions and holdings and trades. That's kind of the high level concept. and it seems that since stock twits kind of has i don't know i don't like going on there it's just a bunch of um it's not fun to be on there at all it seems like there's an opening um that they kind of left oh you know there's something there yeah all right well we think so yeah well we'll get

into uh the specific stuff you guys go over esports is the first one i guess gaming in general just before we get into the everything like what is esports and how does it differ from gaming because i don't think a lot of people know uh yeah and i think if you ask industry people depending on what angle they're coming at it from you might get a few different answers but if you're a purist esports is kind of regulated professional gaming um that takes place in organized leagues and tournaments very similar to what we think of when we think of traditional sports um and that's a really exciting opportunity you've got hundreds of millions of viewers worldwide many of which are in China, Korea, EU, the U.S. is just starting to kind of take hold. We saw a bit of that during

COVID. But for us, we kind of take a slightly different approach because we think that's a little bit too narrow. And when we're talking about esports as it relates to our index and our fund, really we're looking at the broader concept of game streaming and really this second derivative of watching other people play that's starting to take hold, whether it's on Twitch or YouTube. And some of that isn't high level professional play per se, but also just kind of watching content creators. And for us, it's really kind of trying to capture this trend of games that's been taking place for a while, but games being, you know, social and games being competitive and capturing that trend. And that's really where we see kind of the excitement and

future gaming yeah i was one of those kids watching gamers and some of the best ones weren't even that good at the actual game they were just funny to watch and so they're kind of like i don't know the typical more popular youtube channels and that stuff um but i want to get into the actual esports teams how does that like how does the business model work for that how does the esports team generate revenue and then how do the games or the game publishers benefit from it Sure. And I think I would just I actually should point out if anyone's interested, I'm sure everyone's an investor that's listening in. If you can invest foreign, there's actually a couple pure play esports teams that are actually publicly listed right now. So if you're interested to dig down in the financials, see what it looks like. Astralis, which is one of the best Counter-Strike teams in the world is listed in Norway. And Enthusiast Gaming in Canada is the parent of Luminosity and a couple of the Overwatch and Call of Duty teams. So you can actually dig in and look at the financials yourself. But I kind of see there being, and this comes back to exactly what you were just mentioning, Ryan, which is there's kind of two different models that are taking place with esports teams.

You have the kind of content creation model, which is what, if you've ever heard of FaZe Clan or 100 Thieves does, which is really kind of shorter term, more P&L focused, but kind of taking this approach that gaming is actually different than traditional sports. And let's maybe not try and necessarily in every game be the best professional team, but instead, to your point, get the most exciting content creators that draw the biggest crowds every time they go on Twitch or YouTube or Facebook and monetize them via merch drops, via ads. So that's one model. The other model that I think kind of is more traditionally what you think of as esports is what Cloud9 or G2 Esports does, which is try and build the best, you know, the New York Yankees of League of Legends or of Counter-Strike. And they're two very different models. For the latter, actually, you're actually seeing franchise slots that are being purchased in these different leagues. so the same way that when there's an expansion and the new york tech and the houston texans joined the nfl you know activision blizzard was selling franchise slots like to have a seat even

in the league they were selling them for 25 million uh a pop um league of legends depending on what region you're in uh was going upwards of 10 million too in terms of how they monetize uh it's kind of it's very similar to traditional sports on the east on the on the pro esports side the second group i'm talking about it's sponsorships it's and a lot of them are endemic right it's guys who make mice or keyboards or monster energy um it's it's advertisements uh in a normalized environment you've got tick you know ticket sales and merchandise sales and then for me the most interesting component um is meteorites so what you're seeing now is coming back to the first grouping individual content creators all of the biggest streamers

in the world whether you're in asia or in the u.s now are under multi-year contracts with different platforms so you might have an exclusive deal with with twitch if you're if you're ninja uh you might have an exclusive deal with huya if you're a popular popular chinese streamer um and the media rights are not only growing for those individual creators but they're also growing for the proper esports leagues as well so last year activision or yeah i think there was earlier this year activision signed a pretty big deal um over 100 million for a few years with youtube to be the exclusive to youtube to get the exclusive rights for the call of duty league overwatch league and hearthstone um and the teams then same way we have in traditional

sports are kind of going to do a revenue share model um and that's typically how the pro esports teams um will kind of make money and when i look at i think your last question was how to gain how do like the game publishers game developers benefit themselves from esports i think the the biggest kind of higher level concept here is esports and like the you know kind of the glam the glamorous events that are put on um on a world stage are some of the best marketing you can possibly do to bring people into your game. And more importantly, from a business standpoint, I look at a game like Counter-Strike or League of Legends. These games have been around for more than 10 years. And why are they continue to be played and iterated on? Part of it is new content

is now delivered digitally, but it's also, you know, e-sports, I think, and watching the highest level of competitive play increases the longevity of how long these games are popular. And that, i mean that's the holy grail in terms of what the business model can be okay so i'm trying to i'm thinking about it like typical sports so uh like a call of duty or something is sort of your nfl and then teams esports teams can sign up for spots in that game publishers league am i getting that right or that games league specifically yeah i think it's the nuance there is it's on it's on a game level um and i think what you're kind of alluding to is the difference here is there's an activision blizzard that literally owns the intellectual property owns the game and no one's

um yeah no one owns football sorry sorry no one owns the sport of football right like we could we could get a few buddies and start a pickup football league um we can't do that and start a pickup overwatch league unless we get sign off from the publisher um so the game publishers the game developers are in a unique position to accrue you know to accrue and and kind of get the most amount of value of everything that comes with esports and it's kind of this push pull of how do they do that in a way that they're allowing the other stakeholders to kind of grow as it grows okay um now i want to talk about uh i want to get into games as a service and then the gaming engines as well i believe tim sweeney was asked at one point is fortnite a game or a platform so

going to ask you that question do you think fortnite is a game or a platform and then how do you see them sort of we've seen incidents where uh there was concerts or movie previews or the the anti-apple message how do you see them continuing to leverage that um is there any other areas they can uh expand to well i'm assuming you guys know that was me that asked him that question right was that oh really yeah that was me no way no way wow no i did not know that we just okay yeah that was me um so as you can imagine i have some thoughts um i should also mention the private investment we made is in epic games so i should just mention that um but is it a game or i mean i'm you better believe my plan is to ask re-ask tim because he asked me to ask him again

in 12 months so i've got it on my calendar to tweet back at him to get his thoughts but i think i think it's becoming abundantly clear that fortnite is not just a game i think you could say the same for minecraft you could say the same for roblox you could say the same for grand theft auto um and it's really becoming number one fortnite is kind of i don't know how old you guys are but for me i grew up messaging my friends after school on aol instant messenger now kids will get on with their friends and communicate with their headsets on via fortnite um and i think in that sense it's taking over social but in terms of this concept of it being a platform which it definitely is i mean you you talked about some of this but they're now doing

a concert series within the game so to attend the concert you actually have to log in as your avatar um and attend a certain part of the map to watch a concert we saw this with travis scott we saw it with marshmallow um and are those are those concerts free or do you have to have the battle pass or whatever it is the subscription they're free they're they're fully free to go watch um and it brings up this interesting question of i actually pulled it up if you look at the google search trends for i think both fortnight and travis scott after that concert they both peaked like they both went up so it didn't only bring travis scott fans that wanted to watch their favorite artists into the game of fortnight it also introduced travis scott

to gamers that maybe weren't familiar with his music from all over the world um and i think in that sense it becomes such a powerful platform um and the lowest hanging fruit at least right now just given that they have it in place is as a platform for musical for music artists um we also saw with star wars last year um super cool integration where they they previewed the video trailer for the movie inside of the game once again um and in that case you know you'd have to imagine i don't know what star wars is paying epic for that but something uh they they took it a step further and actually introduced lightsabers for characters instead of that typical axes in fortnight and like what you can achieve there especially with a younger demographic in terms of

like the you you feel more of an emotional attachment to whatever the the brand is or the activation that's being done in the game if you get a if you get a lightsaber an item from it or a character skin it's like it's very difficult to try and quantify that but it's just so powerful and we're we're truly seeing like this this world being built this metaverse being built where so much is going on outside of the physical world but in the digital it's like it's pretty amazing right oh go ahead do you think it's better that fortnite continues to make that free for the users to see because it's basically marketing for the uh artists or star wars or would you rather would it be better if they it was only people with the battle pass um i guess you could

see them start to monetize certain exclusive events via battle pass but i think the the whole industry is shifting towards this concept of you alluded to it earlier games as a service and having most of the content within the game being free to access and free to play and i think that's just a like there's there's that's just like a numbers game where it's better to have more users than not i mean this is very similar to a model that we're seeing employed kind of throughout right the freemium model concept is not new to gaming per se it's you can get a certain amount of service by doing the free version and then they try and upsell you whether it's you know we're on zoom right now i'm on the free version right similar high level concept okay

well i guess that transitions to this next question here do you see this working at all in any other businesses or is this something that is unique to gaming in general yeah i mean i think i just highlighted there that it's not necessarily unique to gaming um i mean in terms of the world of entertainment just think about going to a public event or a public concert or a public fair where it's free to go but you're going to buy a beer and a hot dog and it's monetized that way um it's a little bit different conceptually to think about that the beer and the hot dog isn't physically in my hand instead it's some digital cosmetic um and that's kind of a thing that i think you know younger generations that grew up living on an ipad uh can appreciate

better than maybe we could and certainly the generation above us ever could right um but i think when you when you when you look at kind of free to play you know they're going to be different monetization tools that are unlocked on mobile for example if you guys ever download a free mobile game um by the way the game i'm like obsessed with now it's called archero i can't stop playing it um they're going to serve you ads in between right gameplay and that's like that's just a low-hanging fruit and i think the next iteration there we're starting to see this and it's been done but is within these truly immersive worlds so imagine a grant that thought of you're driving down the street and one of the billboards has a sprite you know a sprite advertisement on it or

you know you could just see where that goes and as people spend more time within the game the opportunity for that and to monetize it becomes better just you're you're never going to get a more engaged eyeball than someone playing a game it's just so much better than someone watching tv because they're actively involved in it and that makes the advertising potential kind of crazy to think about do you think that at some point like the whole industry will go the way of like free to play and then monetize in-game or will there still be a blend where you've got the eas and the call of i think call of duty you still have to pay for there's two versions there's war zone which i guess i would love to hear your thoughts about

war zone i think it has a huge amount of downloads right now um and it's like maybe one of the most popular games currently i think i saw that stat but yeah there's also the play call of duty that they release every year you have to pay for do you think those publishers will go the way of free to play um i think in those two that you mentioned so like ea sports franchises and and call of duty i mean i think they could um i think where you'll continue to see like 60 box titles um are kind of like single player immersive long storyline games that aren't social um and insofar as those stay um really there's maybe not as much room for in-game monetization and there it's such a kind of it's less of an iterative process where you're continuing to push content digitally as

much as it is here's a great story that feels like a movie that you can play out whether it's god of war assassin's creed or whatever it is it's not really meant to be social but like we spent a lot of money developing it i think those can probably still stay where you pay something up front a cd project is releasing cyberpunk which is like probably the most sought after game in in years and that's going to be uh pay to play um but yeah i mean you could you could easily see i mean just think about madden and this is even a better business model think about madden instead of um buying the game each year you pay a subscription to ea to play all the sports games uh you know five or ten dollars a month and they just update the players i mean that's all

you're buying when you buy a new madden anyway it's right it's like you're buying the rookies yeah no that makes sense all right well i guess that was enough on the game as a service uh but another thing that's popular right now with unity's ipo is the engines so could you talk about the difference between unity and unreal's engine and whether there are any other entrants in the marketplace just kind of the engine market in general um sure and let me caveat this with saying i'm not an expert when it comes to game development or game engines okay um but my general understanding is that unity is really um going after a different market than unreal is i think if you look at like the top a you know the top triple a really immersive games they're going to

more likely run on unreal um whereas unity is really going after the super casual games that are going on mobile um and it's just going after like really different markets at the core um i think that's probably the the biggest difference they really kind of just serve different purposes but they the two of them control the large majority of the market right at the at the the really big publishers they'll have in in-house engines as well but in terms of engines that are kind of being utilized by third parties it's unreal and unity and and that's kind of how i would would classify it unity is is a toyota and and unreal is a ferrari are they trying to analogy word you know that that makes that makes perfect sense are they trying to overlap with each other

Or is like, are they pushing into each other's market at all? Or is that, are they staying separate for the last, you know, at least a few years here? My understanding is that they're really kind of going after different segments of the market. But like I said, others who have covered, you know, covered Unity in depth, probably better than I to speak to that. But both can win. Let me tell you, like, I think mobile is the fastest growing and probably most exciting, generally speaking, part of the market. but it's just very different from building a beautifully looking game that needs to run really high quality yeah it doesn't it doesn't seem like it'd be a zero-sum space um uh okay

so next question uh unity and unreal have both and we have gotten this thesis because i was an ea shareholder for a while and people were like well uh unity and unreal are going to lower the barriers to entry it's going to be really easy for these smaller developers to develop good games and that's going to steal market share from the bigger guys. Is that have merit to it? Or do you see the incumbents still being able to kind of hold their own? It's a great question. And coming back to my last kind of response, I think, you know, unity is the one of the two that's more likely to have an impact here in terms of offering that kind of lower cost, you know, engine and operating model to clients. I think I can answer this kind of both ways, but I think you're definitely,

there's no question that you're seeing indie developers that are coming out with more hits than ever before. I mean, look at, I don't know if you go on the, if you go on Twitch right now, if anyone that's listening goes to twitch.tv, I would guess Fall Guys is among the top 10 games being watched. Among Us is among the top 10 games being watched. And those are from developers that don't have the budgets anywhere near an EA or otherwise. So I think that the games industry, the short answer is yes, as the tools get more efficient and cheaper to use, it allows lower barriers to entry. But I do think that that's expanding the market rather than kind of cannibalizing the existing players. Because when you look, let's just use a Grand Theft Auto

as an example, that's hundreds of millions of dollars in R&D costs to get GTA 6 and years of development too right like if you're an indie developer you don't have a low enough cost of capital or a long enough runway to try and compete with that but for these kind of less um kind of like non-AAA games it definitely definitely makes it make sense um and I think you know I think it's it's kind of fascinating to see um all these new entrants like come up with these really simple games like if you look at among us if the graphics are like go back 20 years but it's just like it caught it became viral um and that opportunity is there so it might be more one hit wonders but it's not going to be have the staying power of a gta call of duty

or fifa or something like that yes but i but i will just add to this that there's really smart venture capital firms that are focusing on indie developers because i mean look at epic games before fortnite i mean they okay they had unreal engine and they had gears of war but like that's one example look at cd project before the witcher um and you know look even a better example among us the company that developed among us or excuse me fall guys had been around for i think 10 or 15 years and then they finally got a hit and they hadn't had anything like this over that whole period so like it's a very attractive investment space in indie developers um for early stage right all right and then i guess we wanted to talk about a few more publishers c limited uh

is very popular right now probably because the stock's up like 800 i know this is only like a third of their business but you know why was free fire so successful for them and is that success repeatable at all or is that maybe uh is there a potential that it could be like a one-hit wonder uh yeah so i think i i could narrow it down to a couple main reasons um i think what you saw with free fire was the game was designed uh so it's a battle royale game right similar to pub g or fortnite there's many battle royales apex legends there's many battle royales out there for them they're focused on it's only on mobile um and they designed the game to run on lower end hardware so in doing so you know i don't know i forget the exact you know can you run it on

an iPhone 5, I forget, but you get the idea. In doing so, they developed a game that was able to target emerging markets. So the biggest markets for Free Fire are very different from what they are for Fortnite. It's Latin America and Brazil, it's Southeast Asia and Indonesia and Vietnam and Thailand, where smartphones penetration rates gone up a lot, but they don't have iPhone 11s. um and in that sense going after that underserved market i think totally was why free fire took off in the way that it did not because it's necessarily better games than fortnite that's very smart very very smart business over there yeah do you think no totally it does so you said it can run on sort of the older devices um as those more emerging markets start to adopt better tech does it stay

with the technology as it gets better or do they have to revamp that game over and over um i guess we'll kind of we'll kind of see i in free fire's case they've released uh like a better version i forget what they call it if it's pro or or something like that but and then and pubg's done this too where they have pubg light and it's all about kind of building these for different markets where just different qualities of of uh smartphones are but for for c i mean they recently acquired another game publisher um and i don't know whether they're trying to develop another free fire if i was them i wouldn't even try and worry about it continue to monetize that grow the user base more than they have in kind of these different markets that people aren't

paying attention to um to me the big question for them within this gaming vertical and you guys mentioned it but the the story of the stock is no longer fully gaming um right is can they increase revenue per user because they have tons and tons of users but if your users are in india or brazil they monetize at a lower rate than us right that makes sense now you did if i'm not mistaken you left nintendo out of the nerd index why is that it's a good question um so even though it's an index-based product really what we're trying to target as i mentioned earlier is kind of this concept of social gaming and esports and when you look at nintendo they're probably as anti-social gaming and esports as any major publisher comes um in fact i think a few years ago they actually

for a brief period and then they realized this was really dumb uh banned streaming on twitch of all their games and it's like it's probably the best marketing you could ask for but they kind of didn't see it that way so for them if they ever kind of take a stance where they're pro esports and leaning into it i mean they do have super smash brothers that has a pretty big uh community uh professional play they they would have a chance to get in i will say that maybe a lot of people don't appreciate this but nintendo is a hardware business currently right it's not it's not a software play it's their business right now is selling nintendo switches yeah i mean there are the game downloads for the switch but the thesis is definitely still switch centric for any nintendo

shareholders i would think that's the case for the next couple years and and for just to further this nintendo is still doing that old model to a large degree the 60 or whatever the cost is out of the box game uh rather than taking advantage of kind of digital distribution right all right and i guess on the other end of the spectrum is a startup called roblox it was actually we just got some news that they're planning to go public in the first quarter of 2021 um there's someone that everyone plays i think if the stat is under 13 uh spends more time on there than youtube but can you explain what they do and why people i guess kids especially are spending so much time on roblox yeah so roblox fits into the same category i'd put in minecraft or uh grand theft

auto and going after very different age demographics right grand theft auto is mature minecraft is maybe in the teen area and roblox is really going after younger kids um if you open up roblox like the graphics are nothing to write home about it's really just built this kind of amazing community of user-generated content and that's how it's all built so i haven't spent much time in there speaking frankly but it's all about games inside of the platform or inside of the game that users themselves have built um and they might be very different from one another right one might be a shooter another might be an adventure game all built within the roblox ecosystem and i think why it's been able to grow so well is it's kind of playing off of this concept

of the creator economy that we're you know that's part of the reason why social media is expanded in the way that it has and it provides a platform form excuse me for its users to monetize um themselves and and yeah when you look at if you ask anyone that you speak to that comes on the podcast that's in their 40s or 50s that has kids they'll know roblox because every kid is playing it i mean the hours spent on there are absurd and it's weird because no one in the investing community maybe it's because they're not public um has really heard about it and they're almost bigger than youtube for a lot of demographics so does this make it into the uh index as soon it goes public well i can't comment on that right right but it certainly checks the box as being a

social gaming platform let's put it that way okay all right well we're gonna move away from gaming and more into the gambling sports betting um and there's obviously a lot of hype surrounding sports betting right now it feels like one of the most i don't want to i don't want to say hypey markets but it's definitely people are talking about it a lot on twitter yeah yeah you know porno and pen national throwing they're basically throwing gasoline on the fire right so so why why did you guys start the etf why what do you guys like about the sports betting market yeah so we um we started working on this fund uh late last year early this year um we didn't actually launch until um until june so we've only been out there for about four months um and it's funny i'll just

share an anecdote with you guys so whenever we have a new etf idea we have to present it to the board that oversees the etfs and i think we presented it when like there was literally zero sports on and they were like are you sure you want to go forward with this um we said yes it's a long-term opportunity it's not about this quarter next um for us i think you know in 2018 basically you had a paspa overturned and that made sports betting legal on the federal level last year new jersey kind of paved the way and showed what you could do in terms of tax revenues um and for us you know we made the decision early this year that you know this looks like an industry that kind of checks all the boxes um that we saw on esports and not only is it a long-term

secular growth story in the u.s um but it also has catalysts that we expect in the term of kind of various, it's everything's done on a state by state level. So you're going to have catalysts as states kind of regulate and legalize their betting markets. And for us, you know, the other reason we thought bets was kind of really compelling was a lot of the names in our portfolio aren't US. In fact, I think US is somewhere around 30 or 40%. It varies day by day based on price performance. But a lot of the interesting companies are listed in Sweden or listed in Australia or the UK. And for us, that's going to be part of the math too, is can we offer a compelling product that actually adds value to our investors? Just check the box there. And then we saw the SPAC

acquired DraftKings and it just kind of all came together in terms of timing. But we think it's a really interesting long-term story. Yeah. I was going to say that. I guess you'd know better than me, but I feel like that ended up being pretty good timing on the launch. Yeah. I mean, I think we we could have done better if we did it on march 12th or whatever the low in the market was but uh no it performed very well uh very well versus the the various benchmarks and it's it's like to your guys point it's like almost every day that something related to one of the portfolio companies is in the news okay so just broadly i want to know what you think of penn's acquisition of barstool because a lot of people have obviously talked about that one and then how else do you see some

of the other sports betting companies getting that social aspect that Barstool sort of cultivated through their brand? Yeah, so I actually wrote a whole blog piece on their acquisition. So it's on our website if anyone wants to go in and read it. But I think it was a great deal. And I think we won't really fully be able to appreciate how good of an acquisition it was for a few years. But I don't think I can ever recall an acquisition where the parent company bought a basically a bolt on deal, right? They, you know, this was, this was 150 million ish, invest, you know, cash investment, they do have the opportunity to go above 50%. But for 36% of Barstool, and, you know, Penn is a well established company, they operate tons of casinos throughout the entire US. um you know the i forget what the enterprise value was i write it in the blog there but it was this was like a tiny acquisition that changed the entire story of pen um kind of overnight and if you look at the performance of you know the draft kings and points bets um and gans of the world

versus the legacy brick and mortar guys like boyd or mgm or or win you know pen is now trading like it's a completely digital company now obviously it's not but they did one small acquisition and completely changed. And I think for them, it's really interesting what they're doing because effectively when they bought Barstool, obviously they launched the Barstool app last month and it completely crushed it in terms of expectations for the first couple of weeks. They're taking an approach that Barstool is now their customer acquisition tool. Barstool is now their top of funnel. And very different from FanDuel and DraftKings who spend hundreds of millions of dollars per year to get those same customers. And just to come back to your earlier

question, what they're doing with making it social is they're having bets that are actually based off of the various influencers, right? So Big Cat will sponsor a certain bet. And so will Dave and so will PFT. And the ability to kind of create these narratives around individuals is like very unique to them. But other sports betting companies are doing similar things. You're just not hearing about them because no one's as loud as dave right um right like fan duel has something with uh pat mcafee um uh jamie fox just did something with bet mgm others are trying to do stuff they're partnering with uh someone's partnering with the ringer i can't even remember what but yeah something like that no there's so there's so much and then the other partnerships

that's taking place are with legacy sports media companies so nbc has a deal with points bet Fox has a deal with um Flutter uh William Hill and CBS they all every sports media brand that we think of now DraftKings with ESPN um you're just going to see sports bets and lied and lines and odds like baked into every everything that you can think of in terms of television broadcast streaming whatever yeah I mean and then there's been a lot of hype about this for sure I mean there's been a lot of acquisitions, all these deals, and that has brought on the skeptics. I think I saw Chanos, Jim Chanos on Twitter being publicly skeptical about it. There's been a few others about how big the sports betting market will actually be. What are the strategies of

these companies, you know, Penn National, all the other ones you listed, and what has been working and what hasn't? Yeah, so I think when we look at the opportunity set for U.S. sports betting, And the broader opportunity here is a shift from in-person physical brick and mortar gambling, whether that's casino or sports betting, to digital and to mobile and to online. And it's obviously a higher margin business than running an in-person casino. It really becomes a question of software. And just to give you one more point here, gambling is the largest form of entertainment globally. gaming is really big you know video games are really big too 150 billion growing 10 a year gambling's 500 billion globally in gross gaming revenues the biggest by far um and in terms of

what the the strategy is uh for the you we're talking about the u.s i think is what what chanis was referring to as well it's very difficult to peg a total addressable market here because it's all black market it's all unregulated um i think you're seeing varying estimates from the sell side. I think the general consensus is it's measured in the tens of billions. But right now where we are is it's completely a land grab. And that consists of two things. One, trying to get into new states as they allow for it as soon as possible. And companies like Penn are really well positioned because they have physical presences in these states already and have relationships with the regulators. And then the second is once you're

in these new states grabbing market share and spending tons of advertising dollars on it. When we get to kind of maturity, you know, these can be very profitable business models for sports betting. I think Morgan Stanley says 25% EBITDA margins, but the long-term play here, I don't think is sports betting. It's just that in the exact same way that Daily Fantasy for FanDuel and DraftKings wasn't the long-term play, that was the customer acquisition. I think sports betting leads into iGaming, which is online casino, whether it's online slots or online poker, online blackjack, because that is the kind of the really holy grail, great business model, predictable margins, recurring revenues here. And I think that's where we'll eventually,

I mean, we're already seeing it, right? DraftKings has DraftKings Casino in a few states. The thing with online, with iGaming is it's going to take, it's going to run on a different schedule from a regulatory perspective because regulators view in-person betting and online betting and online casino as different things. But that's one is really the long-term play here is iGaming. And for me, when I look at sports betting, I could actually even see sports betting get to a business model where you're talking about zero VIG. So if you guys have place to bet usually bet 110 to win 100 i could see it move toward and that's you know how the the books get their hold um i could see that move towards zero vig bet 100 to win 100 um where

instead of being monetized based on you know generic bets users are monetized based off of kind of parlays and futures bets and exact and and their data uh very similar to what we've seen in online brokerage in the u.s where robin hood makes money not off of you trading because it's free but on trading options and selling your order flow um and then the last thing i know i'm going way too long on this probably no worries no but the last thing that i'm like really excited by is live betting um and i just tweeted about this today but i think that if if and when you know we will perfect live betting uh and it's really important that you have like no lag when you're watching a sporting event and streaming is is typically runs on a little bit of lag but like

if you're if you can bet on whether the next pitch is a fastball or whether the next play is a play action um and have that integrated into the viewing relationship in a very involved way now you're talking about like a totally different mindset for how people consume sports and having it really being gamified for the individual user which i think comes back to the broader thesis of why we like esports and gaming um now you're talking and don't get me wrong very heavy legwork from a data perspective to properly price that make sure you don't lose money but that's like the holy grail and think about it now beyond sports let's say watching the debate we could bet when the fly is going to come you know it's just like that's like we can't even contemplate tam okay no that

makes sense and if if it got legalized in washington so right now we're kind of restricted if you want to do it you have to use you know black market sources but or pretend that you live somewhere else uh but in washington if they had it legalized and there was zero big there's i would definitely go to the one that had zero big so i think it makes sense that i might go there eventually just because the competition pressure bringing everything down who do you think would be the the sort of leader in the in-game sports betting is is that still the bar stools of the world um so it's interesting so like bar stool and pen rely on a swedish company which is publicly listed actually called can be for their back end for their data and for their interface um so it's

not always it's not always the front end provider in fact a lot of times they're just putting on a different logo and different look and feel to the same kind of data sources you know in terms of live I don't know well enough who's leading that charge it's not a new concept but it's really getting that concept ported to mobile and taken to the next level right it's it's one thing to be able to bet on the updated spread at halftime or during a timeout it's a totally another thing to take it to like literally what type of play are they going to run next um and that's where I see the opportunity I don't have an answer in terms of who's who's going to win that one yeah it seems like it's it's a difficult problem to solve but when it gets solved there's going to

be a lot of market opportunity there. All right. Um, you may have answered a little bit of this, but last question, are there any, or at least on the gaming industry, are there any of these traditional ones, you know, MGMs? Um, I think there's some in Macau in China that are very traditional. Uh, there's wind resorts. Do they have any advantages over these digital first companies or these digital ones? Do you think going to just continually grow market share over them? Yeah. So I think, um, you know, there's something to be said. It's hard to talk about this during COVID, right? Because it's like, no one's in the, because I mean, there are people in the casinos, but it's not like what it normally is. I think there's something nominal to be said

for having the relationship to kind of cross sell people between getting them to go to your casino and having them in your app. But to me, the bigger thing relates to this concept of regulation and skins and having kind of early access to different markets. And I think when you look at the different players actually believe it or not penn is in a ton of states versus some of the other larger players you mentioned that are really focused on the vegas strip um so i think penn is pretty well positioned there but i think you know the digital the digital guys have an advantage in the sense that their cost of capital is so low right now right like i tweeted this today drafting's raised one and a half billion dollars um and you know barely diluted shareholders like

how can you compete with that um i guess penn did an offering too but yeah i mean i think it was smart i mean i haven't looked at penn's balance sheet that much but i did see they had a lot of debt so having this inflated share price and the other companies having inflated share prices um it might be smart to do these share offerings um just to get some more capital in all right i agree uh last two wrap-up questions and we asked this to all our interviewees i'll go first what is one financial saying that you disagree with uh yeah and this one uh hits close to home because i at one point was was trading mlps master limit partnerships which people bought for their yield is the the saying i'm getting paid to wait because you're getting paid to wait six percent yield

awesome but the stock just dropped seven percent yesterday so who's getting paid what right right no that's good that's good all right yep yep yeah i don't think anyone's had that before so we're always glad when someone comes in with the unique answer um all right last last question what's one piece of advice you have for someone starting out in the investing world so not just investing but like a career in investing i hope that doesn't oh a career in investing or just any or if or yeah you could buy if you want i can do but i mean i think a career in investing um probably the most important thing is just you know to really have a passion for whatever part of the market you're in whether it's operations or trading or research um because

i think a lot of people come into this industry just because the allure of potentially making a lot of money and what they see on tv and in the movies um i think at the end of the day it's still it's still a job and you got to try and find your niche that you really love uh and that that would kind of be it all right yeah that sounds good all right thank you for joining us well had a had a good conversation yeah great time loved it thanks for having me you welcome back in thanks again to will hershey for joining us at a blast but time for hot water i have three so do i who's i always forget whose turn it is to go first but

how about uh we can uh alternate on this one yeah but we say it every oh okay okay all right the physical world is in hot water all right i don't think you have this one because now even dentist appointments are being done virtually um so patients are attaching a special scope to their smartphone camera opening an app and sending videos of their mouth to their dentist or orthodontist is that too far or is that more validation of like the teledoc type business model i don't know if it's about i mean teledoc i think can succeed without this i said okay it seems strange i saw the article headline and i was like all right orthodontist dentist appointments uh virtually that's a little weird and then there was a video with it of someone's mouth and it ruined it for

me yeah i don't want to see anyone's mouth i don't want to see the inside of anyone's mouth all right um you're you got a first one yeah first one fedex and ups um amazon logistics is actually going to deliver as many packages in the u.s this year as ups and 50 more than fedex what do you think about that fedex value play no way dude they're gonna you remember that day there i think it was fedex maybe it was ups one of them got their stock literally cut in half overnight uh when amazon like said they were going the only reason they're staying in business is because amazon is wants to invest in this slower than people think if amazon wanted to invest and destroy the entire industry they would invest like 10 times as much as they can because they have that capital

and they have the ability to they could raise money okay think about them raising equity they could what are they worth almost like 1.5 trillion right now they can raise at a little bit of a discount to their uh stock price and raise 50 billion dollars okay 25 billion dollars in equity and build out the entire ups and fedex they can raise a fedex and ups overnight and take them and basically take them out i mean they're walking they're dead ups and fedex are dead unless i mean government can step in but catholicism is in hot water for me i don't know if you heard about this uh because they're they're a bit under duress right now this week it came out through financial documents that the vatican used charity funds to buy risky credit derivatives on hertz

a car rental company um yellow tray calls on they bought default swaps basically betting that hertz wanted to fall on their debt by april 2020 they declared bankruptcy a month after and they bought these i'm pretty sure in like 2015 they escaped by a month yeah i mean it's in god's hands first of all first of all did you even know the vatican is running an investment fund yeah i know we need to get on that they have an endowment or something man that's what the hedge funds aren't chasing these guys yeah that's a long-term um i don't know there's so many dumb jokes you make about that but the pope i get okay i guess this was under the old pope but the new pope i'm not getting that yeah um in 2018 stated like basically these things are a ticking time bomb

like the false swaps are a ticking time bomb when they had them on their books so he must to not even know he's like the president of lehman brothers yeah i want to go that far but yeah you know what i mean when he was like we're clean we're good you know and then i mean it wasn't him that put him on the books i'm sure someone runs the fund but yeah i guess neither was the president either way bad luck um if you're gonna do i mean you're doing the same the same yeah great headline same trades you're doing the same trades as robin hood traders yolo traders as i call them that usually doesn't end well especially with a big institution yeah all right what's your second one okay uh will mead um who i'm using his real name because he has like a hundred thousand

followers and apparently a ton of aum he is the only guy in competition that's worse than ross berber for not having money no i'm gonna read this tweet for you i this guy okay ross no watch let me read this tweet 1300 likes uh the 13 13 13 rule is the secret of investing whether your age is 17 27 37 47 57 or 67 13 000 invested at a 13 return a quarter or one percent a week for 13 years turns to 7.2 million dollars financial advisors hedge funds and i an international bank or sorry and investment banks know this retail he's not even this is an incoherent sentence he said financial advisors hedge funds investment banks know this and retail doesn't how long stock etfs and puts as a hedge but i think he's up there that's bad right if he gets on fin talk it's over

he had he also has a hundred thousand followers so a hundred thousand people well ten thousand people ninety thousand bots are seeing this bullshit dude long stocks and puts as a hedge what is that that's a two-step strategy he also had that long ass take of like uh i'm going all cash in march i would take liquidate all your belongings and like go cash yeah at the low at the low yeah like i mean the take was but it was completely wrong and that's why you don't do that dude it's just how are people giving i mean i hate the bash but this is like fiduciary responsibility it's a fake account it's ross gerber's burner dude this better be a fake account um okay uh robin hood is in hot water because they always are we got recommended this one right

Yeah, article came out this week citing that multiple Robinhood accounts were hacked and looted. The article starts like this. It took Soraya Bagheri, I might be getting that wrong, a day to learn that 450 shares of Moderna, that's on her, she shouldn't, whatever, had been liquidated in her Robinhood account and that $10,000 in withdrawals were pending. But after alerting the online brokerage to what she believed was a theft in progress, she received a frustrating email. the firm wrote it would investigate and respond within a few weeks now her money is gone this happened i believe to five others um that cited the same complaints saying that they saw the funds being withdrawn but couldn't do anything about it since robin hood doesn't have an emergency phone number yeah yeah even like get off robin hood yeah please get off if you're listening to this

and you use robin hood for anything outside of your betting account on options um which you should be using with not any sort of percentage of your actual net worth get off and start using schwab or tv or anything else please yeah sometimes though it's awful so apparently this wasn't a hack through robin hood it was like got they got through the email used for the robin hood account and yeah i think robin hood's at fault but sometimes i think the users are at fault like you should know to be off by now yeah they get slack like robin hood ends up having to take the blame for some really stupid users true true but you shouldn't be using robin hood in the first place if you're using robin hood and by the way they just got an 11.2 billion dollar valuation

yeah i think that's the because they're they're basing not to go on a whole nother topic but they base that valuation off of users and we're technically both users plus brady brady you're technically user you're not correct brady's not in his head three users on that right but they're probably discounting at what like worth to be like five thousand dollars per user we have no worth we're we literally have no money on there yeah i have no money on it either i have like four bucks maybe or no i have none i have no i have no money on it yeah i have none i use it like to look up stocks because they like to use their interface yeah okay did you have any others yeah this one actually just came out today uh this is from zero hedge newswire soft bank says vision fund

planning spac in two weeks that's that's just an orgasm of a sentence right there for financial twitter you know what i'm i am looking through the rest of my notes and i forgot to do a foot mary kill so i'm thinking of it right now i'm gonna use the spax okay okay uh open door the new soft bank one and playboy oh killing soft bank because they're like i i mean there's no evidence but we've said it before it feels that no one that isn't desperate is buying out of the money options weekly options with that much money i've got to take the adam newman the adam newman story isn't over i hope not i think he might invent a new company that does really well and it was misunderstood him billy mcfarlane mcfarland martin shkreli

elizabeth holmes elizabeth holmes traz kalanick and then the chairman of the board can be masayoshi son elon musk uh okay those ones all open door seems okay yeah i was looking at their gross margins they're bad but they're they'll be able to scale a lot of revenue i'll marry them just because it seems good and you'll chamath chamath has um he's repute you know he has a good reputation um and then what's the other one playboy i have to bang playboy yeah i mean what am i what am i saying it's written there yeah um yeah i'd probably do all the same things i mean chamath is a good investor i think he overdoes it sometimes but he's a hype beast it's okay but he's yeah he's good at what he does um okay anecdotal evidence i really only have one

so do i uh i started watching billions nice it's so good yeah you're trying to you want to be bobby axelrod right it's so good it is what uh are you finished season one yeah i'm getting into season two i mean end of season one when they show down the showdown when uh chuck and ax are at the that's it's intense it's i mean is there anything andrew ross sorkin can't do that guy is so good yeah he's a i mean he's probably on cnbc he's him and david favor the know what's the girl oh becky clips yeah she's good she saw it um anyway that's mine that's not even that's good nothing to take away there except andrew russell yeah and if you're an investor or even like a lawyer that shows a must watch yeah definitely okay what did you have yeah i'll wrap

things up uh got my stitch fix and liked it a lot anecdotal evidence this is real anecdotal yes so worked well um i liked what they had i put some wrong sizes in which is my fault so i had to exchange some things but it's coming back right away um i mean i can see where they have a lot of upfront costs because you have to send things twice sometimes so a lot of shipping costs but i honestly loved all the clothes i got this thing i'm wearing right now oh it's nice go to the youtube check it out yeah so if you want to see some anecdotal evidence right here but your long stitch fix and not watching this on youtube yeah but i honestly i liked it a lot and i think yeah every you know a few months or maybe probably

a little longer for my style but how many things did you buy of the things you got well i would have bought everything except for these shoes they're a little too um fancy for me so i'm gonna get some casual shoes but the only reason i sent stuff back was because it was like a large and i I need a medium. So I like everything else. Four out of the five things I like. Wow. Yeah.

Long stitch fix. Okay. That's going to do it. Thank you guys for listening. Follow or watch this on YouTube if you're interested. Check out Will Hershey at Roundhill. Freddie's been getting on those thumbnails. We've been getting some hate comments.

Yeah. I love the YouTube comments. Get in the trenches. Battleground out there. Yeah. But yeah, thank you, Will Hershey, for coming on. Follow us on Twitter or if you have a recommendation for a show or anything for us to talk about,

just add us or email us, chitchatmoneypodcast at gmail.com. Thank you guys for listening. We are not financial advisors. Anything we say or discuss here on Chitchat Money is not formal advice or recommendation. Thanks for listening. We'll see you next week.

Thank you.