The Compound and Friends - The Difference Between Sports Betting & Trading (with Josh, Michael and Patrick Keane)

Episode Date: September 30, 2019

Patrick Keane, CEO of The Action Network, joins Josh Brown and Michael Batnick at The Compound to discuss the future of sports betting and how it compares to trading. Patrick believes that prop betting will explode in popularity as sports venues warm to the additional revenue it can bring. He sees app-based betting coming to a state near you and many stock market traders becoming attracted to sports bets as the terminology becomes more widely understood. 1-click play or subscribe on your favorite podcast app   Subscribe to the mini podcast on iTunes or Spotify    Enable our Alexa skill here - "Alexa, play the Compound show!"   Talk to us about your portfolio or financial plan here:  http://ritholtzwealth.com/   Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/     #Stocks #StockMarket #MakeMoney #Wealth #HowToInvest #Investing #Money #Trading #RetirementInvesting #FinancialAdvice #InvestmentAdvisor #FinancialAdvice #PersonalFinance #betting morning #trading #gambling #fantasysports Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, I'm downtown Josh Brown. We are live from the compound. I'm here with Michael Batnick and Patrick Keene. Patrick Keene is the CEO of the Action Network, building what I consider to be the next generation in sports betting content. We're going to talk about the overlap between trading and gambling. We're going to talk about prop bets. We're going to talk about the emergence of what I think could be America's new favorite pastime. Stick around. We'll see what's happening. Patrick, first of all, thanks for coming by today. I find what you guys are doing at the Action Network to be fascinating on a lot of levels. But why don't you just quickly explain what the site and the app are all about and what you guys are building? Yeah, absolutely. So the Action Network is a sports betting data content and information business. We're not an operator. You can't place real money wagers in the platform. You're not a casino. No, we're not a casino. We're not an operator. But what we do is we provide tools, insights, and data. Almost think of us as sort of the Bloomberg or CNBC of sports betting

data and information. You can't trade in our platform, but you can decision against how you bet with great insights from our analysts, from the science that we build to actually inform how people bet. So how many people are on the app and the site each week or each month? What's the metric? Yeah, we have upwards of 3 million people a month that are using the product. Subscribers, tens of thousands. Did you think it would be that many? That's a lot. Well, what are the demographics? I'm guessing it's primarily males between 30 and 40. It's even younger in some degrees. I mean, it's certainly male. I mean,

the index of people that are betting is definitely getting older over time. It's been a younger base in terms of digital bettors and people that use kind of our content information. We're a subscription site. I think that's another thing I'm really encouraged by in terms of the opportunity from our business. So people are paying monthly to be subscribers and they get all of your content, not just the stuff that's out there on the main website. That's right.

So there are three tiers of subscription, about 80 plus percent of our content's behind a wall that people would pay for. Call it $7.99 a month or a little bit less if you're averaging that out over the course of a year. But we have tools that are even more expensive. Like call it $60 a month. Think of a hedge fund trader,

how they would think about betting. People that bet for a living that are paying $350 a month. That's what I was going to ask you. The tiers are smart because, correct me if I'm wrong, but you probably said to yourself, we're going to have casual gamblers who place a few prop bets each weekend. They want to take a game or they want to take an outcome.

And then we have people that are doing this almost professionally. Well, I think the people that are more casual fans probably want the story. They want the qualitative aspect. Jacoby Brissett, whatever, whatever. Versus the people that are serious are probably only interested in the quantitative stuff. Like data. Yeah, it's a mix. I mean, when you think about users,

there's a real scale. I like to say there's a shallow end of the pool, a medium end, and a deep end. And I think the example that you're alluding to, I think we responsibly and legally want to turn all sports fans into betters. We want people to be thoughtful about it, and we're not guaranteeing anything.

We're not touts. That's a big differentiator in our platform. It's not pay for picks and pay for ultimate success. But we want you to feel that there's someone on your shoulder helping you decision against how you bet. And that can be the most sophisticated bettor or a pretty novice bettor. So you're not John Anthony from Two for the Money? Remember that movie? I don't, but it sounds like I need to.

Pacino and Matthew McConaughey. I'm Rene Russo. He's like like the 900 number like the 1990s version no i'm saying like here's information do with it what you choose it doesn't affect how much money we make whether you take this game or take that game that's absolutely right do people gravitate more towards specific writers like do they have fans or is it more the content generally it depends i mean there are certain bettors that focus singly on an individual vertical sport there might be people who only bet on college football there might be people that only bet on college basketball we think what's interesting and we see this because we have a pick tracking product which gives us more data about how people bet than virtually anybody there is in the entire industry so why are google and

facebook super successful today and Amazon increasingly? They have more first-party user data than anybody on the planet. We have more first-party better BETTOR data on anybody in the world. So I know how people bet in NCAA basketball, football, baseball, golf. There are emerging sports that people are starting to bet in that are super fun, like golf, NASCAR. NASCAR is a partner of ours. The increasing handle, increasing engagement, increasing gate revenue is the goal of all these leagues. So you and I talked about this on the phone the other day. You were saying that betting is coming out of the dark ages, and it's got a shot not to replace stock trading but to be seen on a par with people that they like to throw some options in their account just to see what happens.

Well, it's the same people. It's the same. It's a huge overlap. And one thing that I noticed is there's a, there's an overlap now in terminology. You start to like, when you watch the fantasy football shows on TV, you start to hear them use terms like we're bullish on the Chargers this weekend, or we're bearish on the Bears. You started to hear some of that, which I think is natural. I heard that today on a podcast. It was Russillo and Chris Long, and one of them was saying how they were bullish on a team.

Right. So now on Wall Street, we use the term estimates. In your game, you use the term odds. It's not very different. There's a hurdle of understanding and education that has to happen in the category. Let's run through those terms really quickly. What's a parlay in English for a non-gambler? In English, it's the opportunity to take a series of bets, roll them together, and put usually a modest number, but all of those bets have to hit.

Sounds like a fund. No, it's like weekly options. So you get some leverage if you hit it. Obviously, if you had two versus one, it's a better payout. Right. If you have two games you write on versus one. But books love people that bet on parlays. Well, that's the dumb money. Essentially. I won't use that term.

That's your term. I will. It's definitely a less sophisticated better because the odds against success there. I was five-team parlay all the time on Sundays. And the reality, too, is— Why is that dumber money to you? Because you're making it harder to win for yourself? Here's why.

You see, because you remove the odds, and you just say, I picked these five teams to win. And it's like, how in the world are the Patriots going to lose to the Dolphins? Right? But it happens sometimes. And if you pick five teams, there's going to be one surprise. And you are very attracted to the payout. It's 11-1 or whatever it is, but you never hit them. But hopefully you're using thoughtful systems. To your point, there's probably trades that you're making that have a thesis

behind them, whether it be energy or an internet thesis of some kind. There are people who are betting that are using those kind of parlay metrics to say, I'm only going to bet unders in the AFC after a loss. And we have systems that go back well over a decade that help to inform that. You know, there was a great example during the AFC championship game last year where the Patriots and Chiefs were playing. And Adam Schefter tweeted out that it was going to be a polar vortex. And that was an assumption that because it was going to be cold, it was going to be hard to grip the football,

and it was going to definitely hit an under. So the under went down like five and a half points. Our system saw absolutely not. That's not the case. Cold games don't influence the score in that way. Oftentimes, they're actually over. So Bill Simmons goes on his podcast, discusses our systems, discusses the action network. The odds actually go up, and what happens?

It's Patriots win, and the over is covered. So your content moved the line. Essentially. I mean, we don't want to be a market maker in a sense, but we see it happen. We have really smart analysts, really smart people who are making decisions. And particularly in college football. Remember, the NFL is an incredibly efficient market. There are very few games. It's really hard to be a really successful successful better in the NFL. There's going to be more in college basketball often and in college football, just because when you look at an individual game, there's probably more people that are going to get edge on Appalachian State,

Maine, than they're going to get on Auburn, Alabama. So to your point with the efficient markets, I would guess that if you were to bet every week on the over or the under, you're going to be 51%, 49%, something like that. How are the markets so efficient? How do those lines get set? Well, they get set by really thoughtful bookmakers that have been doing this for years and years and years. Mention the NFL, highly efficient, but all of these bookmakers are also trying to entice you, remember, to bet in their platform. So you might get a certain odd with a certain book. So FanDuel is competing with DraftKings, who's competing with William Hill Hill who's competing with PointsBet, Sugarhouse all

of these folks are trying to get you to be a lifetime better in their platform How do they do that? They widen the spread? They change the odds they change the odds to influence you to deposit money into an account so to acquire a customer is a very valuable opportunity inside of those and they're oftentimes giving people who are betting an opportunity to get a better odds. So, it's a pretty efficient market.

It's just like someone at E-Trade offering you a deal versus someone at... From their perspective, the best thing that could happen is a new user

comes on, places a bet, and wins. That's the best possible thing that can happen because, I understand someone has to lose,

but I'm just saying, like, theoretically, that's how you get somebody to keep coming back. That's why you get 10 free trades at Ameritrade when you sign up or 100 free dollars on one of these things. It's a hook.

Yeah. And remember, if you're really good at this, you're good 50 and a quarter percent of the time. So how do you know if you're really good at this? Like how much data do you need to be like, I got this? You just have to be a profitable better.

And we don't give any guarantees to sort of profits to a user. We want to help inform them just like I don't think Fortune or the Wall Street Journal or CNBC would guarantee success following their beliefs and following their advice. But we want you to feel that you're a more informed better and that the decision while you are own makes you feel a little bit better about the decision you made. Also, another corollary between this and trading, there's position sizing issues. Because let's say you are really good at calling college basketball games,

but the one time you're wrong, you had more money on the line, and you wipe out all the, so are you good or bad? Yeah, so if you think this is your best idea and you bust. Correct. So like, are you good at it? In dollar terms, no, even though you might have a high percentage of games that you pick correctly. And I think one of the great things about our pick tracking technology that I mentioned earlier in our app is you can see almost like a mint type experience

where you're good. So am I good in the last seven days in NCAA football? Am I better in the last seven days in golf? Or am I worse in the last seven days in tennis? If they're not placing bets to you, how are they tracking that? They are putting in their wagers, their amounts, the odds they got in our platform. They're doing it by hand. It's a pretty simple process in the app, but it's happening to the tune of four, five million picks a month and increasing.

So this is our busiest time of the year. I joke at the company. This is our Christmas plus Hanukkah plus Thanksgiving plus Easter. We have baseball. Well, baseball is sort of coming towards the tail end. It's really college football and NCAA football and the NFL and then coming into basketball.

What about preseason wagers, like before the season starts? Is that big? Absolutely. I mean, people love to have action on just about anything. That's sort of why we're called the Action Network. But whether it's preseason, we talked a little bit about prop bets before. If you look at Europe, Europe, the majority of bets that are placed in Europe are placed in-game. So it's not the pregame experience.

It's the tattie power kind of thing. Exactly. But it's people that are betting on how many corner kicks are going to happen in the Arsenal game, how many throw-ins are going to happen in the Leicester game, like literally. And all of the leagues, and we talk to all of them, literally every single one, they're trying to create these prop betting opportunities, which are in-game wagers to keep people in the venue longer and to keep people watching the games longer. So to bet on, it's really also easier to understand how to say like,

how many threes is Steph Curry going to have in the third quarter versus what's a plus 51, all those things are a little confusing. So we think prop bets are going to be a massive part of the market and we have lots of tools for users to inform on how they make prop bets. So I'm sitting at MSG with Michael. We're watching a Knicks game. Yep. They're down 40. They're down 40 points. And then I get an opportunity. I'm on your app and I see something about free throws. How many free throws will be made? And you guys have some statistical edge. You believe that you have that.

And you put that data out. And MSG wants me to spend more money while I'm there and stay. And it's hard to get me to stay there. This is like a way that you think the league is going to start packaging the entertainment better and having prop bets be part of it? I absolutely think that. And I think all leagues are thinking about this. So it's not just the Steph Curry example I mentioned. It's even pregame. It's how many points, how many rebounds

are going to be had by a certain player. You can do all those bets, but the in-game stuff can be a little tough. I know that in venues and it's sort of a non-consequential thing when you think about the emergence of 5G. I mean, we've all been in MSG and sometimes you're T-Mobile or Verizon or whatever. You know, the integrity of connection, the integrity of betting, these are really huge issues that all the leagues are thinking about. But why don't they just put Wi-Fi in the arenas? A lot of arenas are doing that, absolutely. And I think in some ways they're probably fearful about liability

around some of these things because integrity is a real concern. All of the kind of corollary aspects of... How you get your phone hacked sitting on a free public Wi-Fi network. Yeah, but at the same time, it's going to happen, be it Wi-Fi, be it 5G. It will unequivocally be a massive opportunity for every league.

And it's not just the big bat and ball sports. It's going to be golf. It's going to be NASCAR. It's going to be tennis. Where are you seeing the biggest growth in terms of user demand? Is it MMA? Where is the biggest growth coming from?

Well, in terms of growth, it is some of these other leagues that I'm mentioning. It's NASCAR, it's PGA Tour, esports. Esports is a hard one. We think a lot about esports. It's definitely in the zeitgeist in terms of consumers and how people are engaging in it. But integrity issues in esports are really hard to define. So is that person, I'm not saying they're tanking a game or it's just, there's not enough historical information that's happened in every other sport because it's so nascent to tournament. You said golf was blowing up.

Yeah, golf is huge. Golf is really- I never would have thought that. Yeah, I mean, I love to play golf, but- Well, it's a drinking sport from a spectator. It is, and I've never put a tee in the ground without action on the line. So I think that whether that translates from you

as a fan of golf or a player, that's exactly right. And it's really easy to figure out. So you can bet matchups. A lot of people just assume it's about who wins the tournament. You can have individual matchups that the books create. So you can have a Thursday bet, a Friday bet, a Saturday bet, a Sunday bet, top tens, fives, twenties. It's really easy for them to understand. And let's face it, all of these sports want to get younger. So to appeal to a younger demographic that cares about betting and why are people going to watch a random Thursday tournament in Napa other than the fact that Phil is playing in Tony Romo, it's the ability to bet. If they have some action on it, they might watch the whole thing. Exactly. That's the entire reason for the growth in fantasy sports.

And let's look at last Thursday. I mean, albeit great to the NFL, they're a great organization, but how many people are going to watch the ends of a Titans-Jaguars game on a Thursday night? It's people who care about fantasy sports and it's people that care about betting. That's it. Absolutely.

I had Leonard Fournette, so I stuck it out. Yeah. Not a good game. Well, fantasy is fun. I mean, we have tools and products for fantasy users that translate into betting, but in many ways I consider fantasy to sort of be the training wheels or, dare I say, the gateway drug into gambling. It really is.

I agree with that, which is something I'm struggling with. My son and all his friends are doing fantasy now. They've stopped playing Fortnite entirely. They are now researching the third backup running back on Dallas to figure out if Ezekiel is coming back. Like, that's what's going on. running back on Dallas to figure out if Ezekiel's coming back. That's what's going on. And I don't want to say I'm worried,

but I wonder out of the 12 little boys in this league, are two of them going to then start taking games without their dads knowing? It won't be my kid because I'll kill him. It's leagues and then daily fantasy and then they're bookies. And then all of a sudden they're taking action. I want to ask you a philosophical question. Are you familiar with Michael Mabison? I'm not. Okay. You would love his book, The Success Equation. He attempts to disentangle skill from luck. And he looks at sports as one of the big areas. It's about investing, but he takes a lot of parallels

from sports. You would fall in love with this book. One of the ways, the very simple ways, in love with this book. One of the ways, the very simple ways he says you can tell how much of an activity relies on skill versus luck is to ask yourself, can I lose on purpose? Can a better lose on purpose? It's an excellent question that's hard to define. So the great example of that has been the Patriots the first three weeks of the season, which has had some of the most outsized spreads we've ever seen in football in the early part of the season. Meaning what? That you've seen spreads 22 points, 23 points, 24 points. So smart bettors would say, even as good as the Patriots are, they're going to bet the Dolphins, they're going to bet the Jets, and they're going to lose it. So I think if someone was to blindly bet the other side and

try and lose, it's going to be hard. So if someone says, I'm just going to take dogs. The handicappers are so good. No, not dogs. If you bet on the opposite of what you think is going to happen, you're probably better off. Not always. I mean, there's the notion of squares, and there's the notion of fading experts, and getting hot, and all these things. And people bet on momentum.

You guys know more about trading than anybody. When I look at people that are sort of the statistical analysis that look at charts and chart analysis to me almost seems crazy, but maybe over time people have proved the chart analytics works. It's a technical analysis on sports. Yeah. I just, and when people think it's going to professionalize,

I really think there will be, but they're fine, but there will be people that, I mean, there's the hot hand fallacy In the stock market It's no different than betting This guy's hot

I was at Belmont I met the old guys In the members only jackets They fucking believe In all of that shit Right Like It's true

They put money on the line Based on that It's true People have their rabbit's foot And people do Are doing all kinds of funny things When they're betting If an NBA team wins five games in a row

How lucky are they to win the sixth? I bet it's higher than average. And we're going to give you the data. That's the great part about our platform. We have decades of data that will tell you those things I mentioned in terms of if a road dog in the AFC is coming off of an over cover, how they perform historically. And we'll provide data. They cover 62 and a quarter percent of the time.

But that's no guarantee. To your point, if you're trying to lose the other side of that, there's just no guarantees in betting. So it's sort of an illusion because you have that great data, but doesn't it have to make the market more efficient if you know that? Absolutely. A bookmaker, obviously, their economics are they want to have equal bets on either side. And to try and create systems, there's no guarantee here. I think if we looked over time, they're going to be smart bettors. They're going to be up year on year over a 10-year period just like they are in the

market any other market absolutely do you think so so do you think that we will see at some point as as the stuff that you're doing becomes more and more widespread and and well known which i believe it will um and sports betting in general takes off, which I also think is going to happen. Do you think we'll see hedge funds where 10% of their portfolio are prop bets and they've got systems based on data like what you're providing? Or would that maybe be a step too far?

Perhaps, but I think it's interesting when you see the smart algorithms on how people are investing in the stock market. I could see algorithmic trading in betting. For sure. And you look at the smarts that are, Cantor Fitzgerald got into the sports betting business, creating sort of the science around how to manage a book. I think it's possible. I don't necessarily see that your individual sports better is going to blindly open their

betting algorithm to be sort of generated automatically, but it's obviously happening in trading. And then the edges will go away because if one guy's system works, somebody that works there will leave and do the same thing. Potentially, and I think there's just a massive opportunity. Look at New Jersey.

You look at what's happening in the US, $10 billion in betting between June and July from the American Gaming Association. New Jersey is now very close to Nevada where gambling is legal in 18 states. It's legal mobily in seven. That's the key. When mobile gambling is legal in states, that's when this becomes massive. So New Jersey, every freaking weekend. Meaning when you can have on your app and just place bets at the best available place. How far away is that? I mean, it is in New Jersey.

It is in Pennsylvania, Soon enough, Indiana. Soon enough, Illinois. So as more and more states, I mean, let's face it, every weekend, Hoboken and Jersey City, these bars turn into de facto sports books. People are coming across the river and they're betting. And I've seen figures that the illegal market is 10 times the handle of the legal market. So I think we want it to be legal. We want it to be responsible.

But these are unequivocally just massive opportunities. In dollar terms, how big is the sports betting opportunity today, legal and illegal combined? I think you're looking at $150 billion opportunity. That's like an insane number. What does that compare to, let's say, video games? Gosh, your guess would be better than mine. But it's definitely… It's a massive number.

It's a massive number. I mean, it's bigger than the motion picture business. It's bigger than a lot of categories. And again, we want it to be legal. We want it to be responsible. But I think it's about turning all sports into betters. I think that's a possibility. And I think that it makes every game more fun.

It makes every league more valuable. I mean, let's realize the reality of this. I mean, there has not been a multi-billion dollar unequivocal opportunity in sports media since the internet. Full stop. We just know it's here. It's going to happen. It's just coming out of nowhere. It's a matter of when.

We've talked to every media company, every league. They all have a strategy here, and they're all realizing it's a big opportunity. So it's going to come out of the shadows into the light more and more. Where's the opportunity for investors? Hopefully the opportunities in companies like ours. We have great investors like the Churning Group and Fertitta Capital, the Cubs, Harris Blitzer Sports Entertainment. We're really excited about the investors we have.

They know the opportunity, whether they're individuals that own teams or they're casino operators or they're just media investors. This is a business that is highly vertical with passionate audiences and multiple revenue streams, not to use too much jargon, is kind of the world I want to be in this world. And that's what Sportsbet is. All right. So to wrap things up, how do people find the app? How do they find the website? Where do you want people to go? People can go to actionnetwork.com. That's our web presence. Go to the App Store, download the action network app go to google play download the action network app we have lots of free tools we have paid tools but if you're a burgeoning sports better and experienced sports better or one who just wants to understand the games and

the lines come to our products we have an excellent products very good and when will you start doing pizza reviews is that soon we leave it to the other guys to do that. We're focused on analytics tools and smart insights. Fair enough. Thank you so much for coming by. Everybody check out Patrick's site, actionnetwork.com, theactionnetwork.com or actionnetwork.com?

Actionnetwork.com. Actionnetwork.com. Go there. Let us know what you think in the comments below. We love your feedback. Go ahead and give us a like. Go ahead and give us a follow if you're not already subscribed

and we will talk to you soon.