Philadelphia-based startup Sporttrade has raised $36 million from investors ahead of the launch of its new app, which provides a trading exchange for sports bets.
Founded by 27-year-old Drexel University alumnus Alex Kane, Sporttrade just emerged from stealth mode in May. The company will use the funding to expand into new states, hire additional staff and market the sports betting app, which is set for release in New Jersey in the latter half of 2021.
Chicago-based Jump Capital led the funding round and was joined by former Nasdaq Stock Exchange President Tom Wittman and former MGM Resorts International CEO Jim Murren. Also participating in the round were Impression Ventures, Hudson River Trading, Tower Research Ventures and Delavan Lake Investments. Nasdaq Ventures took convertible debt in the investment round.
The funding came together after Delavan Lake Investments Co-founder David Frohardt-Lane reached out to Kane in 2020 about investing and connected Kane to his network. That network grew, and more and more investors joined in a domino effect, Kane said.
“I've been in 'pinch me' mode for the last 12 months,” he said.
Sporttrade is pre-revenue, Kane said, and the company needed a sizable investment to build out its product and get past the sports betting industry’s high barrier to entry. The company has to undergo a licensing process in each state it operates in and it has to ink deals with market access partners to get into the business, Kane said. Sporttrade recently signed a multi-year deal with Twin River Worldwide Holdings — now Bally’s Corp. — which it will use to launch in New Jersey under the Bally’s license.
Sporttrade currently has a staff of about 50, and Kane plans to double it by the third or fourth quarter of 2022. The startup is looking to hire beyond those who have an expertise in sports betting, he said, and it is seeking people in engineering, information security, business development, marketing and compliance.
The startup also has to go up against massive sports betting competitors like DraftKings, FanDuel, MGM and PointsBet. Sporttrade doesn’t have the budget to run back-to-back television ads, Kane said, and the startup likely wouldn’t stand out from the growing field of competitors. The company is instead seeking a different audience on more “cost-effective” affiliate platforms, he said.
Kane is seeking players who are interested in trading stocks or cryptocurrencies as well as in sports betting. Platforms like Twitch, TikTok and Reddit, where meme stock traders made GameStop’s stock price explode earlier this year, present an opportunity for Sporttrade, Kane said. Sporttrade is marketing itself as a trading app to those players who dabble in crypto and equity trading, he said.
“There’s just such a clear Venn diagram there,” Kane said.
Sporttrade will use part of the cash infusion to get its product in front of people who may not have been interested in sports betting or were intimidated by traditional betting. Bettors can buy “contracts'' of a particular outcome of a game from Sporttrade and sell it to other bettors on the app if or when the odds change.
The cost of a contract depends on the probability of an outcome occurring. Sporttrade doesn’t use American odds; it instead uses a probability of zero to 100. For example, if the Sixers have a 52% chance of winning a game, the price of the contract is $52. If Ben Simmons misses a wide-open layup in the fourth quarter, the odds will change and the value of the contract could decrease. From there, a bettor could sell their contract — the bet — to somebody else looking to get in on the action.
“I think that one of the really unique opportunities that we see is, hey, if we can fundamentally build something that's more approachable and has less of the stigma around it, less of using all those words like 'vig' and 'parlays' and 'hooks' and 'teasers' and this and that, there's a big opportunity,” Kane said.
