Drexel alum Alex Kane took one look at the traditional sports-betting model and concluded, “This structure stinks.” He set out to revolutionize the market.
Alex Kane traces the origin of his Big Idea to revolutionize sports betting to his junior year at Drexel University, when he and his father placed a wager on an obscure Thai golfer to win the 2016 Masters Tournament.
Kane’s golfer, Kiradech Aphibarnrat, performed surprisingly well through the first half of the four-day tournament and was only a few strokes behind the leader after two rounds. The odds in his favor had risen about 100 times from the start of the tournament.
Kane would have liked to trade his bet at that point, just as he could sell a stock or cryptocurrency on a smartphone app such as Robinhood or Coinbase, the popular tools for a new generation of traders. But there was no similar market platform for trading sports bets.
“That’s when I realized, ‘Oh, my gosh, this structure stinks,’” said Kane, who grew up in Birmingham Township, Chester County. “It should be way more like capital markets trading, where like I’m able to pick up Robinhood or Coinbase and trade based on the changes in the market.”
Alas, Kane lost his wager on Aphibarnrat, who finished tied for 15th in the Masters. But the seed of a new business was planted.
Fast forward five years. Sports betting is legal now in Pennsylvania, New Jersey and about a dozen other states. Kane, now 27, has transformed his idea into a real business, Sporttrade Inc., which he envisions will operate more like a stock exchange than a traditional sportsbook. It launched its website last month, www.sporttrade.com, and it’s undergoing licensing review in New Jersey. Pending approval, it could begin taking bets by the end of the summer.
“We fundamentally believe that what we are building is so much closer to options trading or futures trading than traditional sports betting and casinos,” said Kane, who studied business administration at Drexel, where he was also an intercollegiate golfer.
Kane hopes Sporttrade will dramatically change the way in-game sports betting is conducted by increasing the speed and lowering the cost for bettors to wager while an event, such as a golf tournament, is underway.
Bettors using sports-betting apps can now place wagers during an event, and even cash out of a position. But experts say there is often a delay as bookmakers ponder whether to accept or reject an in-game wager as they assess their risk, and the margins the bookmakers earn on such bets makes them unattractive.
“You’ll find that if you’re not betting at the timeouts or between the quarters, you’re going to end up with a situation where you submit the bet and then there is a delay,” said Jack Andrews, a professional sports bettor in New Jersey. “It seems like they’re getting a free roll against you.”
“It doesn’t feel like you as the customer are in control,” Kane said. He believes that electronic platforms adapted to handle split-second trading in stock markets can manage sports-betting action, matching buyers and sellers without delay, because the exchange is acting as a neutral party and is not taking on the risk of a bad bet.
Sporttrade is no shoestring venture. Kane’s company last year partnered with Twin River Worldwide Holdings Inc., which was then in the process of acquiring Bally’s Atlantic City Hotel & Casino, to obtain one of Bally’s three New Jersey sports-betting brands or “skins.” Kane has also enlisted investors, software designers and experts, including influencers in the sports-betting world and veterans from Wall Street investment banks and stock exchanges.
Kane’s journey to this point — “we’re at the very bottom of the mountain,” he said — got a huge boost when he pitched and sold his idea in 2019 to the Comcast NBCUniversal LIFT Labs Accelerator powered by Techstars, a three-month program to introduce promising entrepreneurs to a network of corporate partners, investors, and mentors.
One lesson that Kane took away from his Techstars experience was to think big. He realized that the Sporttrade platform he envisioned would depend upon sophisticated financial software that needed to pass regulatory scrutiny, and the venture would require more resources than the $3 million budget he set as his initial target.
“Three million dollars was not going to get us some skin in the game,” he said, without elaborating on how much capital he actually has raised. He said a public announcement is forthcoming that will disclose Sporttrade investors, who typically must be identified to regulators.
Kane, whose father is a physician and whose mother is a professor, is relentlessly polite and patient as he argues that sports betting will inevitably evolve to resemble the more efficient and transparent stock exchanges.
Traditional sports bookmakers set odds, assume the risk, and essentially take a position opposed to their customers. Sporttrade would act more as a neutral exchange, matching buyers and sellers of contracts on the outcome of a sporting event.
Similar to those on a stock market, prices on the Sporttrade exchange will be set by market makers, who quote “bid” prices for sellers and “ask” prices for buyers. Sporttrade would take a small commission on each trade, which would be reflected in the difference between the buying and selling price. Kane anticipates that such a system will yield narrower margins than the “vig” (or fee) that sportsbooks now charge to cover their risk. Lower margins mean a lower transaction cost for customers.
The Sporttrade system also seeks to redefine the traditional American way that betting odds are posted, which is now based on a system of minuses and pluses (a favorite is quoted as a minus, such as -110, which shows that a bettor needs to put $110 at risk to win $100).
Sporttrade will express the betting cost as a percentage. If the Sixers have an 11% chance of winning the NBA Championship, a bettor would wager $11 to win $100. If the team’s fortunes rise, the price of the contract would increase, and a bettor could cash in the position. After an event is concluded, a contract is worth either $100 or zero.
Sporttrade’s model resonates with people who have spent their lives working in financial markets.
Kane enlisted Thomas A. Wittman, the former president of the Philadelphia Stock Exchange who retired last year as executive vice president of Nasdaq, to serve on Sporttrade’s board and to invest in the venture. Wittman believes that Sporttrade will follow the same path that online stock trading has done in recent decades, reducing transaction costs and opening up trading to a broader audience.
“It’s similar to what we saw in the capital markets and this will unfold the same way, I guarantee it,” said Wittman. “I know it well.”
Some sports-betting operators have launched betting exchanges overseas, but none in the United States, and none are modeled so closely on capital markets, Sporttrade’s leaders say. Wittman doesn’t think the big-money sports-betting operators will embrace the model because it isn’t as profitable as a traditional sportsbook.
“They’re going to have to cut off a couple of fingers in order to change their model and I don’t think they’re going to be willing to do that until it’s too late,” he said.
But Andrews, the New Jersey professional gambler, believes there will be sufficient interest among bettors in New Jersey to generate the kind of liquidity that Sporttrade will need to build out its market. “I think there’s enough guys who work in the financial district of Jersey City who would like to get into this and think it’s easy money,” he said.
Creating a sports-betting platform that works like a stock exchange will inevitably lead to gamesmanship among sophisticated bettors, such as the operators who invented high-speed stock trading to get a millisecond edge on market trends. A spectator with a fast internet connection at a sporting event will have an advantage over a bettor who is watching the game at home with a five-second delay on cable.
“I worry a little bit about some safety controls you guys are going to have to put in place for people getting kicked off and latency [the speed of online response],” Jeff Ma, co-host of the popular Bet the Process podcast, said during a recent interview of Kane. But Ma, a vice president of start-ups at Microsoft, said he thought that such challenges were solvable, and that it would not be particularly hard for Sporttrade to improve on the current in-game betting experience.
Kane says Sporttrade is designed to appeal to a younger audience and will not steal existing customers from casinos. Because the product is aimed at a different market, Kane does not anticipate joining in on the expensive promotional battle now underway on television among legal bookmakers to acquire customers.
“I think there are really interesting avenues that we’re going to take for customer acquisition and traditional television isn’t initially one,” he said. “The advantage that we have is a differentiated product. We don’t have to spend a ton of money to try to get someone to use our sports betting app.”
Sporttrade now employs about 50 people, and most of them live and work remotely in the Philadelphia area — the leaders meet monthly at a WeWork shared office in Center City. Kane said he plans to open an office in Camden soon, to domicile the company in New Jersey to satisfy regulatory requirements.
If the system passes muster in New Jersey, which has surpassed Nevada in less than three years to become the largest sports-betting state in the nation, then the model can be replicated in other states. Pennsylvania, though it has the nation’s third-largest sports betting volume, presents a high barrier to entry because of its $10 million license fee and high tax rates compared with other states.
Kane thinks it is inevitable that somebody will model a sports-betting business on a market exchange, and the first mover will have a significant advantage.
“Someone’s going to do this, right?,” he said. “Someone’s going to make this look like the capital markets, it’s a no-brainer. This market is rife with all these inefficiencies that have been solved already in every other industry.”
“I think that is why I am so fundamentally passionate about this,” he said. “You have a moment in your life where you’re like, `This is why I was put on Earth.’ And I’ve had that with this.”
The Council on Compulsive Gambling of Pennsylvania offers guidance to problem gamblers at 1-800-GAMBLER.