The Future of Player Betting

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games the pragma back-end game engine is the only solution that is truly extensible so that game designers aren't blocked by clumsy black box designs with pragmat Studios no longer need to hire a large back-end team and get the ultimate peace of mind that their game will always be ready to scale to learn more simply head to pragma.gg or check out the link in the show notes and with that let's jump into the episode hello everybody and welcome to the novik gaming podcast I'm your host Alexandra Takei and this is the interview and insight segment in the gaming world the first thing folks think of when they've hear the word betting is skills and then they get really nervous and they shy back a bit given the journey skills has been on since its IPO scales as most people in the audience probably know was a tech hype riches to underperformance sort of Story the app for those who don't remember enabled game developers to incorporate Competitive Gaming elements into their mobile games this included stuff like leaderboards multiplayer competitions

and other features that were meant to enhance player engagement and retention and most importantly it added a level of RMG real money gaming as we say in the biz to your game skills is stock which once peaked at an EPS of 875 today trades at around nine dollars and so I was thinking to myself like surely because of skills's story uh player betting and games could not be a thing or at least a profitable thing and then I realized that I personally just didn't know a ton about the betting world and why at its core skills wasn't performing well and so I remember I had a friend building in the space Zach Dixon who is joining me on air today Zach is the founder of Players Lounge a series a venture back company that is simply put allowing players to bet on themselves I saw this on the website did not make that up um they have game Integrations mostly in sports games AKA Madden NBA 2K FIFA Etc and allow players to host tournaments head-to-head competitions and streaming competitions so welcome to the Pod Zach thank you so much for having me first time caller very long time listener okay

well glad to have you on this episode is actually inspired by a Old navic Pro article within our financial Market segmented for skills that I recently reread because of a conversation I was having at a bar the other day down in Orange County on whether Gamers want to actually bet on gaming outcomes I've been traveling a lot post graduation so like now this is what Friday nights basically look like um very sexy Friday nights this person in the bar I was chatting with was pretty much like forcefully disagreeing with my supposition that betting couldn't be a profitable thing for games and adjacent Services when I say adjacent I meant like under the assumption that AAA Studios never opened up their own betting rails um and I kept thinking about it though um and actually even at blizzard we thought about small things that had to do with betting like what if we could bet on like the brawl card and Hearthstone taking out everything except for like the 1-1 dragon whelp or like what if we could bet that this useless Genji would do under X percent damage in

OverWatch and so for me I guess the question was still open in my mind based on this conversation I was having with this friend is to like whether or not the decline of skills specifically is something to do with the platform or the innate lack of demand for gamers um or a business model that hasn't been quite figured out so you're here to help me out um and we're here to talk about it on air um so I gave you a player's Lounge a bit of an overview but would love to hear about your background as a Founder what got you into the space and sort of what's new for the company these days sure so my name is Zach Dixon I'm co-founder and CEO at Players Lounge and uh started the company with my buddy Austin Woolridge we were teammates at Wesleyan and back in 2009 we saw a website where you could play FIFA online and bet on it and we'd been playing our teammates for like you know 20 a game and FIFA in person and we were like I wonder why this isn't you know a bigger business and we looked into it and uh we

wanted to do it sophomore year of college but we were just too busy playing soccer and partying and uh the productive stuff the productive stuff that you do you think is productive as a 20 year old and then your regret as a 30 year old uh so we we went our separate ways after college worked a few jobs and both decided that working for other people wasn't for us long term and we uh bumped into each other at the gym and uh decided to rekindle the flame and pursue a business where you could play video games at bars and play in FIFA tournaments so we did that at the BNA 2015 um got uh Bud uh ab and Bev and EA as sponsors and then um I I met Strauss the CEO of take two and he uh invested in the beginning of 2016 and we used that funding to launch playersoms.com where you could play FIFA and Bet On It 24 7 365. and we bootstrapped that for a couple years got into y combinator raised money from the co-founders of

twitch Griffin gaming Partners Comcast many more I'll talk about later and so now we have two products and we've done 200 million dollars in bets from a million players all time and uh our newest product is growing really fast and uh we're gonna be raising a bridge round that we thought would take a long time but it might already be closed so I'm happy to share more about that later well amazing it sounds like there's like a ton of founder market fit there I love the gym and soccer they play soccer now the first game you're betting on is doing FIFA stuff um or sorry the first uh game I guess Players Lounge supported rather was FIFA um and you know you're combining The Best of Both Worlds you're taking what you did when you were 20 and you're now allowing people to do it in bars um so yeah it's complete founder market fit right like we like playing games we like betting against each other and we figure there are millions of Americans and people globally who want to do this thing so we pursued it got it got it and

I guess maybe that's a great place to start you know you talked about I was you know you already answered one of my first questions which was you know what games you guys start with and it sounds like you started with FIFA um and so I'm wondering this might be an obvious question and if you and if it is just say so but sure you know why a sports game first for the betting World um and I'm hunting in case that there's actually some Nuance that I haven't thought about that's not immediately obvious such that we bet on Sports in real life why would we not bet on Esports that are sports oriented sure yeah it's a good question I think the easiest answer is we wanted to start with a single game that we played ourselves and build a product that we wanted to use ourselves and so at that time we were huge FIFA players and we knew there were a lot of people around the country that wanted to play FIFA and bet on it and so we figured we could launch this website with you know 60 Grand was our first Angel check and uh we scale we bootstrapped that for like two years and um

trying to scale a head-to-head platform with no marketing resources was grueling it was really hard it the the head-to-head business is is pretty difficult to scale but we've done it better than anybody else as I mentioned we were about to pass 200 million dollars in bets total on that and that product is predominantly mad in NBA 2k and FIFA it's your question about why sports games is that was the experience that we had in person right is you're playing with your buddies and somebody wants to bet ten dollars on the game to make it more fun and make sure everybody's trying their hardest right the bet is in itself really just like a social contract that you know both people are going to try their hardest so at the end of the game somebody doesn't make some whimpering excuse about why they lost right when money's on the line people try their hardest always a bad team it's always a bad team it's it's the ref it's unlucky so uh yeah the sports games is just 1v1

from a game design perspective it's really obvious what you're betting on and you're betting on yourself to score more points than the opponent whether that's in simulation football simulation soccer or simulation basketball it's like a super clear and obvious betting model okay I see and then you keep using this word Head to Head um I would one would Intuit it means one person betting against one other person just wanted to clarify what head to head actually in your space needs for sure so head to head is exactly what you said it's player versus player and then sports games that's 1v1 there are other game modes in like 2K that are 5v5 Etc or 2v2 and FIFA but 1v1 uh is the easiest to match to match make for frankly I see right so that's another reason that sports games are so interesting because you don't have to fill up a team it's just Alex is a you know a good FIFA Player and she wants to play somebody right now for five dollars

on PS5 we have a matchmaking service and a skill rating system where we can do that pretty well Okay so so in general though the bets that Players Lounge at least in the in the beginning of your company's days were betting on were wins and losses essentially yeah just strictly very specific outcomes in the game right so so what you the specific outcomes might be referred to as more like prop bets right the the Genji reference that you made that's like an obscure Market you know that is like really difficult to to fill out so our head-to-head products it's called players on Sports you can download it on the iOS store uh that's done 200 million dollars in bets of just matching up one player against another player both players are betting I will win this match and we take a 10 service fee of however much they bet I see got it okay cool interesting well good thing I didn't do that because I guess it's Nation

um that's an obscure space that nobody wants to nobody wants to do um I guess in a way the way that we were thinking about that and maybe this is something interesting to talk about is right now you're talking about this head-to-head betting Dynamic which means the two players that are playing the game are betting on themselves the way that we're thinking about those prop bets occurring were a little bit more for the audience for somebody who's watching other people do the head-to-head competition so like for example if I were watching a um I don't know the LCS and I would bet that T1 would die this would be his KDK Ratio or something like that um and so how does Players Lounge think about those prop bets versus the head-to-head bets is that like a horizontal business expansion or I guess maybe I'll just stop there yeah it's good it's completely fine this is where like a good legal distinction is important is if Alex is not playing in the match if her skill her inputs don't affect the

outcome of the match that's gambling so Alex versus Zach in a 10 game of FIFA is a skill game thousands of inputs over the course of 20 minutes to determine who's going to win the result right Alex betting on the LCS where she's not playing it presumably that's gambling so we don't offer that service maybe in the future at some point but like we're a skill game operator and we're more focused on you betting on yourself whether it's in a head-to-head match or in our new product where you can bet on how many kills you'll get in a game of Apex or Valor got it okay that's actually really interesting I didn't I guess I didn't it's a Nuance that I didn't necessarily appreciate uh yeah it's the difference between like daily fantasy sports and sports betting right daily fantasy sports is mathematically a game of skill whereas Sports gambling is legally defined as gambling got it okay I see

yeah maybe we'll touch upon like the player betting and gambling at large a bit later but want to continue on the path of talking about Players Lounge and your products and you're talking about how head-to-head platforms are really really hard to grow how do you guys think about product growth does that come from more from more business partners from more games or more players such that the game the betting in the game is more robust fair question so players out of sports as I mentioned were focused on Madden NBA 2K and FIFA that business is primarily 1b1 you know head-to-head player matchmaking they're betting on who's going to win this game between the two of them we rebranded the company so that our new product Players Lounge that's where Alex is betting on how many kills she'll get in a game of Apex so in terms of product growth sorry my cats get in the way in terms of product growth there were you know the sports product players on Sports is primarily

1v1 games premium games like Madden and 2K so you know maybe 20 million units per year in the US globally whereas Players Lounge is looking at the really big AAA free to play games that are massively popular globally so our new product has you know uh Maus into like 500 million range whereas the sports product might have Maus in like the 50 million range hmm okay got it so you started with sports but now you're shifting more into the PVP competitive realm of just PC hardcore like console games sure so the our new our newer product that's called players on it's available on the iOS store in the US that is Alex is a one kill a game Apex player and so Alex can bet on am I going to get one kill this next game two kills three kills five kills Etc and that product more resembles a sports book and where Alex is betting against the house

so she might you know risk five dollars to win five dollars if she gets that one kill or she might risk five dollars to win twenty dollars if she gets four kills right but you are betting on yourself and how that match will be determined so that's why it's still a game of skill okay and this is the distinction between the um and forgive my like naivete around some of like the jargon in terms of like head to head and whatever there's also this other one there's a new access to it yeah peer-to-peer head-to-head players player whatever you want to call it um so but in the terms of betting against the house right you're not necessarily betting like you said before in NBA 2k you have one player a player B that's peer-to-peer that's head to head I bet that I will beat you um in this type of betting Dynamic you're betting against the house that I X XYZ person would perform to these certain caliber points like I got five kills whatever yeah I'm betting against

your own skill level basically got it and is there any specific when you think about the next games to grow into in that regard you know what are the kinds of criteria that these games need to have ostensibly besides just being PVP like online games like why why Apex and why Valerian first sure why not League completely fair question right and part of it goes back to why we started with just FIFA right we played a lot of FIFA we understood the game deeply and we liked betting on it ourselves and so we launched this product with Call of Duty the next game we put on was Apex then we added valorant because it was really clear to players in a battle royale game of why I'm gonna bet on how many kills I'll get and what place I will finish at the end of the game right so those are the two bets that you could take and so that doesn't really need any explanation to the average gamer whereas trying to get a lot of people to take the Genji

bet of how many you know what percent damage Genji will get this game that's like a pretty deep and nuanced bet that first of all was gambling in the first place so we don't do it but it's just Alex knows she finishes top five top ten at Apex this frequently so she can take that bet she knows she gets one kill a game in Apex so maybe she's gonna roll the dice and try to get three kills this game but for a bigger payout got it okay really the level of complexity for the game that's like you know in Battle Royale might be a little bit more obvious uh and FIFA it's a little bit more you know it's clear oh I I win or I don't win but for some of them more complicated maybe mobas and maybe even like team-based Shooters right so um it's the kinds of bets those prop bets that I was talking about I'm that's intuitive to me because I play some of those games and it's right but it's not really as mass Market um

sorry to cut you off we try to work like really heavily with the mom test right so like if you had to explain to your mom what the product is if you don't think you can communicate that in a sentence and have her understand it as a non-gamer I'm assuming heavily here that your mom doesn't play team-based shooters or mobas she does not she tries she just like Detroit becoming human and apparently the game was quote too fast for her yeah I don't know if you've ever played Detroit becoming human but it's like decide save the man or don't save the man he was like literally 45 seconds to hit the square button and Mom's like I don't know what square button is I'm like yeah okay for sure for sure so if we can't explain to your mom in a sentence and have her understand that you need to get this many kills in this next game to win the challenge it might be too complex right so battle royales are the easiest to understand team-based Shooters we think are next easiest to understand bobas are uh more complicated but still relatively easy to understand

um and so that's the kind of like the order of operations so we look at how many players play the game in the U.S how clear is it when we first think about about the game of what you would bet on and if people would like to bet on it and you know Global audience is a second thought because we'll expand globally in the near future so those are the considerations I see and then I guess what percentage since you're saying that my the prop betting thing that I was talking about earlier is more of a audience as a um I say uh taking bets on something else which would be gambling so your market for peer-to-peer or head-to-head betting is actually a subset of the people that play the game themselves um yeah and so what on average do you think what on average like conversion rates to betting do you guys typically see in games like how many people that play FIFA typically also have interest in betting on themselves I would assume they have to be of like a fairly like high skill caliber you would think that but I mean um we have a skill a skill rating system

on our head-to-head product that's pretty robust and um it's difficult to understand how good a player is in five or ten games you know this is a problem that all AAA titles deal with and they have way more data right hundreds of games before they can accurately understand somebody's somebody's handicap um but we match players up who are I'm not very good at FIFA right at my best I might have been like a b maybe a B plus player and so I don't want to play against the top players in the world I want to play against people who are my level I want to throw down five or ten bucks and get a rush playing the game that I love playing so much and so that's like the core demo that we're targeting which is for certain millions of Americans and tens of millions of players globally okay got it so I don't know your average everyday Joe Schmo who wants to bet on themselves and this typically happens to be like when you do the math like you know maybe some

sort of like portion 20 10 20 maybe of the current player base that's playing FIFA or those games in general yeah reasonable got it interesting and so I wanna ask a little bit about maybe some of the operational challenges of chilling in this space you know we've talked a lot about okay yeah like you're betting that I would get five kills and I'm betting that I would win this game but that game log of data is stored on probably the server side of the games themselves so I might report to Players Lounge that I got five kills and so I did what I said I was gonna do so therefore I win my bet against the house how do you guys verify the outcomes that the players did what they said they were going to do great question so on players on Sports the head-to-head model both players report the score so there's a two-sided reporting system and in 99 of the games Zach plays Alex beats Zach

Alex says I want three two Zach confirms yes I lost two to three and Alex wins the money and one percent of those games Zach complains oh I had lag Alex disconnected Zach won you know and so we innovated on the score reporting system in a big way that was why we bootstrapped for two years uh so that we could get that dispute rate is what it's called when when one of the players disagrees with the results down to a very limited number and operational challenge is you need customer support admins referees basically to come in and resolve this dispute between Alex and Zach sure alex132 Zach says he won two to three both players need to submit some type of evidence of of the results of the game and there's some petty squabbling between the players right so you know there's a customer support and Live support element to the game that's more complex than people think when we launched the business at in 2016

we had no idea it was going to be that big of a pain in the ass yeah when it was just me Austin and our co-founder Dan I handled every customer support ticket so I would like be on a date and the woman would like go to the bathroom for a second and I would be like furiously handling intercom tickets while she was gone like trying to settle a dispute between two 20 year olds across the country squabbling over like Alex was using this cheesy meta what the hell you know and then she would come back to the table and I'd like slam down some responses and like put my phone away you know so it's definitely more complex on the head-to-head business to resolve those types of things and people appreciate you also have a you know a player liquidity issue which is a function of how good your marketing is and how many marketing dollars you have um so filling out a real-time Marketplace of players of a variety of skill levels on a variety of platforms looking to play at different hours of the day uh for different uh betting

denominations is like that's a bunch of different Cross segmentations of a Marketplace so dozens of competitors have popped up over the last couple years and tried to do this without appreciating how difficult it is to support that real-time Marketplace and there's a reason that we're several acts bigger than the next biggest competitor because we're smart college-educated people we were big Gamers you know and we've sunk a lot of time and a lot of investor money into building the best product out there yeah yeah and I think that like makes a lot of sense because even from the game Studio side where we're thinking about player liquidity in terms of matchmaking and then for you guys let's just say that there's a Venn diagram of players right your subset inside that player set so you've already just made your market and your matchmaking liquidity pool even smaller for sure simply because of like the appetite for the head-to-head um betting but yeah I think it's really interesting to hear some of the stories that you had originally building the

company um for verifying those outcomes you know I've definitely played a game um called the on the Dueling Network which is just a which was the Yu-Gi-Oh open free format no game logic embedded in the actual um in the web browser at all so basically every if I attacked you and I said hey I just took out 2 000 of your life points you would have to deduct from your side of the table two thousand life points oh that's right that's a that's a digital board game experience it's a nightmare yeah honestly I have such fond memories fighting in this like janky chat box with people maybe even somewhat Rosy colored glasses looking back on it yeah yeah and and in a way like that is okay for that sort of situation because you're playing a card game but there's no money at stake right and so I think it obviously becomes you know completely maximized or like exacerbated such that you have money on the table um and so this leads it to sort of like my next question is like who controls the Fulfillment slash like cash transfer

of the payment um Players Lounge okay so so the way it works is Alex is a new user she goes through kyc know your customer verification to make sure she's eight to be clear I should have said this earlier you have to be 18 plus in an eligible state to use any of our products we do oh we yeah so you have to show us you know your government ID you have to verify a bunch of different things to make sure that you're at with the Geo you know geofence you and make sure you're in a verified State um and uh after that then you can start playing for real money right so a lot of products out there operate in you know somewhat looser uh I'll say operational zones of doing this type of thing and what that endangers is one there are very severe penalties for breaking these types of laws Austin and I have no interest in facing those kind of consequences they're they're serious uh and secondly

it jeopardizes your relationship with the payment processors which is another huge part of the operational hurdle to run any real money gaming business so Alex comes on she goes through kyc she deposits ten dollars then she plays so there's just like a bunch of hurdles that people don't appreciate of how you have to verify Alex's ID geofencer except her money Etc it seems like a much easier business to scale than people might appreciate sure sure yeah even just like the hurdles I remember from some of the web 3 research that I was doing for like an episode on the legal ramifications of web 3 that for the and web series obviously it's an entire other can of worms but um you know for securitization and for kyc and AML actually those rules were different state by state by state and so it was just like I was like I don't know like there's just too many states and there's two too many people so

um just it's obviously like quite quite difficult but basically you guys do the through the payment providers I as a as a player would deposit funds into my player's Lounge account and then that would get withdrawn and transfer from my account to another player's Lounge account right and those accounts are ostensibly linked to some sort of Bank provider or PayPal or something like that yeah similar I mean think about how like venmo works right you put money in it sits in your account but when you send money from you know Alex to your friend it's not that money's moving from your Chase account to their Chase account it's that you've put money into venmo venmo's holding that money at escrow then they're moving numbers around on the back end and when your friend goes to withdraw then there's a realization of those thoughts right so it's um it's like kind of similar to yeah that's the simple way to explain it yeah yeah got it and then for you guys in terms of the the

business models a couple you know earlier you mentioned that you guys take a 10 take rate on those bets so if I bet ten dollars right you guys would take one dollar and then the nine would go into escrow and then they would get transferred to the other player if they were to win or lose right yeah and that it's actually like players have a hard time understanding the 10 some players think it's 20 and it like literally comes down to a misunderstanding of the distributive property of multiplication over addition so like Alex bets five Zach that's five players think that 10 of that let's say Alex bets ten dollars and Zach that's ten dollars players think that we're taking 20 percent when we take a two when we take two dollars from ten dollars because they're adding 10 and 10 and thinking that that's 20 percent oh and so we like I've like literally

tried to explain this to like I've made like YouTube videos explaining why that is that 18 from 20 is 10 and not 20 and it's like it's surprisingly difficult to explain to people you can make them all take the GMAT um yeah oh God yeah we're talking like PSAT type stuff you know yeah yeah yeah yeah yeah oh I see I got it but okay but so you take that you take the 10 of the pool of the pool ten percent of the pool exactly of the two players okay I see yeah and I guess like that's um obviously that's a pretty typical model I would probably say um for for for for betting were there any other models that you guys explored or you know why is this the Good the the correct fit like for you guys and you know why 10 if that's even a reasonable question to ask no it's a fair question it was a nice easy number to understand it was simple math that people could understand and it's like a pretty reasonable service fee um so that's the head-to-head business

right that's players on Sports that's the one that's done 200 million in bets over the last couple years our new product which is the focus of the company which is Players Lounge is that's where you bet against the house so that's a very different business model because Alex is betting five dollars that she'll get two kills or more right if she loses that bet she loses all five dollars if she wins that bet depending on what the odds are for your skill level that might have been bet five to win 15. so that business can actually lose money right in the same way that like a sports book can lose money whereas like our head-to-head business which is more like a poker room model is just get butts and seats keep them playing and you take 10 of every dollar that comes through it so it's a more sure and certain 10 fee but it's more difficult to match make and to provide the live Services whereas the bet against the house product our newer product

has way better underlying metrics because all I need to do is to get Alex into the system through kyc understand our product and then she plays whatever she wants there's no matchmaking there's no you know disputes on what happened in the game it's you play the game and your bet resolves or not and then you go play the next game right away there's no waiting for the next player who's at your skill level at your time at your denomination on your game title right so it's just a much more efficient uh match to match betting process okay got it okay so in the two in the two in the two products right you've got one that has has probably like lower Dau right with a but a consistently and solidly high arpdale because you're consistently taking 10 of every all the cash that passes that system and then on the flip side you have probably something like the Players Lounge which is running something on apex or valorent right where people are making bets against the house um the Dows are higher because people

can do that whenever they want there's no player there's no matchmaking at all but some of those players are literally negative LTV for you guys because they are just extracting out of the house because they're too good for always win um basically right yeah no that's sure and like when you go to a casino there's a reason that the poker room like you know occupies three to five percent of the square footage and the slots and table games occupy the rest right the poker rooms are not full up buttons and seats because it's a different player experience than a lot of people want a lot of people when they go to a casino they want to play with their friends they want to win and lose together with the other players at the table they don't want to play against other players because it's a different confrontational experience right and so a couple years ago Steve Wynn actually cold called me and I didn't know who he was and if you don't know who he is he's like the most famous yeah he's a hotelier he's a casino magnate he's a billionaire right and I picked up the

phone and I called him and I ended up having lunch with him uh and he was like you seem like a bright dude I like you how can I help you and I was like oh we've got this head-to-head product you know it's growing really fast we just went through white combinator blah blah blah and he's like that's a cool business but I'm telling you I've run Casino since before you were born and poke rooms are really tough businesses to scale you should really be thinking about what is the rest of your experience that you can build out and I was like oh well we're going to make it work and I wish I'd listen to the billionaire years ago and started working on this you know bet against the house product sooner but you have to take your lessons as you do so I see okay so you built this whole business that has um you know the billionaire suggests that you do house betting um and we just talked about how for some of those players you know they might be really good so they're actually value extracted from the system um for you guys how do you balance that system on your end to make sure that for

Players Lounge I assume that you're you're the house in this case um that you aren't you know constantly like this isn't kind of like a bleeding money situation uh how do you make sure that well actually in a way that your players lose um no I mean it's a fair question and um it's a difficult one right it's one it's the reason that you know people have struggled to scale this space and we're doing the best of anyone has ever done at it but um players come in and we know their skill level and if Alex bets you know I'm a one kill a game player and I'm gonna get three kills this next game we know the mathematical likelihood of that happening she does it once okay maybe that's like a one and three thing type happening right she does it a second time in a row not great odds of that happening she does it a third and fourth time in a row something looks suspicious here right maybe Alex is playing on a Smurf account

maybe Alex has her friend playing for her so the Lions change over time because we're trying to predict what your actual skill level is when you're playing for money there's definitely a difference in your play when you're playing for fonzies and just dropping hot and getting slaughtered versus oh man I've got five bucks on This I Gotta Get top three and I gotta get three kills you gotta play the game very differently in the same way that you play differently when you play pick up Sports versus tournament play right and so it's just a kind of a different balance so we look at every bet we offer to players we look at how well they do and we're aspiring on any given day to be somewhere in the like five to fifteen percent hold so for every five cents that Alex bets we hope that five of it stays with us okay so there are some players who come in they win a couple hundred bucks in a day their their lines are going to get harder because that's what they're

telling our skill system is that we're actually under handicapping them so their lines get harder their payouts get a little harder whereas Zach not very good he comes in loses money so we make his challenges easier and we make his payouts bigger because we don't want players to be too outside of that range the goal is to keep players butts in seats for as long as possible having the most fun as they can and for us what we see is optimal retention is players win some money and lose some money but it doesn't go too heavily in One Direction you want to keep players in like the flow state of somewhere between anxiety and exhilaration yeah oh interesting okay yeah so you you're but you're actively tuning that system right oh for sure every day yeah and hours per day and my personal work we've got to crack data scientists working on it and like that's you know you don't want to cheap out on the math in a sports book for sure sure

um yeah and so I would suppose though that like you were saying before that probably players would get smart they'll make Smurf accounts they'll like do all the things to trick your system into making them think that they're not who they say they are um and that actually probably seems like a total pain in the ass you know it's an exciting math and Social Psychology energy problem to solve and each person that beats us for a couple hundred bucks we take our lick yeah we learn a lesson we patch a hole in the system and then we move on but there's a whack-a-mole element to it yeah nice okay that makes a lot of sense um and so you know we've talked a little bit about Players Lounge and your pro your two products the head-to-head platform the betting against the house you talked about putting um betting player money so one of the things that um I'm just interested in hearing your take on and maybe we can talk about this in a more like hypothetical ideal sort of world this thing that the person and I in the bar were arguing about were you know like right now obviously the closest things that we have to that kind of betting stuff was like sports betting IRL and that's something that we've just

talked about it's you know a you need to be a verified operator of sports betting um you know I go the Kentucky Derby and I bet on Secretariat um but in order to do this like there's tons of restrictions Hoops to jump through licensing regulation age restrictions and response like gambling measures deposit limits AML kyc and a bunch of other stuff right um one of the things that this person and I were talking about were the instead of betting money on an outcome why would you not bet in-game items currencies or skills or like skins so for example what we would do would we would I would say hey I bet on the house not that I would bend five dollars but that I bet my ultimate skin or I bet some sort of like currency platinum and Diablo 4 or something like that against an outcome how would that change any of the gambling perceptions um in terms of maybe the regulatory

space I I mean I just don't even I just don't even know right sure I am by no means a legal expert we've spent hundreds of thousands of dollars over the years on really good legal experts to do this work for us and my very rough understanding of it is every state defines a game of skill versus a game of chance differently some states Define that as if Alex is risking something that has real world value that's gambling and those are states where we don't operate right so if you could if you're you know Genji skin has real world value in that state according to that State's laws then you betting that might constitute gambling how much skill of your how much of Alex's skill in the competition determines the results of the competition that's another factor in the legal equation right so all of these

things kind of come by in state to state to allow some players in some states to play and others to not right but it gets a little like you know CS Go Lounge skins gambling there's been like a bunch of sticky and nefarious things very Loosely regulated a lot of them are just like outright get like operating illegal gambling organizations right and so that's like a really it's not even gray it's just like a black market that we're like never gonna operate in because like you know we've got money from like Y combinator and some very successful folks and like we're not gonna We're Not Gonna jeopardize ourselves or any invest their money by doing something like that it's a very common question of like why can't I just bet this thing you know um and then web3 there's a lot of questions around like is this actually a security or is it not is this actually a game of skill or is it not are you risking something of real

world value or not yeah there's a lot of questions about the whole thing and it's just very Loosely regulated yeah yeah and I mean even you can look at that happening in AAA with FIFA with the regulations that happen in Belgium on the loot box system right because you're right FIFA is a game of skill and well I have particular opinions on on loot boxes and their relationship to the game whatever but in a way and I think any kind of blue box or card pack system is very similar right um there is not I call it not pay to win but I call it pay to compete right where you might need specific cards or you might need specific players to do well but however does not take away from the fact that you still fundamentally have to perform right um and and be people in the game right so I think it's a really interesting like fine line like you're saying where there's a ton of grayness around like what betting and what gambling means and I and there's a reason that FIFA does not let you do the thing that you're talking about right you cannot like play for pink slips and risk your Ronaldo

card versus their messy card that would be like start to get into murkier waters for EA you know like got it there's a reason AAA companies do not do that um and that's because if they were to do that that would be defined as gambling I I can't say that you know but like it it just becomes more difficult to like offer that service and so it's like the risk reward profile there just doesn't seem to be worth it for these AAA Publishers oh fascinating yeah because it sounds like I I mean we've been the whole like uh a lot of the premise of sort of like the work that's being done it's like better than yourself this way it's not gambling why is it so important to avoid being classified as a gambling thing um is it just because the legal repercussions are really high because there are true casinos like you said that are defined as gambling so like why

why is everybody in the gaming industry working so hard to not be a to not be defined as gambling well one like the penalties are so severe like in Louisiana where I'm from if you operate in a legal gambling organization you could literally do years plural of hard time it's very rough prisons and like maybe you're listening to the podcast but I'm not a huge guy I'm like five nine 170. I would not do well in a very hard prison in Louisiana so like I have no interest in Touching that with a hundred foot pole you know so that that's one reason uh the other is uh you know gambling organizations uh firms they pay a lot of money per year to state regulatory bodies to be able to offer those services in a regulated format and so there's like some you know uh not cartel but it's like an oligopoly

type thing like there's only so many licenses per state there's only so many operators per state um so you just really don't want to run afoul of those types of things okay got it so basically to be a gambling house you'd have to do a ton of work to do it the right way and the penalties and the repercussions for doing it the wrong way are massive and Titanic absolutely unless you're like I absolutely know that the end of the day like my returns from this Venture of gambling are going to be positively created to math and I have enough up front cash reserves to pay regulatory licenses I have the connections to get these things done in this specific State it's basically like not necessarily worth it and so for maybe a casino house that's located in Las Vegas specifically they're dealing with Las Vegas the state I mean sorry they're dealing with Nevada the state Las Vegas the county it's just like one-to-one relationship versus a

game has a broad gigantic Global audience doing setting up a gambling mechanic for something in 50 states and even other continents would just be too onerous in a way yeah I I think the average person who doesn't work in like real money gaming it's really difficult to appreciate the operational hurdles yeah to offer any real money gaming whether it's game of skill or game of chance right but in the U.S for instance you might have a small state like uh you know New Jersey and you might be paying millions of dollars per year as a single operator to the state of New Jersey for the license to offer Sports gambling then in sports gambling for some legally uh you know idiosyncratic rules you have to have servers Hardware in the state of New Jersey and so you need hundreds of thousands of dollars in expenses there so there are like live Ops costs to put it in gaming terms or live Services costs or that people really do not appreciate so the

cost to just offer the service of sports gambling in New Jersey is to the tune of millions of dollars per year in expenses and that's before any of your marketing and that's before how does the thing actually perform in terms of what percent of every dollar do you really keep right okay so Sports gambling is a very expensive Enterprise to enter I see okay wow I'm learning a lot yeah I think that's the point I think I'm trying to appreciate the operational Nuance because I think I've been asking myself this question I'm like everybody's trying to avoid gambling is it really so bad like yeah I don't know it's a [ __ ] show it's a setup yeah there's a reason these rules are set up as they are right like yeah yeah for the safety of you know the citizens et cetera yeah absolutely which makes a ton of sense I just yeah I think I also my myself did not necessarily appreciate the Nuance of how operationally difficult it is to establish some of these licenses or you know rules even even if it's not in um even if it's not gambling even seems

in your space in the head-to-head betting there's still a substantial number of um operational funnels that you guys kind of need for sure to jump through um and so to start uh you know wrapping up you know we kicked off this podcast you know uh talking about skills right and I maybe I want to end on a better note than how I began maybe due to the unfortunate decline of skills of stock price and I'd love to get your take sort of why do you think skills what happened to skills happen to skills um and like if you were there at that company what are some of the things that you would have maybe done differently sure so first and foremost I've met Andrew a bunch of times he's a brilliant dude big gamer very very bright Andrew parodies is the CEO of skills um they're massively successful one of the first publicly traded Esports companies but the public markets have not been kind to a lot of companies but in particular Esports companies and I

think part of that is because um skills was operating in two different verticals as I understand it they were offering the you know B2B side of the business where they were putting their software into games and offering real money components and then they had a few games themselves and the games they offer are like Solitaire Spades Blackjack like these are games they're not sports right I would say FIFA is much closer to a sport an esport than Solitaire or Spades or blackjack right there's a difference between in my mind between sports and games and so when you look at FaZe Clan Super League Gaming Esports Entertainment Group you know skills these are all like quote unquote Esports companies but like they're actually operating at like a different vertical it's just that the quote-unquote Esports name was very interesting to pursue on the public

markets in the last few years it was like the meta right sure one of the problems with their business what I might have done differently is I don't really believe in skill games I don't know if I believe that there are millions of players out there who want to bet against another person and how well they'll do in Solitaire or Spades or Blackjack okay what I know with certainty is is that there are millions of people out there who want to play FIFA every day and they want to play it competitively every day and another version of that is they want to bet on the result and so they're kind of offering like casual or even hyper casual Esports if you can even call them Esports versus we're offering you a simulation of a tournament experience in FIFA or mad or 2K or Apex or Val or League whatever right so we're targeting AAA games

whereas they're targeting single a double A games now again like I would Andrew's an incredibly successful dude skills Has Broken Ground in ways that I could only aspire to but were trying to build an entertainment experience for millions of Gamers who want to play double A and AAA games and so that's our focus and I think that's like a super core differentiator between the two yeah okay I see and again and skills I think was mostly in mobile games in a way right almost I don't think they ever offered anything outside of mobile games yeah okay I don't know if you I don't know if you could characterize any of the games they offer is even like core or midcore or hardcore they're all like no casual hyper casual yeah yeah and so I think that that was my question right I had like three oppositions one it has something to fundamentally do with the platform right so like my bets don't register um the cash payment system doesn't work when I deposit nothing happens like um there's something wrong with the app

um the product itself and then there was two kind of like the the business model isn't quite figured out right it's like a not in the similar way that Esports is still struggling of how to turn itself into into a profitable Enterprise um yeah you know it's just it's it's cogs and capex is just too high yeah compared to its Revenue um it was either that or it was maybe a lower lack of demand for that kind of actual activity which it sounds like your supposition it is so for skills unlike FIFA or unlike maybe some of the PVP games that you guys have started to partner with like ballaratan Apex um it's whatever uh the demand for making those kinds of head-to-head bets was less present than like it was was lower than I guess initially expected yeah I think it's reasonable and again like I'm not throwing shade at skills like Andrew's done some incredible things to take any sports company public is wild right like when you were 15 playing whatever you know game at 15. I was

playing Halo 2 on Xbox when I was 15. if you were to tell me you know 20 years ago 18 years ago that now there would be people making millions of dollars a year as streamers or playing as you know playing professional video games I would have been like sign me up I'm not going to college that's what I'm doing you know so it's a very different and very cool world that we live in now yeah yeah and absolutely I think it's also just really cool but it's interesting to sort of understand sort of like what um you know what can we learn from a company like skills based on like so you know so they've been around like for a while like you said um they were the ones to do it first and so sort of what are the things that um for the future of the head-to-head player betting Market you know what is the way to grow and learn from the prior um companies that pursued the same space um and so damn I don't know maybe now maybe like I'm a Believer you know I I would I would hope so our head-to-head business is very profitable I would bet

that player betting is successful oh I see what you did there okay I like that I like that yeah um and so actually um you know before before we wrap um this has been such an awesome episode Zach and I I personally have learned a ton um thank you for elucidating the differences between head to head on the house um what gambling is and some of the state to state state-by-state restrictions um I want to make a quick repeat announcement to our listeners um many of you might have heard that our announcement heard this on our announcement in the round table segment as well as in the Weekly Newsletter that we released the first week of July but you know we've turned a new Leaf here at novik we're excited to launch the uh open gaming research initiative um acronym ogri it encompasses All the Same free content as you've come to enjoy it now they collect the novice digest and this podcast and it will take our production to a new level our new research will include things like game two constructions genre reports Market updates deep dives into important gaming

companies and Trends and new pod cast episodes that explore the tactics behind winning game teams and more this initiative is made possible by our outstanding crew of creators um as well as our 12 fantastic launch Partners um and so just to learn more to sign up to receive the updates um visit novik.com ogri.com and so now that we're done with a plug for ourselves um you know Zach if there's anyone out there that wants to get in touch with you from the audience for any reason um how can they reach out slide of my LinkedIn DMS very active on LinkedIn okay that's that's the best place to reach me if you are a bright engineer who really likes video games reach out to me if you are an investor interested in the space or learning more about the company reach out to me or if you're just you know somebody who works at a studio and you're interested in exploring real money gaming please reach out because we're always looking to work with uh up and coming games and you know that's the best place to find me sweet

okay um and so on that note we'll be concluding uh big thank you Zach for coming uh thank you to our listeners I'll be back in two weeks um and feel free to hit me up at Alexandra navik.com if you have any questions comments or concerns we'd love to hear your feedback don't forget the congrats congratulate Alex on finishing business school and entering the real world oh thanks yeah uh we're out here um and uh the kicking off the kicking off the real gig quite soon so very excited for you yeah all right with that uh au revoir and we're out if you enjoyed today's episode whether on YouTube or your favorite podcast app make sure to like subscribe comment or give a five star review and if you want to reach out or provide feedback shoot us a note at podcast navic dot Co or find us on Twitter and Linkedin plus if you want to learn more about what novik has to offer make sure to check out our website www.navik.com there you can sign up for

the number one games industry newsletter navic digest or contact us to learn about our wide-ranging Consulting and advisory Services again that is www.navic.com thanks for listening and we'll catch you in the next episode