Inside the Trading Room
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September 14th, 2021
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Innovating Sports Betting with Capital Markets Surveillance Technology
Sporttrade and Nasdaq recently announced a new technology partnership, through which Sporttrade will leverage market surveillance technology from Nasdaq. We sat down with Alex Kane, Founder and CEO of Sporttrade, to hear more about the vision behind Sporttrade, how the company is leveraging technology from the capital markets, and its plans for the future.
Can you start by telling us about Sporttrade, your vision, and how the idea first came to life?
I was a college student at Drexel University in Philadelphia, majoring in business law and finance when I first learned about options trading. Around the same time in 2016, a friend introduced me to sports betting. I remember thinking that ‘I should like this’ since I was on the golf team at the time and also interested in sports. However, sports betting was a new concept to me, and it struck me that the way sports betting is set up today can be a bit archaic. Sports betting does not have to be so different from the traditional capital markets. That was the impetus of Sporttrade, thinking that there has to be an easier and more customer-friendly way to approach sports betting. We wanted to harness the ingenuity and innovation of the capital markets to create an easy, approachable and dynamic customer experience for those who are interested in sports betting. Sporttrade is an exchange where we list sports outcomes. Our platform match buyers and sellers of contracts (sports bets) in the outcomes that we list. We match them in a safe and transparent manner. It is an all-to-all centralized sports-betting exchange that allows customers to trade on the probability of sports betting outcomes. We use probability instead of American odds, where the price of a contract equals probability. For example, let’s say you want to buy the Eagles that are trading at 45 dollars to beat the Falcons, which means 45%. You place your trade, and you can sell it during the game in play, and you don’t have to wait to the end like you have to do with a traditional sports book.
Sporttrade was formed in 2018 as a way to actualize unrealized profits of trading (just like stock trading) on the probability of a sports event to occur. There is definitely room to create value in this industry as it is ripe with opportunities for disruption.
You recently announced a technology agreement with Nasdaq, through which Nasdaq will provide surveillance technology to Sporttrade. How did this partnership with Nasdaq come about, and what does it entail?
Earlier this year, we announced a fundraising deal that Nasdaq Ventures was a part of. Just like many other exchanges in the world that use Nasdaq’s market surveillance technology, we need to know what happens on our venue in order to provide a safe environment for our customers. We care about problem gambling, and we don’t want people to bet irresponsibly on our platform. With this type of technology, we can use machine learning principles to identify trading activity in real-time and share that with our regulators. In partnering with Nasdaq, we want to take the lead in elevating the industry with capital markets principles and put the customer at the forefront. We can be ahead of the curve in terms of responsible gambling and in terms of identifying potential abusive trading behavior and share that with regulators. It was a no-brainer to partner with Nasdaq on this one.
Why are market integrity and surveillance technology so important in sports betting?
It all comes down to our mission to put our customers first. We are all retail traders here at Sporttrade, and some of us are sports betters as well. The framework of what we want to create, which serves as our bedrock, is for the customer to feel that they are transacting in a safe and transparent manner on our platform. On many current sports betting sites, the market can shut down, or your order can be rejected by the venue. So the industry hasn’t done a great job of creating trust with the customer. It is absolutely paramount that the customer is transacting in a safe, transparent, and fair manner on a central limit order book and that they can compete against the market makers on a level footing. That does not exist in sports betting today. I am very much looking forward to telling the world about Sporttrade. We are very disruptive to the classic way of thinking about sports betting or market surveillance. The onus is upon us to go to regulators to show why this is better and safer for the customer. I look forward to the general feedback and to see how capital markets can meet the world of sports betting, and we are excited to bring these two worlds together.
How do you see the industry of sports betting evolving in the near future?
Currently, there are about 20 states that have license regimes for sports betting, and it is expected that about 35 states will have mobile-regulated sports betting in 2025. The big opportunity we see right now is in in-play betting, in other words, placing bets on outcomes after the game in which the outcome you are betting on has already started. This is where the volume increase is happening. The barriers we see for the industry have to do with the execution quality for retail participants. Currently, if you try to place a bet on a sportsbook, you are subjected to an asymmetric speed bump and it can take many seconds for your bet to come through. The future of the industry is trying to apply capital markets principles and technology to bring execution quality to in-play betting more in line with what we see in retail trading during volatile times. We want to make in-play more fluid and frictionless.
What are you looking forward to in 2021? What excites you about the future of this industry?
We are working with regulators in New Jersey and expect to roll out our product in a soft launch capacity in the next months. It is a mobile app, so customers will be able to use Sporttrade through the mobile app. As for what we look forward to in 2022, we want to launch in more states. We recently announced the acquisition of a company in Colorado, and in the next months, we will hopefully have more exciting news about where Sporttrade will launch beyond New Jersey and Colorado. We are focused on getting the customer experience right, starting with bare features and letting the customer take us on the journey of what they want to see. Sports betting right now is very transactional. There are lessons to be learned from disruptive companies in the capital markets on how to keep the customer more engaged and how to give the customers more tools and data to make more insightful decisions, like showing the full order book. We are focused on creating more of a community and network effect of trading, and we try to look at what will allow the customer to do research and let them see what their peers are doing. There are so many ways that we can look at the capital markets and take some of those principles and apply them to what we are doing.
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