13th September 2018
In the first in a series of articles on some of the less obvious companies looking to benefit from the US Supreme Court repeal of PASPA, we talk to Colossus Bets chief operating officer David O’Reilly about the beauty of pools betting.
Colossus Bets has just closed its first US deal. Today, the pools betting specialist will announce a deal with emerging gaming company Pivit to develop and distribute NFL Fantasy pools.
It is not the show-stopping “look at me” deal that the likes of SBTech or Paddy Power Betfair announced in the immediate aftermath of the PASPA ruling. Initially, Pivit will offer fantasy-style choice of MVP (most valuable player) in a number of games. Colossus will add the big jackpots and cash-out technology, which it has patented in the US.
In time, O’Reilly envisages a US sports betting product with points margins pools over a number of legs. “We have people coming to us and asking us to build that type of product with our cash-out patent,” says O’Reilly.
Start-ups rarely patent their technology. In most jurisdictions (Europe, for example), you cannot patent software. However, the founding shareholders thought they had something special and took a long-term view and invested a considerable amount of money with the US Patent and Trademark Office around cash-out technology.
“The whole concept of the Colossus multi-leg bet was that the games would be staggered, always giving people the opportunity to take cash off the table at any time,” explains O’Reilly.
Colossus chief executive and founder Bernard Marantelli pioneered the concept of cash-out well before it became the must-have accessory of every tier one betting operator in the market.
Marantelli came up with the idea when betting on Super Six horse races. If he had won five-in-a-row he would often find himself hedging his bet with Betfair. He realised that most people do not have a big Betfair balance and are left with an all or nothing situation, where they could end up with nothing despite having done so well with the first five races.
“He realised fairly early on that you need to give people the opportunity to take control and allow them to take some or all of their money off the table,” says O’Reilly. “Now we know that cash-out has been a huge success in Europe and cash-out will be part of the product in the US. People like it. It’s easy, it’s simple, it works.”
“The concept is to make a EuroMillions for sport,” says O’Reilly.
This writer first encountered the company when Mantarelli was presenting his company to potential investors at a Dragon’s Den-style panel at the EIG conference in Barcelona in 2012. If progress has been relatively slow in the intervening years, Mantarelli and O’Reilly can draw comfort that it is the only one of its EIG peers to have made any progress whatsoever.
“Our expertise is around small stakes, maybe six legs, with a big prize and cash-out after each leg,” explains O’Reilly. “There is nothing obviously clever or different that we can bring to win and place. We have very strong risk modelling, mathematical expertise to understand that you can offer a guaranteed million dollars or two or three or four on this structure of bet. Cash-out is an essential component and works perfectly on a leg-by-leg basis.”
It is an area that nobody has exploited to date.
“There are so many sportsbook suppliers and they are all basically supplying the same thing,” contends O’Reilly. “There is not much innovation you can do around win and place pools. It is not on our to-do list. You are seriously stepping on too many toes if you do win and place pools. That is a very well established industry. Generally, we are going to totes and saying we can bring something different. We can modernise and innovate. We can handle the risk and we can grow your multi-leg pool handle.”
Colossus Bets went live with a B2C product in late-2013, before embarking on the long slow construction of the B2B network, which is the company’s main focus. The B2C site continues to operate but more as a proof-of-concept showcase than as a serious profit-making operation.
In the early days, explains O’Reilly, the company would sign up anyone who wanted to be a partner. Slowly, it has become more selective and has gradually improved the quality of its partners.
The team expects a little bit more of partners in terms of a minimum commitment to generating business and the payment of integration costs. In the early days it would have built a micro-site and installed it for free. It will still do that for larger partners but to ensure some level of commitment from smaller operators, it will often ask them to pay the integration costs.
The breakthrough deal came in mid-2014 with O’Reilly’s former employer Betfair, which remains Colossus Bets’ most notable deal to date. Since then it has signed up Betclic in France, Betway Africa and Finnish operator Paf. In total, it has distributed more than £100m in prizes and has gone live with over fifty partners. Most recently, it launched Jackpot Betswith Mr Green.
O’Reilly has high hopes for the Nordic market. Firstly, the population is relatively affluent and importantly there is a tradition of pool betting, which means that customers understand the product more readily.
Beyond Europe, Colossus has product live with Nigeria’s NairaBet and Merrybet, as well as Betway’s South Africa operation, which is Colossus Bets’ largest African partner. In Asia Colossus pools are available on the likes of 12bet, Dafabet and Fun88, through the ONEworks platform. If this far-flung network suggests a laissez-faire attitude to regulation, trained lawyer O’Reilly would beg to differ.
“We have kept the business clean. We want to provide a global product with clear boundaries,” says O’Reilly.
That means no bets taken from the US, Israel, Hong Kong, Turkey or any other jurisdiction universally considered to be a no-go zone. The UK is the biggest market and then Scandinavia. There is one co-mingled, centralised pool for the entire world, which allows operators to advertise big jackpots. This is the Colossus USP, although there are a few localised frustrations in countries such as Spain and Italy, which have ring-fenced pools.
“If you look at the direction of travel from a regulatory perspective, we’re in a very good position,” says O’Reilly.
He looks at jurisdictions like the UK, which has just hammered bookmakers by announcing a reduction in stakes on fixed odds betting terminals and now might increase tax on gaming products online. Most concerns about problem gambling surround casino gaming products. Most anti-money laundering breaches have concerned slots players stealing money to fund compulsive gambling.
“There are so many challenges around the traditional model. If you could pick a product that is less likely to come a cropper from a regulatory perspective it probably looks like Colossus Bets. It is spend small, win big, simple, clean and not reliant on a farm of affiliates.”
Colossus did have an affiliate programme but turned it off to limit its exposure to actors beyond its control. A year ago, it launched its syndicates feature, which attempts to bring a viral social media angle to pools betting. Players crowdfund tickets into Colossus pools, You can create a ticket yourself and invite others to join your syndicate or join a syndicate that has already been formed.
“It effectively makes marketeers out of your customers.”
O’Reilly argues that it is a cleaner way of marketing than the affiliate model, in which affiliates are taking a cut of your losses. By contrast, syndicate captains are only interested in winning.
The US represents a huge opportunity for Colossus Bets. The organisation has a good relationship with Betfair, which has been an early mover post-PASPA, with its acquisition of FanDuel and a deal to provide online, mobile and retail sports betting at racetracks in New Jersey and New York.
“The incumbents in horse racing are in a great position and we have some very strong relations with them already. We are trying to do some stuff around cash-out in leg-by-leg in horseracing,” continues O’Reilly. “We have had people approach us out of the blue asking to use our technology and risk management and wanting to look at our patents.”
Filed patents do not necessarily translate to cash in the bank. Competitors might challenge them in court, which can be a costly and time-consuming exercise. IGT’s patent portfolio has been an essential building block for its business empire but it has also fought court cases that have lasted years.
However, it provides some leverage. Companies might be more inclined to do a deal than go to war over patents.
“It opens doors and gives you some strategic opportunities,” says O’Reilly. “It’s early days for us in the US but we are looking at it closely.”
The other opportunity might lie with lotteries. O’Reilly looks to the Chinese Sports Lottery or the Spanish Quiniela as pools products that US lotteries might like to follow.“ There is a massive crossover between picking six numbers and picking the results of six games of football,” says O’Reilly.
If Colossus Bets has massive crossover potential, it remains potential at the moment. However, the company is close to break even. O’Reilly says the company will not take shortcuts and will not squeeze money out of people to compromise longer term opportunities.
“We have taken the long term strategy because the shareholders are willing to support the business in the belief that there is a big prize if you can build a successful network-based business.
”The biggest challenge thus far has been integration. Colossus Bets will build a micro-site like it has for Betfair Pools and the operator just needs to connect to give Colossus access to the player wallet.“
In a consolidating industry, everyone is working on integration, whether it is Paddy Power and Betfair or GVC and Ladbrokes Coral. Consolidation means the ability to do any innovation or new products is significantly restrained.
”The biggest single problem to getting the product live with more operators is the technical resource needed to make it happen. There has been no pushback on revenue share, which it sets at 50-50.
And while there have been some fears on cannibalisation, O’Reilly says this is limited.“It is a liquidity game and there comes a time when there is a tipping point and you’re away and gone.”
He looks at the success of Whatsapp as an example of a liquidity product that reached its tipping point quickly. The only similar network products in the gambling sphere are Betfair and PokerStars, according to O’Reilly.
Betfair reached its tipping point relatively quickly in the days before SkyBet and bet365 and before Ladbrokes and William Hill got their online operations in order. Both Betfair and PokerStars have in effect become “natural monopolies”.“Betfair is the Exchange and PokerStars is the place to play poker, ” he says.
“You’re trying to replicate something along those lines. To get there you need patience and deep pockets and you need to keep signing up better partners. I don’t really know when we’ll get there but I will know we’re there when we get there. You also need a bit of luck and good timing.”
The US Supreme Court might have added that soupcon of good luck.