Investor Emanuel R. Pearlman poses for a portrait in Los Angeles. Pearlman is on the advisory board ... [+]
In early 2018, Lloyd Danzig thought he would someday accept a job as a quantitative trader for a leading hedge fund or investment manager, a role that seemed like a natural fit considering his academic and professional background. After all, Danzig had earned an undergraduate degree in economics at the University of Pennsylvania and a graduate degree in computer science at Columbia University. And he had experience working as a fixed-income trader and data scientist.
Still, Danzig’s career path changed in May 2018 when the U.S. Supreme Court overturned the Professional and Amateur Sports Protection Act of 1992, helping to pave the way for legalized online sports gambling. It also led to Danzig changing his career goals. Two years ago, Danzig launched Sharp Alpha Advisors, a company that serves as a strategic and financial advisor to startups, casinos and professional sports organizations to better understand the evolving sports betting industry.
Sharp recently expanded its ambitions, as well, and raised $10 million from high net-worth individuals, family offices and institutions for a venture capital fund that is investing in early stage technology companies focused on sports betting and online gambling.
The vehicle, Sharp Alpha Fund I, so far has made 11 investments and deployed $2 million in seed and Series A funding rounds. It expects to participate in follow-up rounds for some of the portfolio companies and invest all of the capital by the end of 2023. It also has a co-investment vehicle through which the fund’s limited partners can invest in specific companies.
Danzig noted the Goldman Sachs
Instead, they are acquiring startup technology companies or licensing technology from those firms, some of whom are not in the traditional sports betting industry where people bet on the outcomes of sporting events. Those startups could focus on esports, online casino games, fantasy sports or other areas. For instance, DraftKings in April acquired Blue Ribbon Software Ltd., a software company that develops technology jackpot promotions. Danzig expects large casino operators to follow suit and acquire technology companies rather than build the technology on their own.
“One of the things I’m most excited about are the startups that are building the products and infrastructure that will allow the DraftKings and FanDuels of the world to better speak to sports bettors who love to put a little money on the game to have a little extra rooting interest so that it can be more fun,” Danzig said. “All of the social and entertainment aspects of sports betting, in my opinion, have yet to be realized by the mass market products. A lot of the companies we are investing in are going to be the vehicles that cause sports betting to be one of the most compelling products of the next decade.”
The fund’s investments include Players’ Lounge, a platform that allows people to play video games against each other and wager money; GridRival, a fantasy motorsports platform; PickUp, a social prediction platform; and Prophet, a company that is developing a peer-to-peer sports betting exchange.
Danzig anticipates in the coming years that DraftKings, FanDuel and other major players will look to expand their offerings in what he calls “competitive entertainment,” which encompasses sports betting, fantasy sports, online casinos, video games, trading non-fungible tokens and digital collectibles and connected fitness like Peloton where people compete against each other.
“This is all going to be part of one big digital online ecosystem,” Danzig said. “All of these competitive entertainment activities are being digitized, are being streamlined, are being socialized and gamified. We feel the sports betting industry and its current growth are one of the major catalysts towards the future of competitive entertainment.”
Although Sharp is the fund’s general partner and owns 100% of Sharp Alpha Advisors, he has assembled an advisory board that helps him decide which companies to invest in and provide counsel. The board is comprised of Roy Behren, a co-president and chief investment officer for a $5.2 billion asset manager; Daniel Bernard, a general partner at Mindspring Capital, a venture capital firm; Adam Davis, a former chief commercial officer at Harris Blitzer Sports and Entertainment; Keith Horn, a former chief operating officer at Elliott Management, Corp., an investment management firm with $48 billion of assets under management; Don Kornstein, vice chairman of Caesars Entertainment Inc.
Recently, Danzig was at a sports betting conference with industry executives discussing how much things have changed since May 2018.
“On the one hand, it feels like we’ve been at this for so long and we’ve overturned every stone and have thought through every angle,” Danzig said. “And then we step back and we take audit and everyone agrees we’re in the bottom of the first or top of the second inning. There’s at least five or 10 years of exponential growth ahead. It’s the very, very early days.”
