Super Bowl LVI is shining a light on the massive growth of the sports betting industry. The American Gaming Association estimates that 31.4 million Americans will place bets on the big game, a 35 percent increase from last year. All told, viewers will wager more than an estimated $7.6 billion (legally), according to Forbes. Meanwhile, gambling businesses such as DraftKings and Caesars will be a constant presence during the commercial breaks in the broadcast.
So far, 18 states have legalized online sports betting. The industry is now valued at $59 billion in the U.S., a figure Statista expects to grow to nearly $93 billion in 2023. Not surprisingly, more and more startups are trying to cash in. And many larger sports betting companies are looking to acquire early-stage startups for their technology. "There is an innovation gap that the market leaders -- the companies most reliant on the future of this industry -- are generally unable or ill-equipped to solve themselves," says Lloyd Danzig, managing partner at New York City-based venture capital firm Sharp Alpha. The firm just announced a $10 million fund for early-stage sports betting technology startups in November 2021.
Danzig notes that for these trailblazing technology startups, the biggest challenge will be converting enough users onto their platform to convince investors and potential acquirers that their product is legitimate. This is why the product launches are often positioned around February and March for the Super Bowl and March Madness, events where market trends can pick up steam.
Whether they're positioning themselves as acquisition targets or content to stay independent, here are three companies that are aiming to grab a piece of the massive online gambling industry.
1. DraftFuel: Gambling without the guilt
FinTech company DraftFuel makes an app that facilitates what it describes as a guilt-free way to gamble. Co-founders Tom Mangan and Alex Cullingford launched the Philadelphia-based company in 2019 with the idea of allocating leftover change from credit card purchases to a separate sports betting fund. They knew they were on to something after surveying 11,000 people and learning that 85 percent of them were interested in a more financially responsible way to make bets.
"Where we stand out is by providing financial guardrails to enable new players who are coming to market to create healthy financial habits from the start," says Mangan.
In December 2021, DraftFuel announced its partnership with Discover Global Network through Falls FinTech, an accelerator program by the Central Bank of Kansas City and its subsidiary Central Payments. The partnership enabled DraftFuel to offer a Discover Prepaid Card product where users can connect their credit card to the account to transfer leftover change from purchases to a sports betting fund. DraftFuel currently operates a closed pilot program in Pennsylvania and New Jersey, and will open to the general public in those states and in New York in March. To date, the company has generated interest through a waitlist campaign on Facebook and referral programs that offer cash for recommending DraftFuel to a friend.
2. Wagr: Bet against your network instead of the house
In the wake of the Supreme Court repealing the Professional and Amateur Sports Protection Act (PAPSA) in 2018, a law that had effectively barred states from regulating sports betting, Harvard Business School students Eliana Eskinazi and Mario Malavé couldn't find the right outlet for their interest in sports betting. They were avid sports fans but didn't self-describe as "gamblers" and felt intimidated by the major betting platforms that had launched. So they set out to create a platform where people could make casual bets with friends and family.
That platform, now called Wagr, officially launched January 22 and currently is available only to residents in Tennessee, a state with a $205 million sports betting market. Nashville-based Wagr says it helps solve many of the betting pain points -- like helping friends to decide which game to bet on and understand their odds. The app also handles the moving of the money, so users can avoid the uncomfortable experience of tracking friends down for money they're owed.
"Our product experience is different because a bet against a friend, someone in your community, or just a human on the other side is a completely different experience than betting against the house," says Eskinazi. She says the platform is less about the money and more about the social engagement, hence Wagr's unusually low betting limit of $500.
To date, Wagr has $16 million in funding from investors including Reddit co-founder Alexis Ohanian, Pear VC, and the Kraft Family and will use the funds in part to grow its 13-person team.
3. Chalkboard: A friendlier, more inclusive space to bet
According to the HPL Digital Sport study, women's participation in betting went up from 28 percent to 33 percent between 2020 and 2021. Chalkboard aims to take advantage of the trend by pitching itself as a product that's more accessible to new bettors and especially to women.
Ted Mauze, the co-founder and CEO of Chicago-based Chalkboard, started the company in 2019 and went through the 2020 Sportradar accelerator in 2020. With the $1.5 million in venture capital it has raised so far, Chalkboard built an app that gives users one central place to check scores, track their picks, and chat with friends. The company also has applied for a patent for a feature that allows friends to place bets together on larger platforms, which Mauze says he believes is the "secret sauce of what consumer behavior looks like for people talking about sports betting."
The team brought on social-media and sports bettor influencer Saniyah Lawson in August 2021 to help nurture its user base of women. She invites other women into the app and engages in group chats to counter the narrative that women don't belong.
"It's a different environment with the women because we're all cheering each other on," says Lawson. "If the [major] sportsbooks really understood how supportive women in sports betting were, they might learn to target women more."
Correction: An earlier version of this story misidentified DraftFuel's financial partner for its prepaid card product. Discover Global Network developed the card that can be connected to DraftFuel accounts.