iGaming Daily

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Fanatics is a name that is eponymous with sports betting, but will it soon be a moniker equally associated with gaming? I doubt Fanatics will ever be anything but a sports first company. But during a fireside chat at last month's SBC Summit Americas with Fanatics CBO, Ari Barad, we talked at length about how the second mover came into the space, quietly ascended to the top of the ranks of the industry, and started building up a reputation as a great sports book.

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as well as a great online casino. I'm Jessica Wellman, Managing Editor of SBC Media. And today we're gonna offer all of Aerie's insights on iGaming Daily brought to you by Optimove, the number one CRM marketing solution for the iGaming market. Hello everyone, I am Jessica Wellman, Managing Editor of SBC Media. And the man you are here to see is Aerie Barode, Chief Business Officer at Fanatics. Aerie, thank you for taking the time to chat with me today.

00:57
Thanks for having me. Thanks for those who didn't leave and sticking around. Yeah, for those who don't know your background, you want to kind of tell people a little bit. Currently, you're with Fanatics, which is what we're going to talk about, but you have quite a bit of experience in the industry leading up to this role. Yeah, so currently I'm at Fanatics, betting and gaming, as we like to say, the fastest growing sports book in the country. Prior to working at Fanatics,

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Let's sort of wind the clock back. was originally an attorney, which is how I ended up in, at the time, the DFS 1.0 space back with Fandl in 2015. There were a few legal challenges at that time, and so it was really the first rapid exposure to a regulated gaming world. And so Fandl, ended up navigating through that. Obviously, PASPA got repealed, and Fandl is now the number one digital operator in the country.

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I had left Fandl in 2019, led a company called the Action Network, which is the digital media affiliate in the sports betting space. We sold Action Network in May of 2021. And I got a phone call from my old boss from Fandl, Matt King, saying, do you want to stick around there? You're now owned by a publicly traded European company. I went through that with Flutter. What do you think of starting a sports book with Michael Rubin at Fanatics? And that was a hell of a pitch. So Matt and I formed the business along with

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Scott McClintock, who was our chief product officer in July of 2021. So about four years ago, we launched our business 18 months ago, and we sit here now, about the third biggest operator in the nation on the sports side. How many employees does Fanatics, Bedding and Gaming have right now? About a thousand. About a thousand. And you were in... I understand this is not definitive, employee two-ish.

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It's two, Scott and I will argue of this. He has the ability to change his number in the system and made himself two. So we all started on the same day. Yeah. So that's quite a trajectory to, to a thousand. And I think what's always fascinating to me is to go back to two, five, like who's seven, 11. Like when you, when you have this idea, who did you go and get first? it?

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I want to get people that I think will contribute to the business or is it these are the verticals I need to fill bodies and seats with the fastest? Well, so A, we were very lucky. Savi had worked with Matt Plenty before my career. And then Scott, for anyone who Scott McClendon who's met him, had a ton of experience having stood up the Barstool sports book. So there's a lot of trust between the three of us.

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And we are incredibly lucky that we had an entrepreneur and a business like Fanatics willing to back us, both in terms of capital and in terms of brand, but also in terms of the mind share that we got from an entrepreneur like Michael Rubin, from the CFO of the business, Glenn Schiffman, in people who've been real entrepreneurs and been very successful at it. And it starts with like, what are you trying to deliver to customers? And as a second mover in the sports betting space,

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knowing exactly how much money it took for Fandl to get where it was and DraftKings to get where it was, we knew as a second mover we can't play that game. We're not going to try to spend our way to match them. And so there's slightly the differentiated advantage we had. We have this database that exists and we have this brand that exists with Fanatics. We don't have as a product. And so if we're going to focus on building the best product, we really needed the people that would help bring that to life. So

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On the one hand, a lot of my role is dealing with external factors like market access, like gaming licenses, as I appreciate our gaming council being here. And on the product side, really need like, who are those first engineers that we are going to bring in to help architect this thing? So some of our first hires were on the engineering side. As we sit at a thousand right now, 60 % of that is product and engineering. So we've stayed true to the fact that if we're going to win,

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Or at least if we're going to compete, we need a really strong technical foundation. So from the get-goes, who's going to help architect this? And we ended up bringing in a few software engineers who we'd worked with in the past who are fantastic, who can speak in languages that I think most of us in this room can't speak. And their ability to code and build it, not just an infrastructure that's good to play with, but how do a million people log into it in a day and it not crash? And so being able to scale that, we have a lot of people with backgrounds from Amazon.

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Netflix, Google, so some of the leading tech companies in this country. And it was how do we really make this a 2.0 platform? And I think we're pretty happy with how that's evolving. So, Fanatics is a second mover. And I think certainly you have a different set of USPs than say a FanDuel that would shape your business, the integration into Fanatics store, trading cards, that sort of thing. But with your experience at FanDuel and the people that you brought in at the ground floor.

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What did you learn from the first movers in terms of what the highest priority is? You've said product already, market access, and were there lessons of, you mentioned marketing, other lessons of, and this doesn't work, or this is old, tired, ineffective at this point in time? I think, look, it is really hard. And I'm sure a lot of people know working in this industry, it's a tough industry. And so much credit is due to the businesses that

06:32
Fandl and DraftKings have built, I think we knew that the mist- like we've obviously all made lots of mistakes in the last seven years and most of the mistakes I think come down to having the right intention in mind. Like in order to do- in order to do X we need to commit Y and often we were sort of stretched where we're committing Y over the next four years and two years into that spend you're like well we didn't really need years three and four of this it's actually not working.

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And so you had a lot of committed capital into the wrong things, but I think they needed to do that. And I think that's one of the reasons why they've created the advantages they have. As a second mover, we couldn't do that because we know exactly how that story ends. And if we're going to be acquiring at the outset, a lower value customer as a second mover, we couldn't afford to do that. And so we really had to focus on

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how do we not saddle our P &L for the long term to be in a lot of trouble? Because it's already a tight margin business. And so let's not make the mistakes we've made in the past. And I think the biggest advantage we have by having the Fanatics database and the Fanatics brand, there's hundreds of millions, if not billions of marketing assets we get through Fanatics that we, like the gaming P &L does not have to suffer for. So it's a huge advantage in that realm. Cause I think we've also learned

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It is a dangerous game to get into. The only way to solve my problems is to spend more money, which is why we've invested so heavily in product and why we've really made the fanatics ecosystem where our main focus of investment is. Being a second mover certainly has its challenges. It has its benefits. It wasn't quite this stage, but it was the leader stage of our Meadowlands event a couple of years ago. I remember Matt speaking and I spoke with him after that the intent when you did your rollout was a very

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a comparatively long beta testing period. You know, we hear, I mean, that first rush beta was the 48 hours the regulators gave you before your product went live and the product was the product, you know, like you work up major hiccups and that's it. Can you tell me a little bit more about the decision to really do like a prolonged beta and what material changes did you kind of learn from the feedback and change because you had the luxury of time and not having to rush out there?

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Yeah, I mean, if you think of everything from the customer lens, when the customer is placing a bet, they're not thinking this is a beta product. So it's a little more for us to acknowledge. We wanted to get a product out there. We also knew it wasn't at the tier that we were going to be in in a year or two years from then. But there are so many reps you learn once you're actually in the game versus once you're just sort of playing in the sandbox. How you react to customer support, how you deal with

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10,000 people trying to deposit at once. And until you go live and actually get those reps in, you won't experience it. I think it was necessary. Obviously, if we had all the time in the world, you'd love to, you'd only want to give your customers the best product experience possible. But in order to do that, you also need to get something out there and start getting the learning and start getting the data, see how people react to stuff. Because until then, we just had a vision like people are just going to love Fanatic Sportsbook and it's going to have all these

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amazing functions. And then you realize a lot of people are coming in, they want their free bets, they want to try it. And all they really care about is being able to combine their SGPs. But we can't do that yet because we weren't as sophisticated yet on the trading side. So it was good learning to see, look, they care more about that than they necessarily do a search function. We think search is important. But if you can't combine everything you're searching for, what's the point? So we just it helped us really learn what customers care about and also test our abilities to handle capacity, which

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I think if we hadn't done that extended beta, we wouldn't be moving at the speed we're moving now. Can you talk a bit about how the points bet acquisition and their tech that you've brought on board helped kind of speed this process up a little bit? Yeah, so I would put two major reasons. One, in talking about the reps, they had been operating for three years already.

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Even at smaller market share, that's still hundreds of thousands of people playing on the platform regularly and they had an entire operational team doing this. had a trading team. So they were getting game reps in that we hadn't done yet. We may have done it in past lives at other companies, but it had been obviously, if not years for some people. So it was good to get those people who are currently dealing with customers every day. And the second piece was their trading technology is actually one of the most impressive parts about that deal.

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PointsBet had acquired a company called BANIC. BANIC is now our risk and trading platform. And if you talk about the learnings or mistakes you've made in past deals, think we all underestimated in the US the importance of a sophisticated risk and trading team. And it really was the difference with the FanDuel Flutter deal, getting that Flutter trading engine that's been built for decades. And Mark Hughes, who is the CEO of BANIC, comes from that world.

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We got that expertise now in-house at Fanatics. We're obviously going to scale it and build it, but this is a team that's scaled it and seen it done really well before. And so we have that right muscle to flex now. And so it feels good as we are going to grow a trading team to, you know, north of a hundred people, north of 200 people. I think you need to do that to try to compete with what the Fandal and DraftKings have built. This is where I will admit a little fault on my own as a reporter. I think because...

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you did roll out very slowly. And then with the points but acquisition, there was kind of that growing pains football season of points bed brought to you by fanatics and that sort of thing that I think a lot of us in media were a bit caught by surprise over the past nine months. We like, oh, they're fourth. I didn't really, you know, you when did you guys know and was it frustrating that it didn't seem like the industry was really

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talking as much as they should be about your success. We kind of like that. What's rare about our gaming business, we aren't the market leader in our category compared to the other fanatics businesses. And Michael loves the underdog story and we're that. And so the fact that, let's say, people thought we weren't going to make it or weren't paying attention enough, it feels validating.

13:13
We never really cared. We were focused, very focused on the mission. And I think it's good to get, it's more that the feedback we're getting now is really because customers are liking it. And I think that's what we always sought for. When I think of the beta product was really, weren't, points but had an existing customer base that was loyal to the product. And we felt their product was definitely more mature than ours was when we first did the acquisition.

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But we also were building ours to be able to scale four or five years from now. And so it was going to be able to surpass where that product was ever going to be able to go. So we figure let's run it as PointsBet presents a fanatics experience. Yes, that's it was. I'm sorry to have that one wrong. And then when we really felt, OK, our product is ready for the big time now, we migrated, we shut down, and we sunset the PointsBet brand. That was complete about a year ago. And then the last year is when we've steadily grown share month over month.

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And I'd say some like heading over last summer, it was working great. Summer's a little easier to sometimes boost share, but the fact that we're to maintain and be stable and continue to grow through football, through Super Bowl, like we feel we're a real player now. I was talking to you before we got on stage. The path to three seems very easy and clear to see. We do have this duopoly, though, and I'm curious as a second mover.

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What do you think it takes to disrupt a duopoly? Do you need some sort of massive external event, a change in regulation, the opening of like a market like a Texas or a California where somebody has a huge advantage? Or is it just one of these over time you think this is not necessarily gonna be the pecking order? I think it is it is remaining focused on what our vision was, which is really twofold. It's.

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build the best product and have good user and have good unit economics. And the amount of focus we continue to put in product remains the priority of the company. We view ourselves as a tech business. think people can see the speed at which the app has caught up with the top tier. And I think we'll be able, as a result, think we'll be able to surpass them on product. And then on what you offer to customers, we have obviously spent significantly less on acquisition.

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and we have reinvested that in retention. And so, and doing it through the FanCash lens. So FanCash is the loyalty currency of all of Fanatics, which, like other loyalty currencies, you can use for free bets. But I think more importantly for sports fans, you could use it across the Fanatics ecosystem. You can currently use it to buy any merch that you will likely buy anyway. Again, the vast majority of the gaming TAM sits in the Fanatics database already.

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These are people who are shopping on Fanatics, and as a virtue of using our gaming platform, they will get in kind things they would have purchased anyway. And it's also what we offer. It's similar to how a lot of the land-based casino brands, I think, have done well with their loyalty programs because they have land-based assets attached to it. Ours is our Fanatics commerce, and we will bring collectibles into that ticketing. There'll be more and more that FanCash can purchase, and it is currently the number one reason why people are staying with us. I think what it doesn't have yet...

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I had to explain for a moment what FanCash was. It doesn't have that awareness yet because, again, we're new to this space, but that will, I think, will be the next evolution of it, that everyone knows what FanCash is. So not only is it why people stay, but it's why people join as well. Well, yeah, I'm about to sound like a total suck-up, but this is the true story. I have one sportsbook on my phone, and it is Fanatics because...

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My favorite promo I've seen any sports book due related to football was when it launched in Kentucky, my home state, sign up for Fanatics, get a free football jersey. And you create the funnel to Fanatics, the business, and I'm sure the overhead of a free jersey is not the overhead of a $2,000 deposit bonus. So thank you for my Evan McPherson jersey. You're welcome. Yeah, we know a guy who can get us a discount on jerseys, which is helpful. Yeah, that's a good one.

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Yeah, the fan cash thing, certainly has helped on the sports betting side to enable fans like myself who, I don't know if I necessarily want a bunch of free bets. I don't want to bet all the time, but I do like the merchandise piece of it that has worked well for sports betting. What I'd like to kind of discuss now though is the growth that you've had on the casino side of things, because to me, it's not a natural fit, fanatics casino. So can you just talk a bit about how that side of the business has grown and how you

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kind of integrate the Fanatics brand into the casino experience? Sure. it's kind of, given Fanatics is a sports brand first, it made sense to focus sports being the priority focus. But casino's been a huge piece of the leadership mind, Sharon. And we it is following along the same ethos, which is if we can build the best product here, we can win or at least heavily compete in the long run.

18:33
For Casino, I think there is a huge cohort of customers in Casino that are converted from sports books. And so I think we can compete on par with anybody on that. And we will continue to. I think the other question is, how do you speak to the Casino First player as a sports brand? I think one, the sheer size of our database covers a very, very large portion of the population. So I think.

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the demographic that exists in the sports, in the commerce database, includes plenty of casino first players. Because at some point, it is America to have 120 million people in your database. It's very representative of the US population. I think second is product. We continue to focus on it. And third is leadership. We've brought in some really great people who have a ton of experience running online casino businesses in Europe.

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having that leadership in there, in the same way that you think of risk and trading, margin optimization, getting the right games in front of people, the games they want to play, and where I think Fnatics will ultimately be able to differentiate, we would like to bring very unique IP into the space. What that will look like is TBD, but I think there's some big opportunities that we'll be able to take, largely because of all the different relationships Fnatics have, even outside the sports ecosystem. You recently launched

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the standalone casino app, is something we've seen other competitors do as well. When you were at FanDuel and sports betting was starting and online casino was happening simultaneously in states like Pennsylvania and Michigan, was the mindset you have to integrate and that's gonna be the secret to success? Are you surprised that standalone casino ended up being as successful as it's been? If you told that to 2018 you, what would you think?

20:27
I think 2018 me had no idea what he was talking about. think a lot of people in the US industry didn't either. I see one of my British counterparts laughing at me right now because he obviously knew what he was doing when he came over. it was forget just we didn't even really know it around a sports book. were and I think Flutter is again one of the huge advantages and probably one of the biggest differentiators between Fandle and DraftKings was the Flutter expertise. Is there people who've done it for?

20:58
two decades before they got involved. I think there are definitely unique aspects to the US market that having US expertise, knowing a US customer is different, but the basics of how to run this thing, it's a P &L like any other company and these guys knew what they were doing. So I think one, even on sports we were naive. And then on the casino side, think we were, yeah, very blown away at how those businesses can scale.

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the importance of product, the importance of the IP that's in those products. And we learned a lot. It's very quick to realize. And I think the states that have iGaming, in terms of the revenue it generates for the states, it's been a very successful rollout in those states. And it's been a very good eye-opening experience for anyone in the industry. All right. Lots of operators here and abroad have done refunds on injuries and that sort of thing.

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Fanatics, I'm so sorry. Fanatics has been making the effort of really branding it and making it part of your marketing strategy with Fair Play. So where did the decision to come about for that arise? I assume it's just the natural connection to the Fanatics brand, but was there a deeper discussion about it? So it's always been through the lens of we get tons of feedback, not just in the gaming business, but...

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across fanatics about things happening in sports. So whether it's people upset about something being misprinted in a jersey or our sports book going down, it is endless the amount. And customers do not really differentiate. If they have an issue with a jersey, they'll complain to our customer support and vice versa. And you have a customer support agent in Jacksonville thinking you're talking about a jersey, but they're talking about a parlay that lost. And so when you look at what are the biggest pain points and frustrations customer has, they are ultimately sports fans.

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and when they're disappointed watching the sport they're experiencing, that really takes away from it. Now, if they happen to have a six-leg parlay that they lost just because their superstar got hurt in the first quarter, like obviously Steph was gonna have more than 16 and a half points, that's tough for them. So it's tapped into the way that fanatics can really make the customer experience better. Now, other companies have done this in different wrappers, whether it's justice payouts or bad beats.

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But Fair Play to us was really an evolution of our customers identifying what goes wrong in sports that bothers them and how can we be generous. And when I talk about retention generosity, it's an example of generosity. It just resonated really well. And we've been able to amplify. We've got great feedback from customers and just continue to lean in on it. There are a couple loud critics of Fair Play and just the idea of a pain out. you have, do you just kind of shake your head at them? I think so the loud,

23:47
I assume by loud credits we're talking, there's a lot of critics on Twitter, or X, sorry. And the truth is we're never going to be able to satisfy every customer. If people are complaining about your product, we look at it, look, A, they're using our product, and B, we take customer feedback super seriously. So it kind of motivates us to, OK, how can we be better? But at the end of the day, we're trying to make a product that is as enjoyable for as many sports fans as possible.

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It doesn't always work for everybody. But I think we continue the mission. We put the customer first. And that's really across sports generally. That's the focus. Yeah. I think if your biggest critics are saying, they give away too much money for free, you're probably doing some things right. We're starting to run short on time. I would be remiss to not ask, know, not necessarily the most natural fit for fanatics, but

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It has worked out very well for you. Are there other verticals that you guys are looking into? Event contracts, prediction markets, those sorts of things, or are you just focused on casino and sports betting for now? What are event contracts? that something? No, I'm kidding. I mean, I'd be lying if I said we haven't heard of what's happening with events contracts. As any business focused on building the best business, the best service, its customers,

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we obviously are paying attention to what's happening in that space. At the same time, the caveat would be we're super focused on our sports book. We have plenty to do. have a lot of, like you said, there's a big gap between number two and number three, and that's our primary focus. We also operate in a state-by-state regulated structure, and we have licenses with states, and so we need to be very respectful of what's happening with that structure. I think...

25:40
The fact that there is federal regulation that covers it is certainly a good indication, but we need to be very conscious of how that interplays with the state responsibilities we have. And then last, if I said we've now spent a decade knowing the online sports betting business, and that pales into comparison to the decades that our European counterparts have had, we're talking like three to six months of knowledge on the predictions market. think.

26:07
No one has a crystal ball into how it's going to play out. It's certainly interesting we're monitoring it, but we remain very focused on our vision of being the number one sports book long term. Just being a lawyer at heart, is it just an interesting debate for you to kind of see the highlights of or? Certainly it is an interesting debate. the whole there's federal preemption, there's states rights on on on regulating gambling. So we continue to monitor it. Again, I think the best thing I can say is.

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No one has a crystal ball that can predict what's happening. No pun intended. So we continue to monitor, but again, our focus remains very much on growing our betting business. You have a lot going on to just kind of put a cap on things. What is the next step for Fanatics that you are personally the most excited about as we kind of near the start of football season and what kind of feels like a new season for sports betting in addition to sports? So we...

27:04
We have Fanatics Fest coming up in June. Fanatics Fest is like the Comic-Con of sports. It's wild. It was the first time we did it last year. I think there was 60,000 people. Oh, wow. Fact check. 70,000 people. It was awesome. And all the leagues showed up. All the fans showed up. And it's really a showcase of everything Fanatics offers, from athletes doing panels to merch tents to...

27:32
hobby shops selling their trading cards. And it's an amazing experience as a sports fan. And what we can do as a gambling business, even though we don't have a physical product, is we just create amazing experience for sports fans to be there. So you have, you're a huge Tom Brady fan who'll be there to sign your jersey. just was really, really a very cool experience. That's happening in June. I think it'll even be bigger and better than last year. So I think that's one very unique thing that we have that we'll be able to start up the summer.

28:02
And then leading up to football, just can we continue to grow this share and really just kind of create some distance as the number three later this year, which I'm really hopeful we can. Especially if people only have one sports book on their app that's ours. Well, I will. I did get another. If I had a criticism besides you give away too much money for free. Sorry. Bigger Oscar markets next year. More cash. You're sorry. I bet the Academy Awards. So that's I did. I did go somewhere else because you they had a stale line.

28:31
And that's the only thing I'm smart about betting is the Oscars. But that's neither here nor there. FanFest or Fanatics Fest, that's a decent job perk. You get to live out all your sports dreams in addition to letting other people. There is, I cannot stress how much work goes into it. That same counterpart who was just laughing before knows how much work he has to do for it. is a, nothing that we do comes easy. And it's one of the great things about our company. And it starts at the top from Matt to Michael.

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effort and energy that goes into bringing the best experience to sports fans, because we all are sports fans ourselves, and so it's the products we want to experience ourselves. It's going to be a very special event for anyone who's in New York later this June. All right. Well, not quite the same scale as your event, but we are always happy when things come to fruition. And this was one we were really excited about. So, Aerie, thank you for your time. Thank you to all of you for joining us for this conversation.

29:27
We'll see you around at the rest of the conference and I'll hand things back over to Patrick.