It is a tough life out there for smaller regulated sportsbooks and the list of hurdles only grows for the operators seeking to offer an exchange model of wagering where bettors can wager against each other instead of the house.
To date, only New Jersey and Colorado even offer exchanges an opportunity to obtain a license, and in the case of the latter, regulations for exchange wagering are still in development. With the delay, Sporttrade and Novig, operators aiming to work as an exchange, had to launch in the state with a traditional sportsbook model.
Sporttrade is still going in the state but Novig ceased operations earlier this year after four months of operation.
Now though, Novig is back and finally offering the model it stands behind to a bigger audience than it ever could in the regulated space. The company pivoted to a sweepstakes model, debuting in 42 states as well as Washington DC.
Novig Co-Founder and CEO Jacob Fortinsky told SBC Americas the product is already off to a strong start with a wide range of sports fans testing it out.
Like all sweepstakes models, Novig offers its users the opportunity to take place in free-to-play predictions using Novig Coins. Users can also obtain Novig Cash with the opportunity to win contests with prizes with real money value.
Sweepstakes critics will suggest that the social element of a sweepstakes gaming site is just a front but Fortinsky said even in the first month it is clear there is an appetite for people who want to make predictions about players and games without the financial risk. The social element also allows Novig players to practice making markets, as the exchange concept allows for people to set prices and take wagers on their own.
“Essentially what we’re doing is utilizing the same framework that social casino has operated for a decade, that social sportsbooks like Fliff have utilized, but basically just removing the middleman, removing the house from the equation, allowing you to play against other real individuals,” Fortinsky explained.
Right now, Novig does book some action to help provide liquidity to the site, but already more than half of orders are done between peers.
There is nothing inherent to the sweepstakes models that makes exchange betting effective, even though Novig and competitor ProphetX both made the same pivot from regulated to sweepstakes products this football season.
However, what sweepstakes does is help solve some of the problems that made Novig’s rake-free sportsbook vision so difficult to accomplish in the regulated market. Exchanges necessarily require liquidity, which is tough to do state by state, particularly when only two states are even open to the idea.
Throw in high licensing costs, limited market access, the burden of small companies clearing regulatory hurdles and it simply becomes too expensive to be a reality.
“Given that exchanges tend to be lower margin products, I think that it makes it all the more difficult to operate in a heavily regulated environment with market access costs and overhead and all of the ancillary costs that are associated with running a regulated sportsbook,” Fortinsky said.
Certainly, sweepstakes has its potential drawbacks as a vertical, but when Fortinsky and the Novig team spoke with investors, which include Joe Montana, Dropbox founder Arash Ferdowsi and Instacart Founder Jared Heyman, the reaction was more than just positive.
“I think a lot of them were very bullish on the sweepstakes model. I think it basically addressed every concern that investors had with our previous roadmap.”
Fortinsky and others firmly believe there is a strong legal argument supporting the sweepstakes model, but he also is aware that the tides could be changing. States like Michigan have pushed sweepstakes operators out of states and many in the regulated gaming industry are amping up pressure on regulators and lawmakers to look at the sites.
“There might be pressure from certain states in the future on this area of the industry, but ultimately I think that’s driven by just anti-competitive measures from the incumbents,” he observed. He compared it to the rise of DFS and then DFS 2.0, where people are developing innovative and appealing products that may not be in the regulated space but arguably don’t run afoul of the law.
That is not to say he thinks all sweepstakes sites are created equal.
“I am somewhat concerned about, like, some more irresponsible actors that are operating under the sweepstakes space,” he admitted. Critics have pointed to AML and KYC standards as areas where sweeps operators aren’t doing their diligence, but that does seem to vary operator to operator.
“We are basically holding ourselves to essentially the same standards that regulators held us to in terms of KYC, AML, anti-fraud, risk guardrails, responsible gameplay, a number of things,” Fortinsky noted.
Novig also doesn’t limit users and allows for a wide range of pricing using the exchange model. Combine that with the social nature of competing against peers and the free-to-play offerings and Fortinsky can understand why the old guard is getting louder and more concerned about sweepstakes.
“If the next six months go as well as we anticipate, I think ultimately, there’s no reason why every single sports fan in the country wouldn’t use Novig over FanDuel or DraftKings if we can have a more social, more profitable, more transparent, more fair, more welcoming, more competitive product.”
