DraftKings (NASDAQ: DKNG) recently introduced a new daily fantasy game called Reignmakers, touting over $1 million in cash and prizes each week of the NFL season—and $30 million in total. Participants collect digital player cards and enter lineups into exclusive fantasy contests. The players represented on the cards, which can be bought and resold, accrue points for the entry. Supply levels vary per player, per rarity and per set, adding a game theory element to the equation.
Reignmakers has quickly become one of the most prominent utility-driven, NFT-based sports games. But Peter Jennings (co-founder, Lucky Trader) said the bigger reason people should be taking notice is that it is the “first really good attempt at player trading.” The three-time founder is convinced a “players stock market is [going to be] one of the big components of sports speculation in the future,” as the industry shifts towards peer-to-peer betting, and said that DraftKings is now well positioned to execute on it.
DraftKings, which is currently in the quarterly quiet period, declined to comment.
Lucky Trader, a source for NFT News Coverage, has a deal with DraftKings to cover Reignmakers during the 2022-23 Football season.
JWS’ Take: Jennings is a well-respected industry insider. He co-founded Fantasy Labs, which was sold to The Chernin Group, and was also part of the founding team at Action Network. Prior to that, he spent six years as a DraftKings analyst.
The Lucky Trader co-founder is confident that as the U.S. market matures—and player losses accumulate—there will be an industry-wide shift towards peer-to-peer sports betting. “Fantasy sports are peer-to-peer. DFS is peer-to-peer. Poker is peer-to-peer. As long as the ecosystem is managed properly, it is just a better system,” he said.
Stock markets are inherently peer-to-peer. There must be a counterparty to every trade.
The concept of a player stock market that enables fans to trade athletes, in real-time, based on their on-field performance, is not new. In fact, there are several others in the market now, including Mojo, which has raised $100 million to date, and Trading Players.
But previous efforts have largely failed. Some were ahead of their time, others lacked the financial resources to succeed. Remember, building up the critical mass needed to operate a market efficiently is a costly endeavor.
“The one failure all the previous efforts have in common is that they did not facilitate a viable market at launch,” Ken Pendleton (founder, Trading Players) said. “By viable, I mean that traders must be able to buy large quantities of shares, with tight buy/sell spreads, 24/7, even during games.”
Achieving critical mass should be easier for DraftKings, with its database of more than 8 million sports bettors, than for the startups mentioned above.
Reignmakers is currently a crude version of a football stock market. A participant convinced that a player is undervalued can go long on the player by buying a bunch of card supply. But the former DKNG analyst said it is not hard to envision the company leaning into that vision in the future and delivering a product that more closely resembles a stock-trading platform.
It is logical to wonder how an increasing number of in-game and micro-betting markets might affect demand for a player stock market. All three product types give sharp bettors the chance to capitalize on inefficiencies created by real-time shifts in value.
Jennings does not believe in-game and micro-betting products will dissuade bettors from participating in player stock markets. In fact, he thinks the former could actually drive users towards the latter. In-game and micro-betting “is not sustainable,” he said. “People are getting raked 30% on these bets.”
As for the small percentage of bettors taking advantage of inefficiencies in the lines, they “get cut off from these books,” Jennings said.
While a player stock market still carries an effective rake, Trading Players revenue is derived from a subscription fee that allows customers to make unlimited trades. The fact that participants are competing against one another—as opposed to the book—makes the game potentially winnable. “We are just facilitating a zero-sum game among them,” Pendleton said. “Some contestants will make money and others will lose money, but the total amount of the money they ‘invest’ will be paid back to them.”
That is fundamentally different from traditional sports betting, where the house always wins over the long term, and should be increasingly attractive to bettors over time.
Sports betting margins are slim to begin with, and as bettors get sharper, it requires the books to do the same. Jennings sees the risk level for operators rising and believes many of them will look to reduce it by leaning into peer-to-peer betting in the years ahead. “DraftKings takes on no risk from DFS. That is where things are headed. Why would they take on risk when they don’t have to?” he asked.
Instead, an operator can serve as an intermediary between two bettors taking opposite sides and “just charge a small facilitation fee” for their efforts, Pendleton said.
As long as the rake is reasonable, smart bettors can turn a profit in a peer-to-peer betting environment.
No legal U.S. sportsbook operator currently has a meaningful peer-to-peer business. “Betfair has the biggest, but it’s offshore,” Jennings said.
Not everyone is convinced sports betting operators are on a path towards becoming matchmakers. Howard Mittman (president, 888 U.S.) expressed interest in the strategy. But he wondered if any operator can get enough sharp players to maintain the balance needed to operate a robust peer-to-peer business.
And even if one does, it is not as if peer-to-peer has worked everywhere it’s been tried. “In the old UK market there were very few operators able to make a profitable business out of it,” he said. “It’s not impossible, and perhaps the U.S. market will evolve in that direction, but building the liquidity required for it to scale won’t be easy and player education will be a key factor. These things will all take time and so it feels like a somewhat niche market for the time being.”
While skepticism about NFTs is warranted, the blockchain appears to serve a purpose within the Reignmakers Game, providing transparency and proving scarcity. For example, in the highest-tiered contests, there are only eight Patrick Mahomes cards available, “and only three have been pulled from packs. I can verify that on the blockchain,” Jennings said. That knowledge allows players to develop accurate models.
The blockchain also enables DraftKings to conduct airdrops and deliver future utility to the tokens.
Still, buying an NFT purely for its future utility seems like a risky bet considering how many projects have gone bust—even with the prizes available this year. DraftKings’ standing can give Reignmakers players confidence the company will still exist when next football season starts, but it seems less certain the operator will continue to invest in the game at the same level long-term. FWIW, DKNG does have a multiyear deal in place with the NFLPA.
For reference purposes, elite player cards at the highest game levels can be costly. One player recently spent nearly $50,000 on three cards.