Today’s guest columnist is Lloyd Danzig, managing partner of Sharp Alpha Advisors.
Recent years have borne witness to the mainstream adoption of sports betting, retail equity trading, cryptocurrency speculation, NFT marketplaces, esports, fractionalized collectibles and niche sports leagues. These consumer behaviors all fulfill a similar psychographic demand for “competitive entertainment,” a term that describes any form of entertainment where winning matters.
While the prospect of financial upside is a motivator for competitive entertainment seekers, it only represents a small piece of the puzzle. Within sports betting, for example, most recreational users do not have a true expectation of long-term profitability. In fact, most don’t even expect to ever make a withdrawal. These users psychologically classify their deposits as entertainment expenses, not as capital investments from which to earn a return. Businesses thrive serving this audience with experiences characterized by negative expected value but positive expected utility,
Competitive entertainment is popular and sticky because it fulfills fundamental, primal needs—offering a compelling source of escapism from the complexity and stress of everyday life by providing a singular purpose and focus over a defined period of time. Placing a sports bet, entering a poker tournament or playing a video game allows people to be immediately engrossed in a world that consumes their entire focus. Suddenly, the first touchdown scorer, river card or battle royale winner is all that matters.
Such pastimes provide a feeling of connection to a community. When users place a sports bet, they receive instant membership in the fraternity of people who placed the same bet, as well as those who placed different bets on the same game, or even the opposite bet. This community can commiserate together when their bet loses and celebrate together when they win. Communal experiences can also be drawn on in the future, even among people who did not directly share the experience in real time.
Humans are hard-wired to compete. The prospect of achieving victory over an opponent, whether they be friends, enemies, the market, the blackjack dealer or video game AI unlocks something deep in the anthropological core.
People exhibit varying utility functions, but for many there is an inherently enjoyable valence to the process of taking risk, regardless of the results. Of course, the potential for a desirable outcome is part of the draw, but many people enjoy the process of risk taking more than the rewards themselves.
The primal appeal of competitive entertainment can drive some users to exhibit unsustainable behavioral patterns. It is not only socially responsible but also economically critical to avoid monetizing this type of conduct entirely. Forward-thinking operators are weaving responsible gaming into the fabric of their user experiences and leveraging AI to provide real-time digital guardrails that keep consumers safe.
Ultimately, because competitive entertainment taps into fundamental aspects of consumer psychology, there is fierce competition to create a one-stop shop for sports fans and gamers. It represents a business opportunity to cater to users who enthusiastically trade money for experiences and then cross-sell those users into adjacent sources of enjoyment.
The optimal combination of offerings has yet to be assembled into a profit-maximizing flywheel, though it is an active area for research and development. Investors should expect the coming years to bring forth all sorts of creative amalgams of ticketing, merchandise, betting, collectibles, gaming and more.
Sharp Alpha Advisors is a venture capital firm specializing in sports, gaming and entertainment.
