Waterhouse VC host a discussion about the crypto casino industry with Ishan Haque from Shuffle.
Ishan explains how crypto casino operators are setting the benchmark for user experience in the global gambling industry.
The discussion covers:
The rapid rise of crypto casinos to challenge traditional operators
How these players are reshaping the user experience
Investment opportunities in this developing ecosystem
This webinar was recorded on 11 December 2024.
Watch the full webinar here:
Timestamps
1:31 About Waterhouse VC
3:57 The crypto gambling market opportunity
6:52 How major players stack up against large regulated operators
8:44 Public data sources on the industry
10:38 How crypto pioneers grew so quickly
16:55 Vision for Shuffle
22:15 Raising funds and getting the first customers
27:30 Launching the SHFL token
30:20 Building the product
31:55 Shuffle's plan to become #1
36:10 Opportunity in white-label platforms
39:08 Challenges of running a crypto casino
41:10 Role of racing in the gambling's new frontier
44:28 Turnover on casino vs originals vs sports
46:59 Handling big betting limits
48:02 Will Stake or Shuffle enter Australia?
52:41 Deciding on launch markets
54:46 Do crypto operators ignore South America?
Transcript
Michael Donohue: We're going to take a look at one of the most exciting sectors in the gambling industry, which is the crypto casino space, and we've got a special guest with us. What do we mean by crypto casinos? Well, basically, it's just casinos where you can deposit, bet and withdraw funds using cryptocurrencies, like a Bitcoin or an Ethereum or a Tether. They're very similar to a lot of traditional operators in many ways, but also very different in a bunch of ways, which we'll get into. The sector's received a lot of attention in recent times, thanks largely to a handful of pioneers like Stake.com, based here in Australia, and they've expanded the market and really led innovation in the wagering industry. I'm joined today by three people who can share some insights about this topic. First, we've got Tom Waterhouse, who's founder and chief investment officer at Waterhouse VC. Welcome, Tom.
Tom Waterhouse: Thank you, thanks Michael, good to be on.
Michael: We also have Oscar Silver, who's our investment analyst in London. Oscar works closely with Tom, analysing all the opportunities in the space. Thanks for joining us so late over there, Oscar.
Oscar: No, you're all good, great to be on.
Michael: And I'm very pleased to welcome Ishan Haque. Ishan's part of the founding team at shuffle.com, and Shuffle has become one of those really fast growing platforms in the crypto casino space. They haven't been around that long, but they've really made their mark, and we're really happy to have Ishan here today. Welcome, Ishan.
Ishan Haque: Thank you guys, thank you Tom and Waterhouse VC, pleased to be here.
About Waterhouse VC
Michael: Great. So before we dive in, I'll just give a quick background on Waterhouse VC and what we do. We run an investment fund that focuses on the technology layer of the global gambling industry. Many people joining today on the call will be familiar with the consumer facing brands, like a Tabcorp or a Sportsbet here in Australia. There are other ones like DraftKings in the US, there's Paddy Power in the UK. Our focus is actually on the businesses powering these operations behind the scenes. So it could be the data and the odds feeds on the horse racing, it could be customer engagement software, it could be companies providing affiliate marketing services to the gambling companies. That's the B2B sector where we see the most attractive opportunities, and where we've developed a particular edge through Tom's industry experience, a deep network in the industry, and an in-house tech team that lends us their expertise in technology. We combine this focus on the tech layer with taking options in businesses, rather than a standard equity investment. We're actually taking options in businesses, and that's a different sort of risk reward profile, and it's worked out really well for the investors. The fund has compounded at over 96 per cent per annum before fees for over five years now. I'll turn to Ishan shortly, because we really want to spend today talking as much about Shuffle as possible, but just to set the scene on Shuffle, I guess, in my own words, because many Aussies joining this call won't have actually accessed Shuffle, because you can't access the site here in Australia. They've built one of the most comprehensive crypto gaming platforms in a very short amount of time. They've got traditional casino games that you can play online, they've got a sportsbook, they've got their own proprietary games, which you might think of as like a mix of an arcade slash slot style game, they've got a cryptocurrency token that can be used on the platform, and they've also got a new lottery product. So a ton of interesting stuff to get into. Before we dive in, I'll just give a quick disclaimer. Today's webinar is intended for wholesale investors only, so everything discussed today is not investment advice. Please consult an advisor if you're going to make an investment decision. It's also worth mentioning, just quickly, that there's actually no formal relationship between Waterhouse VC and Shuffle. The fund's not invested in Shuffle. We're really just talking to Ishan today because it's an opportunity for us to pick the brains of someone who's living and breathing this, and kicking goals in the space.
The crypto gambling market opportunity
Michael: So, Oscar, I'll start with a question for you. You spend a lot of time talking with the crypto casino entrepreneurs, and many of the tech suppliers to those businesses. Maybe you could start us off by just helping everyone understand the scale of this market. Not only the global market, but the actual crypto casino space and the unregulated space, and where crypto casinos sort of fit into the picture.
Oscar: Sure. Yeah, I think it's definitely good to give some context here. I think the scale of this market often surprises people. Flutter recently reported, and they're the largest listed gambling company in the world, they recently reported that they expect the gambling industry to hit US$578 billion by 2030, which is nearly a trillion Australian dollars. The figures we're looking at represent gross gaming revenue, or GGR, which is basically bets taken minus winnings paid out. So it's the revenue pool from which all industry costs are paid, whether that's marketing, staff, taxes, tech. So it's a pretty important metric. Breaking this market down, you've got the regulated players, which represent the most significant chunk of this pie. Within that, you've got the likes of Ladbrokes, Tabcorp, FanDuel, and these are adhering to strict gambling regulations. And then you've got this grey market section, which will be the subject of the discussion today, expected to reach about US$210 billion by 2030, and in that, the crypto casinos operate. What do we mean by grey markets? Well, there aren't explicit regulations where these businesses are operating. They can take players from all over the world. And they're slightly different to black market operators, where gambling is explicitly banned. Looking at growth rates, the regulated space is still growing at around 10 to 15 per cent annually, which is pretty exciting. You've got new markets opening up, like Brazil, and lots happening in Canada as well, with Ontario. I think there'll be some states there which are pretty envious of the taxable revenue. But then this crypto section is really exciting, and has experienced rapid growth over the last couple of years. We're talking 100 per cent year on year.
How major players stack up against large regulated operators
Michael: Yeah, interesting. So there's obviously this huge revenue pool to target, and I guess, arguably, even though that unregulated grey market looks like a third of the industry on that chart, it's more lightly regulated, it's much less taxed, so arguably the value there is almost on par with, perhaps, the regulated sector. Oscar, where do the crypto operators individually, the different players there, how do they stack up against the traditional, well-known, listed, regulated players in terms of size? How do they stack up in rankings?
Oscar: Sure. Yeah, this data is from 2022, so it's slightly outdated, but I think it gives a bit of context on where the major operators are, but also, I think today we'll discover how quickly these crypto operators are going to eat into that. You've got the scale operators, like Flutter, Entain, Bet365. They've dominated the licensed space for a good while now. Flutter has been on this extraordinary M&A charge over the last decade or so, and they've got some phenomenal brands under their umbrella, the likes of Paddy Power, Betfair, Sportsbet, and FanDuel as well. Entain, similarly, has been pretty extraordinary over the last 20 or 30 years, really, and they've got brands like Ladbrokes and Coral, and Coral and Ladbrokes have had a massive high street presence for the last 50 years. They're represented all over the world, these businesses operate globally. But yeah, with these crypto operators, Stake is probably, I guess, the most tangible example, just because their numbers were recently released. In 2023, they had gross gaming revenue of 2.6 billion, which is expected to hit 4 billion this year. So it's mega growth, and that was up from 100 million in 2017 when they first launched. And then you've got the likes of Roobet, Shuffle and Sportsbet.io, which are making rapid headway.
Public data sources on the industry
Michael: Is there anything you could add to that, Ishan, around the rankings there? Is there any sort of data that you guys as operators look at, where you can actually see how the crypto players are going?
Ishan: Yeah, I guess in terms of crypto, because it's crypto, you can actually see deposit volumes on chain, and so there is a website, Tanzanite, where they constantly rank deposit volumes. And you can kind of reverse engineer, if you know what the edges are and what the products are offered, you could probably do a ranking of revenues as well. So in terms of the rankings, Stake's right at the top. I'd say that they're quite literally times larger than everybody else. So Stake's at the top, and then you've got the group of the other crypto casinos, like Roobet, Shuffle, BC.Game, the Yolo brands, Bitcasino and Sportsbet.io, and Gamdom is another one. We're the new entrant into that sort of top five. Everyone else has probably been operating for the past five, six, seven, eight years, but they've stayed there consistently. So that's probably, in terms of the rankings for crypto operators, currently where it lies.
How crypto pioneers grew so quickly
Michael: Yeah, interesting. I'd love to get to the Shuffle story in a minute, but maybe you could just give us your take on what the reasons are that these 10 to 20 big name crypto casinos have actually scaled so quickly into those top rankings globally. Have there been tailwinds behind the whole sector, or is it also just that these guys operate in a certain way that has allowed them to do it?
Ishan: Yeah, I think there are a few reasons. Crypto as a backdrop itself is probably a big reason. It's rapidly growing. There are more and more adopters every single day, and that's somewhat correlated to prices. So when Bitcoin goes to 100K, or goes to 110, 120, there's going to be more of the populace that's adopting crypto. So crypto as a backdrop, and just getting the network effects of that, is a tailwind. The other is that it's just fundamentally a better user experience. You could use Bitcoin, Ethereum, Tron, there's a bunch of currencies, Litecoin is one, where you can deposit into a crypto casino pretty instantly, you can play big, sometimes bigger than a fiat casino, and then you can withdraw on a Sunday night within an hour. When you talk about the rails of crypto compared to the traditional rails of a fiat experience, it's a whole lot better for a gambler that wants to punt. And then probably the last one I'll touch on is, I do think a lot of fiat operators have had a sort of licensing edge, where, because they have a licence, there's less competition, the barrier to entry is harder in those regions, so they can kind of chill on creating an insane user experience, or really investing in that. Whereas in the crypto space, I think you could argue that a lot of the products that Shuffle is building, or Stake, or Gamdom, or Roobet, these are highly fine-tuned products, built to create unparalleled experiences, and to do things that are a bit more original. As you mentioned, those proprietary games, those were really born in the crypto casino era, and we can talk about them a bit more later on. So I'd say it's those main three reasons. And maybe the last one, which might have some correlation, is that a lot of the crypto teams tend to be a little bit younger, a little bit more energy, and want to do different things, build different things, not tackle it the same way. So that might have something to do with it as well, just offering something new to the space.
Michael: Yeah, it's funny you mention that. It just seems like there's a handful of crypto casinos where they're run by, sometimes, Aussies. We're probably over represented there. And also people in their 20s. I don't know what it is.
Ishan: Yeah, out of the top five, I think three of them are Australians, or Australian based. You've got Stake, the Yolo brands with Tim, and then now you've got us. There's something in the water here. We're, whatever it is, the second highest in terms of losses per capita. I think Singapore's number one, and Australia's number two in gambling losses. So punting's in our blood, so maybe it's something a little to do with that.
Michael: Yeah, no, I think you're right. I also remember seeing, a couple of years ago in the headlines, that Stake was sort of pioneering using streaming as marketing. Do you think that's another big factor there in the growth of the casinos?
Ishan: Yeah, that's a pretty huge one. I'd say Roobet and Stake were really the ones. This wasn't too long ago, this really took off in 2020, during Covid. So the way that traditional operators mainly get distribution is through affiliates, and traditional affiliates, it might be a banner ad on an SEO ranking site, or some forums, these more traditional routes. What the crypto casinos did differently was they started partnering up with influencers. And not just influencers that will take a photo of themselves playing and upload it to Instagram with a caption, and people like it, and that's where the connection ends. They are live streaming themselves playing the product, educating people about the product in real time. They ride the highs, they ride the lows with them. People will be sitting down watching them for hours. It's not just a like on a post, some of these people will watch them for hours on end, every single day. So I think that is a highly engaging form of content and marketing that I just haven't seen replicated well in the fiat space. It's been primarily crypto casinos doing it well, and I think that does lend into what I said about the teams being a bit younger. This is the stuff that we watch. A lot of the crypto casino operators were gamers beforehand, or they grew up playing video games. And if you're familiar with Twitch, twitch.tv, that used to be primarily just video games, and it still is primarily video games, but gambling content had a rise there, and then there's a whole story with Stake being banned off there, so they ended up starting their own live streaming service. But this is the stuff that the Stake operators loved watching, we love watching. We all worked with influencers before doing these crypto casinos, so it made sense that we'd be the ones to use this as a marketing channel.
Vision for Shuffle
Michael: I'd love to get into the Shuffle story now. I've pulled this chart off your LinkedIn page, actually, which used to post a monthly update on the turnover, and it sort of stopped in August, which is interesting. You've obviously reached that two billion in monthly turnover just ridiculously quickly, in less than two years. It'd be good to maybe just start at the beginning, and if you could tell us a bit more about how that initial team came together, and what the vision was for Shuffle. You obviously saw how big the market was, and how well Stake was doing, but where did you see Shuffle coming into it, and what were the gaps in the market that you guys wanted to exploit?
Ishan: Yeah, sure. So initially, there were a few of us on the founding team, but Noah, Noah Dummett, he's the CEO of Shuffle. He was previously in the exchange business, so he helped grow BitMEX, which was the number one crypto exchange in the world back in maybe 2016, 2017. He was an early employee there. Then he jumped over to Alameda and FTX, which is a pretty known story now, but at the time, it was rising the ranks and one of the biggest exchanges in the world. He left there in '21, thinking about what to do next. He was from Australia, I'm from Australia. The crypto exchange space, especially at that time, was very fragmented. The US had Coinbase, Asia had Binance and Bybit, and Australia kind of had a lot of these smaller crypto exchanges popping up locally. No one had, there wasn't the main big player here. So initially, he was looking to start an Australian exchange. But then, the more he thought about it, casinos, I mean, Stake was popping off at the time. So he was kind of looking at that, and a lot of the early team, we're all kind of young, we made money in crypto, and so what do you do with that? You gamble it. So we were all players of all these casinos. When you look at it, the exchange business and the casino business are pretty similar. They're similarly licensed. FTX and BitMEX and all of them are either in the Seychelles or the Bahamas, licensed there, and crypto casinos are mainly licensed out in Curaçao. The business model is somewhat similar as well. A lot of exchanges, when you make a trade, they take a transaction fee. We call that house edge. And then the sort of scale that we saw casinos starting to reach was similar to the exchanges. So, let's say, Coinbase was doing $8 million of revenue a day, and Stake was sort of reaching those levels. Bybit was doing $2 million a day, FTX was doing around $2 million a day. So the scale, the business model, and the licensing were similar enough. But on the casino front, there's a lot less competition. You have Stake, and then you have everybody else sort of down here. So we thought, okay, if we were to start a competing crypto casino, do we have an edge here? Do we have an edge to do a duel with stake.com? And what they did correctly, in my opinion, was the streaming stuff. That was definitely a big tick, and to do that well, you need to understand influencers, you need to have worked with influencers in the past. And for a few of the team, we'd worked with some of the biggest influencers in the world in our past businesses. MrBeast, Pokimane, these are names that a lot of people, at least in the gaming space, know about. So we thought we could bring edge with the influencers, and on the product side, to build a great crypto product on crypto rails. A lot of our engineers were building the biggest crypto exchanges in the world, and like I said, the product base is pretty similar when you understand how to build on crypto rails. So we could compete on the product front and the streaming front. Let's do this. So back in May 2022, Noah bought the domain for shuffle.com. It was a bit controversial at the time, because it cost a million dollars US, so a pretty big commitment to branding. Shortly after the domain, I joined in, one of the executives on the founding team. I primarily handle BD and growth. And then we launched in February of '23, last year. Headcount at that time was probably like 12 people, and we were pre-product and pre-launch, and zero dollars in revenue. Fast forward from '23 to '24, today we do more than about US$2 billion in wager volume, a nine figure revenue run rate. Casinos are built to be profitable, so the business was actually profitable in like month five, so it's a pretty substantial, cash generative business today. So that's kind of the fast version of why we started it and where we are now, and we can definitely head into more detail of the journey.
Raising funds and getting the first customers
Michael: Yeah, it'd be great to hear how you got your first 100 or a thousand customers. Was it really just going out and doing hand to hand combat, or were there any sort of clever growth strategies you guys figured out?
Ishan: Yeah. When we initially launched, we didn't have money. To give a sort of fundraising history, a lot of early Shuffle was bootstrapped, and then getting it to launch was a pretty tumultuous time. FTX collapsed, and the crypto bear market was in full swing. We needed a little bit of money to do that, so we raised about 1.3 million US. It's not a lot of money, so we didn't have a lot of money to just plough into marketing to begin with. So we literally just sent our platform to a lot of our internal network, and because we were all young crypto people beforehand, a lot of our friends and network were all young people, and that was our user base. We were the users. So we sent that out, and that probably got us to our first million dollars in revenue in a few months, maybe it was like month three or something like that. But after a while, we're cool people, but we don't have that many friends. So when we sort of tapped out the internal network, and we had a little bit of money to spend, we had to have a different approach to distribution. A lot of the traditional channels I talked about before, that traditional casinos usually do, which is affiliate marketing, that's become a very saturated market. 50 per cent rev share, up to 60 per cent rev share, and then on these SEO sites there are listing fees, and some of them want a hybrid with CPA, so you have to pay for every single user they sign up. It can get very expensive, and a lot of the other casinos sort of dominate that, because they have what seems to be unlimited bankroll and spend. So that kind of was out of our mark. Then, obviously, we wanted to do streaming, that's where our edge comes in, but the streaming deals are also pretty expensive. You need quite a lot of money to compete in that, and that's dominated primarily by Stake, and I'd say Gamdom and Roobet. And so we're like, okay, how the hell do we market this to people at scale, beyond whatever, a million dollars in revenue?
What we found was that a lot of crypto savvy users are on Twitter, on X, or what was formerly Twitter, and we found this class of hybrid affiliate influencers. There are people on Twitter that might not have a million followers, they might have 9,000 followers, but they're highly engaging on Twitter with the community, and then they funnel that community over to, let's say, a WhatsApp group chat or a Discord server, where they're constantly sharing their bets and constantly chatting to their followers. As I mentioned before, live streaming is when someone's literally watching you play. This is another form of highly engaging way to connect with your followers, where you're just constantly talking to them, like you're their friend, in a group chat. And this was something that wasn't bid on by any of the casinos, fiat casinos or crypto casinos. And so these people were very cheap. Some of them would only work on an affiliate rate, they wouldn't want us to pay anything upfront. They would have 9,000 followers and maybe a thousand people in a group chat, and those thousand people in a group chat would end up making us millions of dollars of monthly NGR. That strategy only lasted for so long, because after a while, the other casinos were like, how's Shuffle growing? They saw that, and they started bidding on those people. But that really got us up to like 200 million US in monthly wager turnover, doing that strategy. And in particular, there were certain regions that it worked really well in, so we sort of picked and bootstrapped in Japan as a region. None of us were Japanese, so a lot of the early days was going on ChatGPT and saying, hey, pretend I'm a native Japanese speaker and I'm chatting to another native Japanese speaker. And it's funny, some of the messages, we would send over something and they're like, haha, the tone that you're sending this to me in, it's like you're treating me like a baby. And we're like, yeah, okay. At some point, we had to hire some Japanese speaking people here in Melbourne. But that was focusing on a region that wasn't dominated by the big players, and finding that hybrid model of affiliate and influencer, and tapping into those highly engaged communities, was probably a differentiated way. We had to do that, we didn't have money, we had to get creative. And that got us to that 200 million mark. And then, at that point, we saw that kind of tapering off, and we saw a lot of the competitors start bidding on those people, so we were kind of like, okay, what's our next leg of growth?
Launching the SHFL token
Ishan: We're all crypto people. A bit of my background, I was an early investor in some of the biggest crypto companies, and Animoca Brands is one of them. Noah was a part of all the big crypto exchanges. And so we thought, let's lean into our strength. I don't know why we didn't do this from day one, we probably should have done it from day one, but we're like, let's launch a cryptocurrency token that will power our platform. For our power users, if they wager with our token, they get a lot of extra added benefits, more bonusing, and now that we've launched our lottery, they can play in the lottery, they can stake the Shuffle tokens. There's a list of value accrual as well, for people that want to speculate on the token. If the casino grows, theoretically, the token should go up, so there are a few other things there. So, let's launch the token. And there are a lot of network effects with the token. A lot of people on Twitter will tweet about tokens, and they'll tweet the price chart, and it's pretty similar to maybe the community here in Australia with ASX stocks, and HotCopper and Twitter, people sharing their investments and stuff. So you just get a lot of marketing that you don't pay for by having a token. And then probably the biggest thing with the token is we do these things called airdrops, these big yearly marketing campaigns, where we incentivise people, hey, play our platform, do as much wager as you can, and at a certain point of the year, we're going to airdrop you free Shuffle tokens. So a lot of the gambling space look at it as like an extra yearly bonus that they get, to be rewarded for their play. So really, with the bonusing and the token, if you're a crypto gambler, it made a lot of sense to play on Shuffle, because you're getting so much more added rewards. And you could probably, if you're an Excel person, work out that your effective edge, or your effective RTP, is higher, because you're getting so many added rewards. So we did that, we launched the token, and we tripled in a month. We went from 200 million to almost a billion in wager volume. That was pretty crazy, because at the time, I think we were maybe only 25, 30 people, and then we had to quickly hire 10 support staff in a matter of like two weeks, and get some VIP hosts, and rapidly scale.
Building the product
Ishan: So that took us to a billion in wager volume. And then a billion to two billion, now, that's really been about getting to product parity with the competitors. It takes quite a while to build a good product, it doesn't happen overnight. All of our engineering, all of our development, happens in-house. And so the past 22 months that we've been live has just been about, let's get our product as good as the rest. And I think doing that really unlocked players from other casinos going, hey, I can realistically stop playing on a Stake or a BC.Game or a Gamdom and hop over to Shuffle, because they have everything that those guys have, plus more. Plus the token, plus the lottery, plus these proprietary games. So that's kind of the brief history of how we got here, and there are a lot of exciting things going forward. We don't want to stop here. 5 billion, 10 billion, 20 billion monthly turnover, it's all on the cards for us. There's no point being in this game and being number two, so we've got a lot of plans.
Shuffle's plan to become #1
Michael: I appreciate you running us through it. I actually listened to an interview with the CEO, Noah, pretty recently, and he actually said, yeah, you guys want to be the number one player. Maybe you can't share everything, but what are the things that get you to number one?
Ishan: Yeah, so there are a few things. One is, as I said, the last two years have been about getting to product parity. The next few years are about building the product moat. So once we either get a completely new customer, or we get a customer that's from another casino, how do we get them to stick to Shuffle and keep playing on Shuffle? The Powerball lottery product is just a little taste of that. Some of our new original games that we're going to release soon, ones that you just couldn't get on any other casinos or any other competing products. Another one is just building the trust around the product. I would say Shuffle is a bit of a toy at the moment. I mean, it's a pretty big business now, but it's still a toy. When you go on Shuffle, there are no brand ambassadors or trust builders on the homepage. If you go to a Stake, Stake's really good at it, or a Gamdom or BC.Game, they will get sports teams to represent them, or they'll get a massive celebrity, like Drake in Stake's case. So we've got the bankroll now to do some of these big brand sponsorships and these tier one trust builders, so I think that's a part of it as well. And then, mainly, to me at least, sometimes it boils down to the basics. Can someone come on to Shuffle, can they deposit big instantly, can they play big, and then can they withdraw big, no matter what their position is, win or loss? I think that's what crypto casinos have done really well compared to the fiat ones. There are a lot of horror stories on the fiat ones, where you win big and, oh, you have to do this now, or you have to wait this long to get your money back. That's something that we, or the crypto casino sector, has done really well.
Michael: Yeah. Can you zoom in on that? Like, what is the sort of limit that maybe a smaller casino can offer, where you can only deposit or play up to this level, and then what's the sort of level that the bigger ones are able to offer?
Ishan: The bigger ones, they can go up to, it seems like, infinity. Stake would probably do the biggest limits, Stake and the Yolo brands, Bitcasino, they'll probably do the higher limits, and we kind of compete somewhere in there as well. Our plan is to be mass market, so we want to appeal to the smaller users, the medium users and the bigger users. We're trying to do all three. And different casinos will offer different experiences. I think Stake is more mass market as well, whereas maybe a Bitcasino is more targeted towards VIP. But for us, on Shuffle, you can comfortably come on and deposit $2 million, run it up to $10 million, withdraw $10 million, and you'll be fine. That's kind of the area of the upper limits of where we're at currently, and as the platform grows, we will obviously offer more. But I think, not just for crypto casinos, but for all betting sites in general, sometimes it's about surviving. I think some platforms scale too fast, they take on too much risk. We want to be here, we want to be the betting brand, especially in crypto, for the next decade. And so we've said no to a lot of players, and they go, oh, we'll just go back to a Stake or whatever, just because we're not ready for them. So yeah, hopefully that gives you some colour on the limits there.
Opportunity in white-label platforms
Michael: Yeah, it makes a lot of sense. We'll come back to Shuffle, because I've noticed a fair few questions come through while we've been talking, but I just wanted to throw to Tom. We see a few opportunities in the space on the back of the growth of the crypto casino industry. We talk a lot about how these Aussie guys, stake.com, are quite a bit of an inspiration and a bit of a playbook for the new entrants. What do you see, Tom, as the most exciting opportunities in this space?
Tom: I see there are a lot of parallels at the moment with the changing of the guard moment at Bet365 20 years ago. The growth that these crypto operators like Shuffle, Stake and Sportsbet.io are having, I haven't seen in the gambling industry before. It's just unbelievable, and there's so much opportunity for them. They're multi-billion dollar businesses now. You've seen the likes of the Stake founders and the Sportsbet.io founders on our BRW Rich Lists. Huge, huge players globally, and it's fantastic to see. As Ishan said, three of the main top five players are Australian, which is incredible credit to Australia. But obviously, with that growth, there's huge opportunity on the supply side, and the one area that we're working on at the moment, probably taking up most of our time, is really the Shopify of crypto betting. To get a leading product like Shuffle and Stake, it requires unlimited work, engineering talent and a lot of time. But there's a huge long tail, we believe, in the crypto space. To give you some context, there are 130 online bookmakers in the Australian market, with high taxes, high friction and so on. Back when there was less friction, before the TAB came in, there were 6,000 SP bookies in just New South Wales. There were 400 bookies at Randwick every Saturday, let alone all the other tracks around New South Wales. So we believe that with less friction, and the ability to get up and going very quickly, there's a huge opportunity for a long tail of these followers trying to emulate the success of Shuffle and Stake and so on. So we've been focusing on that. Now, there are a lot of competitors in the space where you can go and white label a platform, but we think if you can offer a service, a Shopify experience, where in a day you're up and running with your own branded platform, with your payment rails, with your data feeds and so on, there are going to be a lot of young, aspiring entrepreneurs that want to get into this exciting space and really follow what these guys have done, and the amazing job they've done to grow billion dollar businesses in, well, it's not tens of years, it's a couple of years. It's just amazing. So we've been spending a lot of time on that. Obviously, we've got to execute the opportunity and acquire the option in that type of business, but that's something we're working on, and hopefully we'll update our investors early in the new year.
Challenges of running a crypto casino
Michael: We might get started on questions. We've had a few come through during the week, and a few come through while we've been talking. I'll start with one from Alex, and this is probably a good one for you, Ishan. You touched on some of the advantages of being a crypto casino, like having the payment rails and being able to do the bigger limits. What are the main challenges, though? Do the traditional operators have any advantages over the crypto ones?
Ishan: Like I'd mentioned, the biggest challenge is that you cannot do PPC. So you can't just pay for ads and acquire a user. You have to get creative. That's primarily the reason why a lot of these new age crypto casinos, like Stake, went to influencers and started working with them. So if you don't have an edge in that, it's a very complicated and challenging road ahead. A big casino, or a Sportsbet.io, or a Blaze, there are a few others, they'll pick a region and then they're really good at dominating the affiliate market there. So I'd say it's highly competitive on the marketing front. Everything else seems way easier. From what I've heard, it's a lot easier to operate a crypto casino than a traditional fiat casino, in almost all respects, except for the marketing. But I will say maybe the product side is probably a good one as well. As Tom mentioned, there are probably a few out there that let you white label a crypto casino, but the products aren't that great, and it's not the full site as well. So I agree with Tom, actually, that there is an opportunity there. I'm looking at every single crypto casino that launches, every single week. There are a lot, and there will be a lot more when people are seeing Stake making billions of dollars, and when they start hearing about Shuffle. I think there are going to be a lot more. And to really compete in that space, a lot of the players are used to Shuffle and Stake-like experiences, so I do think the white label brands need to have a better baseline to work from, and there's currently not really, that I know of, an operator that does that. So yeah, hopefully that answers that.
Role of racing in the gambling's new frontier
Michael: Yeah. And just talking about the product suite, we've got a question from Tim. What role do you see racing having in the online gambling new frontier? I assume racing is referring to the three codes, horse, harness and greyhound racing. Maybe you want to take that one first, Tom.
Tom: Yeah, look, racing was built, in many ways, just as a gambling product. It's a terrific product, in that you've got high margin, you've got high frequency. And really, until Stake took the racing product from Racing and Sports, crypto operators focused casino first and then sportsbook, and that makes a lot of sense, because racing's really had a stronghold in jurisdictions that do not have online gaming. But I think racing globally has a big role to play, because it's a great product. It's interesting, it's got a high skill level, which is interesting for a bettor. It requires nous and experience and spending time on it, so it's very sticky once you get into it. But it's also very attractive for the operator, because if they can get their customers on that product offering, it's generally very high margin. So I think it's going to be very interesting how it progresses for Stake once they have the full suite. And as Ishan touched on, the top operators globally are going to have everything. You're going to have the best casino product, the best sportsbook product and the best racing product. Now, whether racing is 70 per cent of the wagering dollar like it is in Australia, well, that probably won't be right for crypto casinos, but it only has to be a small percentage of this huge pie globally, and it's a huge benefit to the racing industry, in race fields and all the other fees that come. So I think it's very exciting for racing. Anything to add there, Ishan?
Ishan: Yeah, I think Tom covered most of it, but the only thing I'll add is, I do think there's an overlap between people who historically love racing and the crypto crowd, in terms of the appetite for high frequency, that type of betting. I do think there's some overlap there. And I will say, there's probably another large opportunity there. Crypto operators historically haven't offered great sports betting products in general. It's always been casino first. I still look at the Oz bookies and some of the products from the traditional space, and they're a lot, lot better than what the crypto guys currently offer, including us. We're still building towards a good, just in general, sports betting product. So on that side, I think there's still a huge opportunity. We're all kind of chasing to create the best product in each vertical, casino, sportsbook, lottery. But that is probably one where a lot of crypto casinos lack, and a lot of the top operators will white label their sportsbook, and there are some big businesses there. So there's some overlap there. I see a lot of opportunities in that space, and no one's really got it completely right yet.
Turnover on casino vs originals vs sports
Michael: We've got a question from Adrian. He's keen to understand the breakdown, in terms of turnover, or GGR if you're willing, on casino versus proprietary games versus sports betting. Are you able to give us any colour there?
Ishan: Yeah, I'll give you some high level there. Casino is the bread and butter of our business. In terms of volume, let's say of that 2 billion, most of it would be our original games that we make. Now, that's also a very competitive market, I'd say, between us and Stake, and maybe a Roobet a little bit. Building those original games, from the outside they look like silly, arcadey games, but they are pretty hard to build and to scale. There's one called Plinko, where you've got these balls dropping down into multipliers. A lot of the gamblers, they want to drop 500 Plinko balls in half a second, and you have 30,000 people doing that at the same time, and they want their bets with no lag. That's actually a pretty hard engineering issue to tackle. And we actually have some news coming out on that front, where we're starting a game studio. I've met a lot of operators that were saying, hey, can we just buy your games and license your games? I do think there's probably some opportunity there as well, because they are pretty hard to build. But yeah, most of our volume will come from our proprietary games. We do good slot volume. Those proprietary games have a 1 per cent house edge, and the slots will obviously differ, between 3 to 5 per cent, so technically we'd make more money on the slots, but we have a lot more volume on our proprietary ones. And then our sportsbook, in terms of revenue, is actually pretty material. Casino will do more, but not by a whole lot, to be honest. We take some big action on our sportsbook. In terms of volume, it's obviously very different. The sportsbook is less than 10 per cent, but in terms of revenue, it far exceeds 10 per cent. So the sports angle is very interesting for us, and that's probably where we've done the most product updates and focus in the last six months, because, as I said, historically, crypto casinos have really lacked on the sports side. So hopefully that gives you a little colour there.
Handling big betting limits
Michael: Thomas has asked, how do you deal with sharp sports betting action if you have increasingly larger limits? Do you go down the path of limiting the punters, like traditional bookmakers, or do you just adjust the lines based off their action?
Ishan: I'd say it's probably more of the latter. Crypto casinos have this reputation of not blocking off a punter just because they've won. Our sports guys are kind of all over it, in terms of if someone is a very sharp bettor. But I'd say you're going to find larger limits on these crypto platforms, whether it's a Stake or a Shuffle, and it's probably a much better user experience than going over to a fiat bookie, for some of these markets that we offer in. But yeah, I'd say it's more of the latter, and less of the former.
Will Stake or Shuffle enter Australia?
Michael: Yeah, sure. From Mark, do you see the likes of Stake and Shuffle entering the Australian market soon, and in what capacity?
Ishan: I think Stake is looking to do that. For us, we're really focused on crypto, so we only offer crypto. We have on-ramps to crypto on our site, so you can use your card details and deposit using fiat to buy crypto, and it's in your wallet, but we don't actually let you play with fiat on our site. And so, for us personally, we have built our product in a modular approach, where if we wanted to attach a licence to a piece of our product, or a part of our product, we could pretty immediately offer it in a certain region. So we do have plans to eventually go into some of these, I'd say, more white markets in the future. But the main goal for us is just the crypto market. I'm very excited about the crypto market and how fast growing it is. I'd love for us to be a meaningful portion of bets by 2030, of all crypto bets, whether it's casino, sportsbook, lottery, or our games on other casinos. I'd want it to be powered by Shuffle, or Shuffle bets, in some capacity. So crypto is the main focus for us, but never say never. The Australian market seems, like I mentioned, a lot harder and more of a headache to operate in, with the regulations, taxes and a bunch of other reasons, and it's already highly competitive. There are some really great products out there already in the Australian market. Whereas in the crypto market, like I said, there are only really a few big players, and then, I'm guessing, there are probably about 1,000 to 1,500 crypto casinos that do make money, although they might be at a much smaller scale. There's still a lot of opportunity there, and crypto as a whole, the market is so large, and it's going to continuously grow, that there can be a lot of players, and there can be a lot of big businesses built, and they can coexist with each other. It's not like a winner takes all type market.
Michael: Mark has asked another question. Are there any concerns of government regulations, or taxation, or interruption to the use of crypto with gambling, especially in some more traditional regulated markets who don't allow it, i.e. Australia? I guess the question there is, you see a lot of countries crack down on crypto occasionally, maybe it's not Australia, maybe it's other ones, but can that interrupt your business at all?
Ishan: I think there'll be some countries that will go towards that. On the whole, I think the directional bet here is that crypto is going to get more widely adopted, and countries will be more open to it. You can see the red wave that just happened in the States, and everyone there is very pro crypto. I think crypto regulation, in a positive way, is coming sooner than most people think. I think a lot of people were maybe stuck in the past, five, 10 years ago, and the attitude towards crypto, I think that tide has shifted, it's gone the other way. There may be some countries that might take a harsher approach, but the United States, Hong Kong, there are a few regions that are very pro crypto, especially in what they're doing there. Singapore's pro crypto. A lot of the major powers in the world are shifting towards adopting crypto. It's the way things are going. So eventually, I think there's going to be a lot more progress on that in the next five, 10 years, and then that might trickle down into crypto gambling. But any countries where it would pose an issue for us, at least for now, we can operate with our Curaçao licence in a lot of places. We don't do it in the United States currently, or Australia, or the UK, and there are a few other countries, but there's a world outside of those countries, and there are a lot of people hungry to make a bet on products like Shuffle and Stake and whatnot. So I don't believe it would make any meaningful interruption to our business.
Deciding on launch markets
Michael: It's probably a good point to ask a question from Joe. You mentioned earlier in the piece that one of the early markets was Japan. Joe asked, how do you decide which markets you will take bets on? You've got so many to pick from. I guess you take them from all the places you can, but how do you pick the markets you actually formally launch into and try and go after?
Ishan: Yeah, I think a part of that is doing your research into some regions, and looking at all the competitors and seeing the penetration from all the competitors. So when we started, I remember sending Noah this massive research report I did on Japan, and saying, hey, this is the place for us to go and look at. It's a very fragmented market. The bettors from that market, it could be as simple as looking at the support messages. Someone from another country would bet $5, lose $5, and spend six hours of our support time, whereas in Japan, they're betting big and being very polite and respectful about it. So we're like, ah, that's the type of player that we like, and it's a region that's very fragmented. Like I said, there wasn't one player that dominates it all. And so we made, based on a few vectors, the decision to say, hey, let's really push into that market. Let's localise the site, let's run these campaigns. We've actually made a proprietary game called Waifu Tower, based on an anime woman. We're doing a bunch of stuff to really push towards appealing to that region. So it was mainly about really doing your research into a region, and seeing if you could make noise there. That's kind of how we did it.
Do crypto operators ignore South America?
Michael: We're coming up to the hour, so I might just take one more question. Ed has asked, why have crypto gaming operators neglected the value prop in Brazil and Uruguay?
Ishan: I don't think they have entirely, and I say that because the licensing structures there, the barrier to entry, is a lot higher. That's why we're not in Brazil. But that doesn't mean, there's a company called Blaze that's a crypto operator that's very large in Brazil, it might be the number one crypto operator, and fiat, sorry, fiat licensed operator there. I think the barrier to entry, and the licensing and regulation around it, has made it a bit difficult, and there's been a lot of news over the past year that made it difficult to go there. So for us, I think you see less there because you need to be a well-funded player, and like I mentioned before, it was pretty hard for us to raise money back last year. Especially over the last few years, I think it's been hard to be a crypto operator and raise money and take that approach. Whereas now, it's a little different. I see a crypto operator once a month raising tens of millions of dollars. So I think you'll definitely see more there, as people have more resources to compete in those regions where the bar is a lot higher.
Michael: Thank you, Ishan, for your time today, really appreciate it. You're building something amazing.
Ishan: Thank you guys, thank you for having me, very pleased to be here. And a shout out to the Waterhouse VC team, for really, I think you guys saw the trend of crypto and crypto casinos in general pretty early on. I know you guys did some deals before. When I met Tom last year, or maybe in 2022, you guys were already in it. So to have the foresight to jump into it is great to see, and I think more people from the traditional space should peek into what we're doing, and take a good look at it with an open mind, like you guys have. So, really appreciate it.