Draft Kings: Blockchain, Sports & Digital Collectibles Feat. Matt Kalish (CoFounder & President)

Doing well, Anthony. How are you?

Yeah, so DraftKings is in the US the leading fantasy sports operator. We in the last five years have also expanded our product offering into sports betting and iGaming where we're also in really nice market leadership positions. And most recently we launched DraftKings Marketplace and entered into a few new ventures in Web3. And so kind of multi-product brand at this point in the US that has over 10 million customers who pay to compete in fantasy sports contests, or you know, partake in sports betting, iGaming, and collecting.

So about 12 years back we launched DraftKings initially for the Major League Baseball season and we offered daily fantasy sports primarily, which is one day length fantasy competition where you build one or more lineups and then you're competing against other people's lineups that they've created. And based on the fantasy points that they earn through their real life performance, you get a ranking in your tournament and you could win prizes as big as a million dollars during football season, every single week. And it's based on a salary cap. So you can't just go take all the very best players at every position. You have a budget and you have to kind of determine who you want to spend up for, what sleepers you think might have a good week that historically haven't been as good. And then we've also introduced new products like Best Ball for example, which is at the start of the football season, you draft a team and you ride with them all season long. We'll kind of optimize your lineup for you and whoever drafted the best team in the preseason, they win at the end of the year based on the season long performance. So it's a few different versions of fantasy and the most popular today is daily fantasy sports.

Yeah, over the last 10 years, we built a bunch of products that are really meant to serve the sports fan in the US. Not just generic sports fan, but like a skin in the game type of sports fan. Like they want to be predicting things. They want to have something on the line. The competition, and that spirit of competition is big. And there's lots of forms of that today, but 10 years back it actually wasn't that amazing in the US to be a sports fan. There was like not much going on. Sports betting wasn't offered almost anywhere in the country aside from Las Vegas. You know, fantasy sports was mainly office pools that people would play on ESPN or Yahoo, the big media company platforms. Those were often free or maybe it's like $20 that you're playing with your co-workers. And there wasn't really any outlet though. If you're like a serious competitor, you really want to go after it. You want to play day in day out. The other thing too is the draft is the best part of fantasy. Everyone loves drafting and so we had this idea of daily fantasy where every day you can draft a new team and you're not just stuck with what you picked at the start of the year. You can take days off, weeks off. It's not like a penalty if you don't set a lineup for a week straight. You can just jump in anytime you want. So the heart and soul of the company was always serving that skin in the game customer. And when we launched sports betting five years ago we became a leader in that mainly due to the brand strength and people think of DraftKings as where you go to compete to win money on sports etc. And you know, I guess 2021, like kind of in the midst of COVID, there was a lot of attention from our audience going into collecting and alt investment like stuff like physical sports cards but also NFTs and some of the momentum around crypto and some of the new blockchain projects were really becoming more and more popular. Like if you think of NBA Top Shots for example, some of these projects started to take a lot of mind share and we were just seeing more and more attention going towards the idea of collecting and alt investment categories. And so at DraftKings we built up a blockchain solution. DraftKings Marketplace is the consumer facing kind of brand. And initially we were doing some stuff in the collectible space and then over the course of 6 months or so we really gravitated towards a single project that DraftKings is focused on now in Web3 which is called Rainmakers. And it kind of brings together everybody's favorite things. Rainmakers is a fantasy game. It's a collecting process, like you're opening packs to collect athletes that you can use in your fantasy teams throughout the year. You can compete for over $30 million of prizes this NFL season just based on using the cards that you own with no fee. On top of that, it has aspects of things like Madden Ultimate Team where you just build and improve your team over time and compete with it and it gets better and better and then you compete better. That virtuous cycle of improvement of your team. People who like games like Magic the Gathering, like competitive card battling games, all of these things are kind of converged into this one product called Rainmakers, which is collect a team, use it to compete in fantasy, and then you can win your share of over 30 million of prizes this football season.

Yeah, that's right. And we see people, they have opinions about who's going to have a good season. So the marketplace is very vibrant. Like we have one of the top performing projects if you look at some of the industry leaderboards and stuff like that. There's a lot of activity around trading the cards. So people can list them up for sale at a certain price on the marketplace. They can get offers and kind of buy and sell different cards in real time throughout the season. And so there's that kind of speculation about like this card is going to grow in value if the player has a good season and they're more helpful in the fantasy game, winning prizing.

Yeah, so the collections that people build have utility into the future. There's a ton of utility for the current season cards and then out into the future. Like last season's cards are being used to compete this year, but also to improve your collection this year. Like you can kind of trade them in and get new cards for the current season. So there's a bunch of different utility around once you own a player's card, you can use it for competition. You can use it to redeem for rewards in the current season, etc. There's leaderboards, like collector score type leaderboards and a bunch of different missions, achievements, lots of ways that you can kind of play the game and use the cards to earn and to have utility. And our core platform in fantasy is really super built out and amazing. We already have fantasy games that we're running every single day across over a dozen sports. And we're really using that same technology platform and applying it in Rainmakers. So the main difference is the draft, like you're using NFT player cards that you own to fill your roster and once you use it then it's used and for that week you can only use it once. So there's a constrained supply around how many lineups there could ever be based on the NFT supply. And that's a little different than our business that's in cash, which is anyone who wants to play can just jump in. And so it's a little bit more of like you have these assets, you figure out what you want to use where in which fantasy competitions and what prizes you want to go for.

We have a lot of flexibility, our technology is quite flexible in terms of, for example we mint on Polygon. We have a great relationship with Polygon, we're one of the largest validators and one of the biggest users of the blockchain in general. And so we mint on Polygon into a custodial wallet that DraftKings has and then we kind of keep a ledger of ownership. And so there is flexibility though in our tech to off-ramp into, for example, if you wanted to take it off DraftKings off-chain, we have projects like that we've done in the collectible space where people can do that such as Autograph. And it's something that because in Rainmakers it's so endemic to the experience to be able to compete with the cards in fantasy, we're not focused really on that aspect of like super flexible on-ramp, off-ramp, it's much more focused on just building an amazing experience on platform. And that being said, the future has a lot of possibilities. And I think right now is a little bit of a unique time in blockchain or in decentralized blockchain land where there's a little bit of bad news out there. There's a little bit of uncertainty. There's a lot of people getting scammed or fraud or whatever, lots of things to work through where we thought it prudent to protect the experience early on. And I think over time though there's a lot of flexibility in terms of how to think about to what extent it would make sense to have an on-platform and off-platform presence with Rainmakers.

Yeah. The space we play in at DraftKings is so first it's regulated because we have gambling licenses and we have like both in fantasy for real money as well as sports betting, casino licenses, etc. So we have a very high standard around any product we operate we would want to make sure that it's compliant, that regulators are approving the product. So there's a lot of sometimes rules that can come into play involved with that and education is even a challenge a lot of the time when you're talking to say a regulator or something. Everybody's not equally up to speed on blockchain technology and what the implications, you see it in the news when people are talking about crypto. It's like not everybody has the same level of knowledge about the product, the technology. So sometimes decisions get made that don't necessarily, it might not make sense but it is based on a limited amount of information that decision makers have. And then the other thing is our Rainmakers product is licensed. So we have licensed IP through the NFLPA and so we can use player images and likeness and sharing the profits with the players and all of that. And so that just creates another stakeholder where we want to make sure that we're collaborating. And so it's really this kind of combination of the innovative spirit of the game plus this amazing IP that we're getting from NFLPA plus making sure we're operating in a way that is infallible basically. So we're putting those pieces together and doing it all quite rapidly. So I would say 18 months in market. So a ton of work has been undertaken and our road map is long and feels very much like a startup inside the company I would say.

Season one was definitely I would consider it a minimum viable product. It was you would collect cards through auctions or through opening packs and then you could compete with them in fantasy. And we had a couple other mechanics that were pretty simple in addition to winning fantasy contests to earn prizing which were a leaderboard based program that had rewards based on quality of your collection, some missions and achievements that were pretty limited and that was pretty much the whole story. Coming into this season, we've really enhanced the game quite a bit and people playing will notice the quality of the experience is way better, but there's also a lot of new mechanics. So like probably the most interesting to me is what we call our craft and burn portal. So, this is where you can take cards that you own, put it into this engine, and then it pumps out a new NFT. So, there's recipes that you can fill out where you're like, 'Here's five cards from last season. Give me a new pack for the current season or whatever.' And so the recipes are predefined. People can now engage with that to improve their collection or just own control over their NFTs more, make more decisions. So that's a big piece. We've started to do digital pack breaks as a distribution format which is something that's really popular. So the way that works is it would be a group of people who are sharing the output of packs as a nice experience where maybe you're getting like the first quarterback that gets pulled out of a pack or something like that. So it can get fractionalized and then people have that experience of like if the thing I'm looking for comes out then I get it. And so it's a new format that's become more and more popular and more of our pack sales are kind of coming from that. There's a lot more in our core products integration. So like when you're playing daily fantasy sports, the same thing you would do with cash. There's also tournaments now that have Rainmakers prizing so you can build your collection just playing the other games on the site. Major improvements to our leaderboard, our missions, our achievements platforms, like all of that has been enhanced. So, it's just a much deeper experience and so much less of that minimum viable product feel and it's like an actual product that's getting closer to a place where we're very very excited about going big with it.

Yeah, right now the biggest time of the year for that because the content, like you want to have the cards to use going into week one. People are playing now even in the preseason. Like we had a preseason, I think it was the fifth of August or sixth of August it went live before the first week of preseason. We even had people opening those initial packs so they could compete in those games but you really want to be building your collection now so you can use it in week one, week two, just get the most utility from the cards. If you buy them in week four you miss like three weeks of the season. So, the whole idea is like people are opening lots of packs now. They're trading in the marketplace, trying to build up their collection, making their strategies for the year. Also there's some decisions to be made about what tier of the game you want to play at. Like we have five tiers of core, rare, elite, legendary up to Rainmaker. And the cards are increasingly scarce as you get to higher levels. And the prizes get way bigger. So people are working on also improving their collection's rarity so they can go after contests that require more rare cards. So it's a strategy time of the year. It's like a building your collection time of the year. And then once the season starts, that's when people are really just competing, yielding out utility and prizing and all of that.

Yeah, that's a really important part of the game to think about your multi-year strategy for sure. A lot of people at the end of last season because football season is six months out of the year or so, September through February, and so we definitely noticed that there was players who didn't really want to just sit on and hold cards from February to September so they would go hit the marketplace and sell them and then there was people who were trying to buy end of season just because there was more value there and they were comfortable just holding and using the utility of the cards in a few months when the season kicks off again. So, there's a lot of time-based decision making that's going on in terms of when people are buying what they're buying. Anytime there's a change in depth chart too, we see just lots of action or if there's speculation like a quarterback who's not doing well, people

Start to really want to be stocking up on like who's next if that situation doesn't work out. So you really see the reflection of what's happening in real life in the market and you know all of the data that's available out there in terms of you know the transactions in the marketplace and players values over time. It's really fascinating data.

What comes to mind was there was a Cooper Kupp who was he's a wide receiver had like the best season a wide receiver has ever had in 2021-22 season and so last year coming in I believe he had the highest sale which was $25,000 Cooper Kupp Rainmaker. There was countless like multi thousands of dollar sales. The more scarce the card is and the higher quality of the player, the more fantasy points you'd expect them to earn. That drives a lot of the value and kind of like looking into the future too. It's fascinating to think about, hey, if we can really figure out how to bring together this intersection of fantasy player, collectors, you know, people who go out and buy, for example, physical sports cards, Panini or whatever, right? That side of the world. People who love battling with TCG card games. Madden Ultimate Team players, like I think we'll start to even see more than that. It won't just be as simple as, they're going to score a lot of fantasy points and it's rare, so I'll pay a lot, but I think there'll also be like collector affinity and other things that start to come into play. So, over time, we're really hoping our roadmap like unlocks more and more not just a utility for the card, but more types of customers, more types of collectors that then kind of broaden out the overall ecosystem and just create more and more value for different pockets of cards, you know.

So we don't play because of company rules we don't anything that's peer-to-peer the employees don't play because that's kind of a no-go. We run the games. We have a lot of information on like our database has every transaction happen. Just felt it would be unfair and in some cases there's even regulations about that. So, we stay away from actually competing in the game. But, geez, I don't know. I mean, I always thought pulling Tom Brady's was cool because it was his last season. So, probably something like Tom Brady would have been my favorite pull to see. Wasn't the most valuable, but I thought, you know, going down this thesis of over time, what cards have a storyline? It's typically rookies or it'd be like if it's somebody like Tom Brady, the first and only season where he has content in the game. So maybe it's not even usable in fantasy, but it has that inherent like cool factor in the collector value.