U.S. DFS Remains Strong Even as New Competition Emerges, Dabble CEO Tom Rundle Says in Gambling Industry Q&A

It seems rather fitting that Tom Rundle landed his current job, CEO of Dabble, through a social media connection.

Dabble operates in Australia, where Rundle is from, along with the United Kingdom and United States. In the U.S., it operates daily fantasy sports in more than 30 states. But what Rundle says sets Dabble apart from other operators is how it incorporates social media into its platform as a way to let DFS players connect with others.

Rundle has worked in gaming for more than 20 years. That includes a stint at PointsBet, where he served as COO as the Australian sportsbook entered the U.S. market.

Recently, he sat down with Gambling Insider to discuss how he got involved with Dabble, as well as his thoughts on daily fantasy sports and the U.S. market.

The following has been edited for brevity.

GA: How did you get involved in Dabble, and how has the company grown over the last six years?

TR: There were three founders (Chief Strategy Officer Jon Robin, Chief Product Officer David Robin, and Chief Technology Officer Scott Hutchens) who realized people were getting onto social media and sharing tips and not sharing what they were betting on, their picks. They were sort of copying each other and having the same bets, and then they were coming back to some of these big Facebook groups and other pages, and just talking about and celebrating their wins.

So the idea was, what if that whole ecosystem – the chat, the comments, the picks, and the copying of bets – could all be done on the one platform?

They actually found me on LinkedIn. It was the middle of the pandemic. I was locked down at my in-laws’ house, which was about an hour from where one of the brothers was living. We met, and I started off just consulting, helping them with the plan of how they were going to get a license and how we were going to hire a team to build out and operate the business.

They had a pretty good idea about how they would market and get the customers through social media, and Scott had a pretty good idea that we probably needed to build our own platform. There were some title platforms out there, but we figured we probably need to start from scratch, because of the fact that we’re trying to do something quite innovative and different.

It took about 12 months before we got to market in Australia, and then it was probably about 18 months in that we decided that the U.S. market, which we had always been interested in, was pretty fertile in the DFS space.

We launched in the U.S. two years later, and since then, we launched in the U.K. about 12 months ago. We’re in three locations now, and they’re all quite different in terms of the offering based on the laws of the land and based on what we can offer. But we’re using pretty much the same tech everywhere. It’s our own platform, and we’ve got the same concept: You come on. You’re part of a community, a bit like a social media platform. You can see what other people are doing in terms of their picks. You can copy them, chat about them whilst the matches are going on, talk about how lucky you were or how unlucky you were, and then just generally chat about what’s happening next.

We actually have live streams where it’s a little bit like Twitch, where you can have a chat while the stream’s going on, and the stream is talking to the community who are chatting to them. In many ways, it’s a bit of a link between Instagram and, say, DraftKings, in Australia. In the US, it’s a DFS, like PrizePicks. But we have the social conversations on our platform rather than actually off-platform.

GA: You mentioned the tech stack that Dabble built in-house. Obviously, that takes more time to develop, but was that something you felt the company just could not farm out because of the unique proposition Dabble presented?

TR: We actually spoke to all of the key providers that we could have used, and to be fair, there’s a lot of features that we could have done with that we didn’t have at the start. When you’re building your own platform, you’ve got to start with something very small, just to test and learn. We went out with fixed odds in place for just horse racing with the social side of things, just to see how it would go, and we got some really positive early feedback. Then we were really confident at that point that this proposition was going to work.

It was definitely a risk, but I think it depends on how big you want to be. Like, if you want to just service a niche with somebody else’s engine, that’s OK. We sort of got under the hood and started looking at these third parties. We realized that the effort to understand how they work and layer on top was going to create a blocker at some point.

One of the advantages we had was that our CTO, Scott, previously worked for a company that was an affiliate and became an operator. He converted a lot of the code that the company was using to a modern tech stack. I’d also worked for a business about 20 years ago that built a wagering platform for a bookmaker that took bets over the phone. In terms of the fundamentals of what a platform looked like, how complex it needed to be, and how it might work until we scale, we actually had a bit of experience with that, which was quite rare. So we were pretty well placed.

GA: What makes Dabble different than others in daily fantasy and sports gaming?

TR: The main difference between us and other operators is something that we need to talk about. Because the public, at some point, and this has happened very much in Australia recently, turned on operators. They don’t like the ads. They don’t like the stories, and they don’t like the fact that there’s a negative externality when it comes to wagering, particularly online.

Consumer protections are important. Unfortunately, a lot of regulations don’t protect consumers, even though they’re intended to, and there is a vulnerability of people when it comes to problem gambling.

I think our whole business model was set up to be exactly what the word says, it’s a dabble. One of the elements of daily fantasy sports is that it’s fun when it comes to people betting in a group. The stakes are generally very low and very affordable. I think our average stake is less than $5 (U.S.) for copied entries.

In talking about the 18-, 19-, and 20-year-olds, our experience is that we don’t even really advertise to them because they’re not really worth that much money. They’ve got no money, and there’s a lot of narrative around young men, in particular, being vulnerable. But the evidence is that it’s the people, once they have jobs in their 20s and early 30s, who are actually more actively involved in DFS.

From our perspective, we differentiate ourselves quite a lot from other operators, because we encourage lower stakes for high prizes, and it’s very much a fun place. We’re actually part of a group called the Coalition for Fantasy Sports. Three of the operators — Underdog, PricePicks, and Dabble — are involved in a trial where, at a national level, customers can self-exclude across all operators. Once they self-exclude, they can be asked if they want to be excluded from everywhere. Once they [say] yes, those people, when they try to sign up or place an entry with PrizePicks or Underdog, are unable to do so.

These are the kinds of initiatives without strong regulations that we’ve proactively implemented ourselves. I’ve seen what happens in places like Australia and the U.K., where you have a very expensive system that doesn’t work very well. Our U.S. system is much better, cheaper and easier to run. That’s probably one area where I think it’s really important, compared to a prediction market or a sweepstakes or some of these other products. They simply don’t have the consumer protections. We’re probably in some ways a little bit lucky in that we’ve experienced a more mature market where that’s really important in the way that regulations are written, and so we’ve come in with that mindset of ‘we want to make sure that we protect the players as much as possible and try and keep the stakes low and fun.’

GA: Why do people play daily fantasy? What’s the advantage of entering a daily fantasy contest versus playing a parlay at a sportsbook?

TR: The main advantage is simplicity. Sportsbooks are largely based on the way that European books have emerged. This comes back to a lot of the historical context of third-party providers, where you’ve got a screen, and you’ve got huge marketing offers. You’ve got a layout, which is increasingly complex, because as products have been added and added and added, they’re crammed to your screen.

I think daily fantasy sports came from a much different way of looking at things, where you spend the time to build your team. It’s not rush, rush, rush, place a bet, get a bonus. The layouts tend to be cleaner. There’s definitely a difference between our daily fans, or picking products, and our sportsbook product. In that sense, the picking product is just cleaner and easier to use.

Our payouts in the past have been largely fixed and pretty simple. You have a four-leg pick remits 10x. The five-leg pick remits 20x. People know what they’re getting when they add a new selection.

I think there’s also a trend away from teams to individuals. This has again been a global phenomenon. You look at the NBA, for example. People follow LeBron. They don’t necessarily follow the Lakers or the Cavs.

I think there’s a huge difference between college and pro sports like that. In college, people have their team, but in pro sports, they often just follow the top 20 players. We find, I think, half of our entries in the NBA feature the top 25 players’ points.

The other thing, too, is when you’re betting on a team, your team might have a blowout. They’re down by 30. You predicted them to win by 10. You’re pretty much gone by the start of the second quarter. You can’t win. Whereas with player-based, particularly touchdowns, if you’ve got somebody to score a touchdown, you’re in that, right up until the last quarter, the final whistle. With player-based wagering, you generally have the whole game to enjoy, and as a result, the moments are often bigger as well. If you’ve got a player over and they get a couple of threes or they get a touchdown, the emotional attachment and impact are higher in those moments.

So, I think the combination of the trend towards players and just the fact that daily fantasy sports, our entry placement is just cleaner, is a lot more attractive. Even in the U.S. sportsbooks, for example, the way that odds are presented with the pluses and the minuses, that’s a legacy of credit betting from 50 years ago. It’s just so irrelevant today with cash placement. Whereas the way DFS describes odds as a multiple of the stake by 10x or 20x, it’s the way it’s certainly done in Australia and increasingly around the world. Just a lot simpler and easier to use, and for a lot of people, that’s all they want.

GA: Does Dabble have any thoughts of becoming a sportsbook in the States?

TR: We’re still very interested. You mentioned at the start that there are kind of 50 different sets of rules. One of the biggest problems that you have in the U.S. is just the restrictive market access rules in each state. Some states, like Colorado, have separate sportsbook and daily fantasy regimes, a healthy level of competition, and pretty sensible rules. Unfortunately, that’s pretty rare. The one thing that is true of online gambling globally is that governments like to get probably a little bit too involved to maximize their revenue. You get places like Pennsylvania, you’re going to pay $10 million up front. New York, there’s only nine licenses, but they go for over $20 million each. Some of the tax rates in other parts are pretty prohibitive. So, I think we look at each of those states as individual opportunities to get into a market. If we’re going to spend a lot of time and effort and money with a huge compliance burden for a customer base that might be a state that has a population of only 4 or 5 million people, we’re probably better off looking at a different part of the world to expand into.

That’s one of the reasons why daily fantasy sports was so attractive. It is a smaller niche. Only a smaller number of options are allowed, but at least the overhead and the market entry costs are smaller. There’s more of an appetite for us to take a risk on those.

GA: Daily fantasy in most states has a minimum age of 18, the same as prediction markets. How has Dabble’s business, and DFS in general, been affected by the rise of prediction markets?

TR: The biggest challenge with prediction markets is just the cost of acquisition. They’ve obviously got a lot more advertising in the market, which means if they’re spending a lot, that pushes our costs up. And that means our ability to grow quickly at a reasonably low cost is challenged, so we have to pull back a little or be a bit more careful about where we advertise to our core base. We’ve got 3 million people who have signed up in the U.S., a lot of those people have multiple apps.

I think in things like college sports, where people follow teams, prediction markets have done really well. I think half their handle comes from college for that reason.

When it comes to the simplicity of placing an entry using a DFS app. The fact that it’s fun. It’s got the social element. We haven’t really seen a huge problem with our existing base. We tend to have a lot of loyal customers, and we’ve been able to retain those. As I said before, a lot of them probably use multiple apps, and now, instead of just using us and maybe other DFS apps, they’re using some prediction market apps as well. So perhaps the revenue per player might be affected, but I think the biggest challenge is actually just in terms of our ability to grow quickly. That’s obviously a challenge that we’re up for, and luckily, we got in a couple of years before prediction markets, so we’ve got a healthy base to service at the moment.

GA: Should prediction markets win the legal battle in the U.S. to offer sports betting, is that something that would interest Dabble moving forward?

TR: Absolutely, and we’d talked to some of the exchanges in the past to see how it might work for us. There’s a couple of different routes you can go down. Obviously, you can go down the DraftKings route, which I think is probably the route that most larger operators will go down. Where you actually own the exchange, and you have a lot of control over the price making into that exchange, as well as the customer experience from it. It essentially operates really no different from a platform engine with a restricted exchange. That means you can control the revenue at each element of the stack.

I think, at the moment, if you separate everything into its parts, most of the money is going to be made by the price makers. The way we make money, in simple terms, is a bit like the opposite. It’s a bit like an insurance company. We aggregate risk. Lots of people want to have 1,000x or 100x entries. Because we only pay out a small proportion of that, we’re able to take on all of that risk. That’s where we can command a margin, and that can form our profit in prediction markets.

As it is today, we’re not price makers because we’re using third-party feeds, and so the way prediction markets work is that all of the risk aggregation is done essentially by the market makers. That’s where all the margin is, and all of the operators that operate as a broker to bring customers into the prediction market just command a broker fee, which is much smaller than what your margin will be on a sportsbook or a daily fantasy sports platform.

As a result, if we invest all the time and effort into a prediction market, all we’re doing is allowing a market maker to take a big chunk of the revenue from our customers. So, until we can actually control the margin across all the elements of the stack end-to-end, then I think it would be hard. You can go down the path of what some of our competitors have done in the DFS space, where they’ve integrated entry types that you can’t have on daily fantasy sports. Like picks on a team in daily fantasy sports, and so you keep all the margin for your daily fantasy sports component, but you give up the margin from the team. That’s definitely one possible way of going.

The other way is actually just carving out the niche of a certain type of market. In our case, we have eight-leg pick ‘ems, which we offer 100x, and 12-leg, we offer 1,000x. If we could convert those to prediction markets, perhaps we might be able to carve out a niche, but I think the biggest challenge is the way the economics work. Until we can actually get a big chunk of the margin that the market makers make, we’re probably going to continue to watch rather than actually actively go all in, especially given we’re a global business.

And there’s a lot of other markets that we’re quite interested in. We’re interested in Canada. We’ve looked at licensing there. We’ve actually applied for some licensing in Canada, looking to grow into that market, and at this stage, we see the certainty of that market and the alignment of our product suite more attractive than going into parts of the U.S.