Sports Investing Titan’s Crypto Crash Outlook and Strategy, Paul Martino

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Venture capitalist Paul Martino made a name for himself in sports after investing in FanDuel early on. He explains why it is not yet sold to crypto companies, even as they splurge in the sport. He shares 2 companies struggling with the tough growth environment in sports betting.

Paul Martino, General Partner and Co-Founder of Bullpen Capital, made a name for himself in the sports world after backing sports betting company FanDuel in its early days.

He invested in FanDuel when the company had just seven employees and only generated $1 million in revenue. Today, FanDuel is now owned by Flutter Entertainment (PDYPF), which is valued at $29 billion.

FanDuel has adapted Martino’s “off by one” investment strategy which looks for interesting companies that are “off by one”, which could mean that the company is based in a geography that nobody pays attention to, or is in a category not everyone in the industry likes.

Martino’s experience investing in sports and games gives him exposure to some of the top early stage startups looking to raise post-seed stage funding. But even for Martino, investing in this space in recent years has been a challenge, even after sports betting was legalized in the United States.

“We hardly invested in sports betting, games, gambling in 2018, 2019 [and] 2020,” Martino said. “And guess what in 2021, we did six.”.

Finally, the “cool stuff” arrived, Martino said with relief.

Crypto Madness

Some might assume that “cool stuff” means crypto. After all, it was the dominant theme that captured the attention of the investment community last year.

Venture capitalists poured more than $23 billion into the market last year, more than the previous four years combined, according to CoinDesk Research’s 2021 annual report.

Venture Capital Funding Raised by Crypto Firms from CoinDesk Research’s 2021 Annual Report CoinDesk Research

He also made waves within the sports community. Crypto exchange FTX has major partnerships with sports superstars, such as NBA’s Steph Curry and NFL’s Tom Brady. While Crypto.com got the Staples arena naming rights.

Several crypto companies are also running ads at this year’s Super Bowl. According to the Wall Street Journal, NBCUniversal, which airs the NFL Championship Game on Feb. 13, is asking about $6.5 million for a 30-second ad.

Despite the synergies between the three worlds, Martino remains wary, at a time when most VCs are jumping headlong into Web 3.0.

“We’re very cautious about crypto, not because we don’t think it’s the next big thing,” Martino said. “Actually, we do, but we’re in the ‘hype phase’. He has to come back to Earth before the real growth happens.”

In Martino’s eyes, the synergies between crypto companies and sports currently boil down to companies that need to grab the attention of a mass audience.

“You can’t advertise on Netflix,” Martino said. “No one’s hardly going to see movies. Do they? So what are you going to do? Got more money than you know what to do with? You’re going to buy live sports .”

Crypto.com’s publicity with Matt Damon and the company’s marketing blitz are demonstrative of the hype in the crypto industry, Martino said. A correction is inevitable, he said.

“We prefer to stay out of the hype phase,” Martino said. “There’s no doubt that Matt Damon has been watching wildcard games all weekend, I think that announcement will go down in history.”

Since Insider spoke with Martino on Wednesday, crypto indicators such as bitcoin (BTC) and ether (ETH) have fallen more than 10% in the past five days. More speculative alt-coins were even harder hit, such as cardano (ADA) which fell 24%.

The drop comes amid the tech-focused U.S. index, with the NASDAQ entering correction territory after falling more than 10% from its previous high. Many investors are moving away from expensive growth stocks that sit on the NASDAQ as the Federal Reserve raises interest rates and tightens monetary policy.

“If too many people are talking about Web 3.0 it makes us nervous, we’d rather invest once it starts coming back to Earth,” Martino said. “What we continue to do a lot is look for overlooked companies, overlooked categories, and overlooked founders.”

Sports Betting Outlook

Martino takes a similar approach when looking at the broader US sports betting industry, which is becoming increasingly competitive.

Sports betting is a low-margin business, Martino said. He thinks companies that combine sports betting with online casinos and iGaming will see the most success.

“This transfer of [daily fantasy sports] people [to] sports bettors, DFS people are now becoming casino gamblers,” Martino said. “That’s where I think a lot of the action will be in 2022.”

Investors should pay close attention to the CAC to LTV ratio, which measures the cost of acquiring a customer relative to their lifetime value.

“I don’t think we’re close to the end of growth in these categories,” Martino said. “But I think some of the completely irrational initial overvaluation was being corrected.”

Market opportunities

Due to this tough market, Martino has looked outside of the United States for his last three game deals.

“It’s not that we’re going to look exclusively internationally, but those opportunities were much more attractive to us given the US market,” Martino said.

He highlights two under-the-radar sports businesses he is betting on.

1) King of Pitaco

Rei do Pitaco is a daily Brazilian fantasy sports mobile application. Bullpen Capital participated in the seed round as well as the recent Series A round where the company raised $32 million.

“Nigel Eccles has become the president and we will be launching the FanDuel playbook again,” Martino said.

2) Draft

Draftea is also a daily fantasy sports app operating in Mexico. Bullpen Capital participated in the round alongside companies like Sequoia.

“Mexico has the coolest sports calendar of all,” Martino said. “They don’t just have everything in Mexico, they have everything in South America and they have the NBA and the NFL. You literally have an absolutely brilliant one-year timeline for reactivation across all sports and all geographies. .”

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