The Gamification of Sports | Sports and the World of Digital Innovation | October 12, 2021

(upbeat music) My lessons, if you will, of this particular series is about the intersection of sports and digital innovation. So last week I gave a lecture, can we call it a lecture? About sports and digital media, and some of you were here last week. And this week we're gonna talk about sports and the idea of gamifying sports that we call gamification. That's actually a very big scope area. Gamification involving different ways of presenting the game, how fans engage with the game, and also wil

l touch upon kind of a very new trend; sports betting. The reason we're going into this is, from my perspective as owner of the Brooklyn Nets and two lacrosse teams indoors in the indoor league, and also an investor in the PLL, the field lacrosse league, I see a lot of activity going on regarding innovation, digitization, gamification, all revolved around the idea of sports IP. So as a team owner, as a participant in a league, the league and the team's own intellectual property. Here you have, k

ind of at the center, intellectual property is kind of a monopoly business if you will. If you think about the NBA, it's the one league in the world where the best players will come and play in the NBA. I don't think that will change. And there's only 30 teams in the NBA. So that is a very long lasting property right that the owners and the league own, and our job as business people is to find new ways to monetize against that right. So that's kind of what I wanted to talk about, how we're doing

it. Today's lesson is about gamification and I would break down gamification into sort of two big areas. One is game gaming, just playing games involving sports. The other one is how a fan can engage with a game in a sort of high degree of frequency so that, we all want fans to engage with, not just come buy tickets, come to see the game, but also watch the games on TV, and also find other ways to engage with the game so that it'll increase the media value of our IP. So, these are the two big a

reas. I'll talk about video games first. So today, how many of you play video games? Probably a lot. Actually, I'm surprised not more than half. Yet. Maybe some of you are too shy to raise your hand. I see my 15 year old son, he's sitting in front of a computer playing video games all day. So, the video gaming industry is very, very large. Currently it's a over $170 billion, is expected to grow to $200 billion, and it involves a lot of different games. Not all of them are sports related, but if

you could see here, sports related game sector is actually one of the top sort of, these sports titles, NBA 2K, NFL, Madden, they're like one of the top titles in sort of these gaming industry. So there's a lot of participants. A lot of people play sports games. And the other thing that's very interesting is, if you think about the gaming business model, people don't just pay to play the game, they actually, most of the monetization and the revenues are being generated from the in game activity.

So if you wanna buy a weapon, or you wanna buy a skin for your character, that's how this works. So, this slide shows, actually, that micro transactions for NBA 2K is a very, very significant part of the monetization. Alright. So the data here indicates that now micro transactions is about 75% of the total gaming revenues. We will talk a little bit about, if you think about micro transactions, it's not just people paying to play the game, it's paying to have further engagement with other player

s, paying to participate, and paying to improve yourself within the game. So I think that's where we're going. I want you to remember the word engagement, how fans engage with the game. It's not just about buying a ticket to the arena, to the stadium. It's other ways digitally, how fans can engage with the game. And here we wanna give you a few examples of the gamification of media. And since I'm an older guy, it's kinda hard for me to explain because it's not intuitive to me, so I'm gonna ask m

y colleague Rich Tao to go through a few examples. I think it's important for you to understand how the sports has been game gamified, so Rich. So, the key first principle concept here is that this concept of gamification, so using incentives, engagement tools, personalization, to just make something more engaging, it's not just specific to video games, you're seeing it in generic media, across linear and also digital, basically. So what you have here are two starting examples, basically. One th

ing is, if any of you watch NFL, you're starting to see basically alternate broadcast. So I think this Nickelodeon broadcast was from a January 2021 game. I think it was Saints and Bears. What they did was they said, "Hey, we wanna target younger audiences, and to target younger audiences, number one, we're gonna hit a different channel." So instead of CBS, they hit a CBS cable channel, Nickelodeon. And then what they also did was they had put a bunch of graphics in it, basically, right? So what

happened was when you had a touchdown instead of a bunch of videos of the players celebrating, they put slime all over the screen, and it was a really successful thing about engaging younger audiences. What you have on the right there is a OTT product. If you remember from, those of you that were here last week, OTT's over the top, they're digital only, digital native, direct to consumer products that allow you access content without getting a cable subscription. There's an OTT product called F

1 TV. So F1 TV is a product for the formula one league where, not only do you get every game, but you also have interesting high engagement features basically built into the broadcast. What you have here, it's a little bit hard to see, but I think that's Lewis Hamilton, basically. And what they did was they put a bunch of cameras in the cars themselves, and that allows for these point of view broadcasts, basically. And again, it gets back to the first principle of how do you increase engagement?

How do you create something different? And then also maybe how do you create something for different audiences also? So viewership, expanding the pie, and also engagement, expanding the amount of time, basically, people watch per game. What you have here are two other examples. Have you guys heard of Twitch? You guys know Twitch? Some company, I think, officially founded as Twitch, it was a predecessor company called Justin TV in 2011 and it was originally founded as a streaming platform, user-

generated streaming platform, for people playing video games and that they would announce over the games and then people would watch them. Now it's this massive platform that it covers not only this soon to be $200 billion video game industry, but also sports, concerts, a bunch of other stuff in between. I think in 2020 Twitch had 17 billion hours of content that was streamed on the platform. Even today, right now I think, I was checking on my phone, there's 2 to 3 million concurrent viewers on

Twitch. It's this explosive platform. But specifically within the context of sports, what you've been seeing that's been really interesting, the gamification of sports media is that sports content's being streamed on Twitch. Why is it interesting? Well you have a couple reasons. Number one, you're targeting potentially a new audience that's gaming native. Number two, if you see over here, there's a chat screen next to Twitch streams and those of you that are Twitch native will know what I'm talk

ing about, but anytime you watch a game or a generic piece of content on Twitch, you get to interact with everybody watching the game. So you socialize the gaming experience, which is really interesting. Something else that you also see on the right hand side is Twitch also enables a concept called co-streaming, which means there's the base layer of content, but anybody, anybody in the room, can basically take that stream content, co-stream it themselves, layer on their own commentary, and it al

lows really cool personalization. Some of the folks that are watching on Twitch might not wanna see Marv Albert announcing an NBA game, but they wanna see their favorite streamer. They wanna see somebody that's maybe not even non-sport native, like Ninja, talk about an NBA game, and it's a really cool way to basically personalize the content on another platform. Do you wanna jump in? No. So, the last two slides here are kind of precursors to maybe the second session of the deck, which is the ris

e of sports betting, and fantasy sports, and a lot of these other ways that sports has become gamified. What you have here is a alternate broadcast on NBA Sports Philadelphia, that's their regional sports network that carries the Philadelphia 76ers in that local market. And what they did was they did a really cool experiment, which was on their secondary channel for NBA Sports Philadelphia, they created a alternate broadcast, both on linear and digital, that was focused just for the better. And

there's a couple augmentations here. The first one is, if you look on the screen, there's, they call it the L bar, which is like this left hand section and bottom section of each screen, they replace the traditional scores that you see there with betting oriented statistics. So I think you should see the spread, the money line, the over under, a bunch of prop bets. And this is really important because, especially as gaming, and Joe will talk about this in a little bit, gaming in the context of s

ports betting becomes legalized in this country more and more across the country, your viewers are gonna be making bets. And as they're making bets, they kinda want something personalized to the viewers that's very, very betting specific. And this is what you saw with this product that the 76ers rolled out with their partners. The other thing was maybe taking a page outta the Twitch book. They said, "Hey, maybe these folks also wanna listen to different castors." So they hired three guys and all

they basically do is they continuously talk about the updating of the line. They talk about the impact of different plays on prop bets and some of the key line oriented bets that you'll see in a sports betting. The last example, which is the other side of the coin is, as many of you guys know, the precursor to sports betting in this country was fantasy sports. You first play with your friend for the course of a league, the entire season, and then you had daily fantasy and then your sports betti

ng. And something else you're also seeing across some select markets, this is another Comcast RSN. This is NBC Sports Washington. And what they did with the folks in DC at the Washington Wizards was they created a version of the broadcast specifically tailored towards fantasy sports, basically. And one really interesting thing here was to even hype the engagement a little bit more was, in addition to having just stats and alternate casters, they also had this fun, in-game, free to play game call

ed "Predict It" where throughout the game they'd asked you these questions at the bottom. I think this question is "Who's gonna be leading with five minutes left from the first quarter, the Bucks or the Wizards?" and then you kinda tap in, and you sort of say A or B, and then at the end of the prop contest, basically, you get a small cash price. But again, if you go back to first principles, what is this all about? It's about personalizing, but it's also about increasing viewer engagement. If yo

u were watching that broadcast on the left and you clicked into the Wizards and there's five minutes left, chances are you're probably gonna watch for the entirety of the next five minutes, and more engagement, more viewers, obviously, equals more advertising dollars, higher subscriber retention, and sort of just makes the general flywheel of why media is such an important part of sports, continue to sort of evolve and increase modernization. But these are just some of the few examples. And I th

ink for the sports fans in the room, it's gonna be a really interesting couple years 'cause I think you're gonna see a lot of really, really creative ways that they're gonna keep you guys engaged, especially as digital becomes a bigger part of the picture, and also alternate viewing methods. We haven't talked about these in these slides, but like AR, VR, there's 10 million people that have Oculus units, right? What's the impact of that? Could you have a court side seat at a game that you pay for

through your Oculus platform? So those are things to come, but I think it's a really exciting time, basically, to be a sports fan, 'cause you're gonna see really, really cool, personalized, gamified, ways of consuming content. Yeah. Great, thanks Rich. So as Rich said, the precursor to sports betting is fantasy sports. So, traditional fantasy sports is you belong to a fantasy league and then you pick a team at the beginning of the season, and then you go through the rest of the season, you coul

d trade your players. At the end of the season you kinda figure out whether your team is winning or not. But then the fantasy sports world evolved. There was a couple of companies, basically Draft Kings and FanDuels, that created the concept of daily fantasy, which is every day you get to pick your own team. So you have a new team every day. Let's say you're betting on the NBA, you construct your roster on a daily basis and then at the end of the day you just add up all your stats and then see w

ho wins. This is actually not a, when I say the word bet, it actually doesn't mean gambling because from a legal standpoint, daily fantasy is considered non-gambling 'cuz these two companies, FanDuels and Draft Kings, managed to convince state legislatures and the courts that this is a skilled game, right? If you play a skilled game, then it's not gambling. But this is definitely set up the precursor for these two companies, and also a bunch of other companies, traditional betting companies, to

move into the space of sports betting. Now, I wanna spend quite a bit of time on sports betting. I know this is kind of a, maybe a touchy subject because there are a lot of integrity issues involved, which I will cover. But from a league standpoint, from a team owner standpoint, this is a massive area in terms of monetizing their IP rights. This is literally happening, as we speak, state by state, as each state is legalizing the gambling. First, any law school students here? Nobody from the law

school, okay. Well, since Rich and I both went to law school, so we kinda have to talk about a Supreme Court case. So the case that allow the states to legislate their own rules on sports betting is a case Murphy versus, I think it's Murphy versus the NCAA. So Phil Murphy is the New Jersey Governor. So he was involved in the lawsuit on behalf of the state of New Jersey. New Jersey challenged what was then a federal law that prohibited the states to allow their own sports gambling operations. It

was a federal law. So it was challenged as unconstitutional, I guess based on sort of the principle federalism, I guess, which then the Supreme Court ruled that each state should be allowed to make their own rules regarding sports betting. Let me talk about integrity later, but just talk about, I'll talk about sort of the growth. So since the Supreme Court case, if you look at over the last two years, 33 states have already legalized sports betting. And this is a trend that's, I think we expect

that over the next, say two more years, I think we will have pretty much all the states that are legalized. As we said, fantasy sports is a very good guide as to the participation of sports betting. So we expect that the market share of the whole sports betting landscape will shift as more and more other types of players coming into the space. If you just look at sort of the economics and the potential total addressable market of sports betting, in the industry there's this concept of gross gami

ng revenue. And, it's basically, you have to learn some terminology. So the handle, you start with a handle which is a total dollar amount that people have placed in bets. And then you minus the payouts, right? People win bets, so the house will have to make a payout. So the difference is whatever is left for the house to take, that's gross gaming revenue. So the gross gaming revenue on it the last few years has been growing very rapidly since state by state, the state legislatures have legalize

d gambling. This year there's a pretty big jump from 2020 to 2021. We're expected to have about $4.2 billion of gross gaming revenue in this space, in the sports betting sector. And then projected forward in the next four years could be a over $11 billion type market. We can also kinda take a look at how big this can get, right? So, if you take the UK market, the British market, which is much smaller population, on average each adult in the population will bet $60 annually. And if you extrapolat

e that number, and put that number to the U.S. population and extrapolate it, you get to about $14 billion. But here's the thing, I think it's actually gonna be much, much bigger than $14 billion in gross gaming revenue, and that's because in the UK what sport do the people bet on? Soccer. Yeah, soccer, CPL. But in the United States there's so many different sports. There's gonna be football, there's gonna be baseball, there's basketball, and hockey obviously, and lacrosse. And I actually think

that, if you look at the different sports, right, soccer is probably the least bettable sport, I think, because the game flows continuously, going back and forth, they don't even have time to place ads in a soccer game. And when do you actually place a bet, right? You could place a bet on the outcome. Who wins? What's the goal differential? But in the middle of the frame, in the middle of a play, it's very, very difficult to place a bet. I mean, they'll have bets like how many balls get kicked o

utta bounds? Think about that as a bet. Or, how many times the ball hit the crossbar, maybe. But you can't instantaneously bet on it because the game is happening right away. But if you think about sports like baseball and football, each pitch is a bettable, during the windup people actually place a bet, right? And football, it's very episodic, right? Each down is a bettable proposition. So I actually think that American sports, especially baseball and football, are gonna be much, much more bett

able propositions than the soccer. I think basketball is somewhere in between, lacrosse, maybe somewhere in between. So that's how we are thinking about sort of the space. How do we, as league and participants in the league and sports team owners, think about how we would monetize, right? This is very important. Do you think we should just directly jump into the sports books business? We become like a Las Vegas casino to allow people to bet, and we operate it. The Brooklyn Nets, do you think we

should do it? Probably not. And there's a inherent conflict of interest for a sports team or a lead to be directly involved in making a line, operating sports book. That's because we have tremendous influence in terms of the outcome of games, right? And we also have inside information, for example. Before a game betters will come up to you and ask, "Oh, hey, is Kevin Durant playing today? Before we put out the injury report." That would affect how the line is made. So, we, as sports team owners

and league owners, cannot, should not, directly participate in running a sports book, but we can still generate revenue from the player, the operators, that want to run their business. And there's several ways of doing it. The first is sponsorships. And, obviously, if you go to a, today, go to an NFL stadium or baseball stadium, or basketball arena, you'll see people advertising seeing FanDuels, Draft Kings, MGM Bet, and all these. So, on the left hand side we just show you the different leagues

and all the sponsorship deals that the leagues have sign up. This is only at the league level. Then we can also sign up team level sponsorships at Barclay Center. FanDuels, Draft Kings, may buy ads within the signage in the stadium. So, this is one way for us to monetize. And why do these people, all the sports betters, want to place sponsorship dollars with us? It's because they are in customer acquisition mode. This is especially a important phase in the first few years of betting getting leg

alized in sports, companies being formed to operate sports books, they need customers, where do they get their customers? They wanna come to the teams and the league because that's where the sports fans are. And here's the thing between sort of betting and sports; if you're a fan of Justin Bieber, you're an idolizer of Justin Bieber, but if you're a of the Brooklyn Nets, you actually have an opinion. Every sports fan has very strong opinions about whether the Brooklyn Nets are gonna win the cham

pionship, whether Kevin Duran is the best player in the league, and all those questions. And, what's the best way to express your opinion and prove yourself right? It's to place a bet. Then you win the bet, you could brag to your friends, "Hey, I won a hundred dollars today." So, if you think about the interaction between a fan and a sport, and the fan's opinionated energy can be released through betting. So that's why we feel very, very bullish about the whole space. And the next way that the l

eagues themselves can generate revenue is, to much detail to get into all the intricacies of that betting business and all the sort of value chain of that betting business, but you should know that in the betting industry there are these guys that actually capture data at every game. And why is that important? It's because the people who place bets need to look at data, they need to look at historical performance in order to understand how data, how it's gonna help them predict the future. And,

as you all know, data is used everywhere in sports, by GMs to select players, by coaches to improve their teams, and all that. And it's no different with sports betters. They wanna have an abundance of data in order to inform them as to their betting decisions. So, it then behooves the leagues to go to these data specialists and say, "We will appoint you as the official data collector and provider of data." So what's happening today is there's a couple companies, the representative companies are

a company called Genius Sports, another company which is based in Europe called Sports Radar. They collect data from games and then they will aggregate all that data and then feed the data to the betting operators so the betting operators can actually create betting products, and also display the data on whatever platform they have in order to inform their customers on what to bet. It's important for the leagues to say, "Hey, we will appoint you," let's say Genius Sports, "as the official data

provider of the NBA." So there's kind of a seal of approval. Their business model is to provide the data, sell the data to the sports betters, or the betting companies, for a fee. So that's how sort of the value chain works. You might ask "Well, anybody can just come into the arena and collect data, right? I could just send a couple guys, go into Barclays Center and capture data. I could sell that data." There's actually a rule where, if you're not the official data collector, and the official d

ata provider, you would be prevented from coming into the arena to capture data. The league views the data as proprietary to them, so it's very, very important that if you are collecting data, you get, basically, a seal of approval from the league. And for that, the league charges a fee and generates revenue. And then the third way of how sports can monetize is probably the most important, but indirect, is that if there's a lot of betting activity, then the media rights will be worth a lot more.

And that's because when people bet on sports, they're more engaged in terms of viewing sports on TV or on streaming. We have a stat here that, adults who bet on NFL games in the regular season, they watch 19 more games than the, Rich, is that 19 more games? 19 More games like per season, basically, yeah. Not 19 times more games, right? Yeah. Yeah 19 more games. So, how many games are played in the NFL? Do you know? Alright. It's very simple. Each NFL team this season will play 17 games, right?

And there are 32 teams in the league. So what's the math? Anybody? With those two data, 32 teams in the league, 17 games, how many regular season games are there? How do you mathematically derive the number of games, regular season games? Come on. Multiply. Yep. You multiply the two numbers, but because two teams play against each other, so that's only one game, you multiply the two numbers, divide by two, that's the math. I think it works out to be what, 272 games? Right? Is that right? Okay. 2

72 games. So that means the people who bet on NFL will watch 19 games more out of the 272 games, that's actually very meaningful, very substantial. Also they're more engaged in terms of the watch time. So 11 minutes more watched. So all the sports team owners are saying, "Hey, look, if people are betting on the games, they'll be more engaged to watch the games more. That means our TV rights would be worth more." Right? So, I think that's probably the most significant translation of value in term

s of the value of sports teams and leagues, even though it's kind of indirect to sports betting. Now, I think I wanna cover something, the issue of integrity, because this is very, very important and this is what we worry about all day. If we are trying to make money from sports betting, there's an integrity element in terms of keeping the game game clean so nobody fixes games, the refs, the players, the team members, the trainer, right? If the trainer leaks some injury information to somebody,

potentially people could potentially have an advantageous information that'll help 'em with betting. So we have to make the game very, very fair. And, so here, I don't know much about how other leagues deal with the integrity issue, but I can say that in the NBA there's a massive infrastructure set up to prevent, monitor, and correct, adjust, to irregularities. You have to set up these systems in terms of prevention. For example, the NBA will send all the sports betting companies a list of all t

he employees of all the teams and the league, and they will know who these people are. And these people will, if you try to place a bet, they will know, the betting companies will know, this called a blacklist, right? So there's some way of preventing. There's massive amount of training that we do to make sure that people understand. The trainer shouldn't be talking to people, I, as the owner, shouldn't talk to people about the injury report before we publicize it, and things like that. And then

there's also a lot of monitoring that goes on. The league actually has direct relationships with the sports betting companies who will provide anonymized data on a per bet basis to the league so that league actually has a big data team to look at all that data for on a daily basis in order to catch irregularities. So if somebody all of a sudden starts to bet on a huge game between Oklahoma City and Minnesota, it'll get investigated. So, there's ways to monitor and try to capture irregularities.

So I think all these steps that's taken by the teams, and also the league ourselves, we provide our training to our employees, is actually a very, very crucial step to preserve the integrity of the game and also to let the whole betting industry develop in a healthy way. The incremental revenue and all the economics we generate is not worth the downside risk. The betting area is a area where if there are risks and if things blow up, this could just tank the whole league. It'll completely destro

y confidence of fans in the NBA or in the NFL for years and years. And that kind of damage is very, very hard to recover. So as the league we're kinda sitting pretty with the rights and you just pay us sponsorship revenue, and there's like almost zero cost to getting sponsorships, right? The margin is like 80, 90%. But the betting companies themselves, right now, and at the current state, are all, I wouldn't say struggling, but I think they are all trying to go from a law situation, to break eve

n, to making profits, at least in the case of the United States. Why is that the case? Because as states are still legalizing state by state betting, there is not enough participants, there's not enough users, that is spending the money on this. And most of these companies are in customer acquisition mode and they have to spend, they have to invest the dollars, the marketing dollars, to acquire users first, before they can get to break even. So here you could see the two representative companies

, FanDuel and Draft Kings, they're clearly in operating in negative EBITDA territory. What does a steady state look like? We look at the European betting industry and the left hand side is some of the players with their market shares, on the right hand side is the EBITDA margin. By the way, I think the business school students will understand what EBITDA means, but for the undergraduates, EBITDA means earnings before interests, taxes, depreciation, and amortization. Okay, so that's a measure of

operating earnings in a business. Pre tax, pre interest expense, if you have debt on the balance sheet, and pre depreciation, because that's a non cash measure. So this approximation of operating earnings and cash flow of the business. So EBITDA margins of anywhere between 20 to 30% for the European betting companies in sort of more of a steady state type of situation. Alright. We also ask ourselves, not that we wanna get into the business ourselves, because we can't and we shouldn't, but if you

are running a betting operation, sports betting operation, what are the key characteristics that will help you to be successful? I think, if you're a pure betting company, it's actually tougher, but if you are in adjacent spaces, you may have data about your fan base that could be leveraged to the betting business, you could cross sell. So for example, if you're in the business selling jerseys, who are your customers, it's sports fans. Or maybe you're in the business of selling hotdogs in stadi

ums. You might be able to capture some data there. So any kind of data on fans, on users that are sports fans, can be leveraged for betting business. That will lower your customer acquisition cost. Okay. And obviously brand is important, to have betting brands. And basically you should think about the sports betting industry as a commodity business. The only barrier to entry is your license. So there is a little bit of a barrier to entry, but if you have a license, anybody can can come in and yo

u can, basically, based on how good your data is, whether you have a brand, I think, today even productizing bet propositions is also pretty commoditized, right? I think another sort of advantage is if you have good relationships with the sports leagues and you can structure particular business deals with sports leagues that could sort of give yourself an advantage in this area. So, people say, I think one of the things that I learned coming into the business of sports is, it's very much of a re

lationship driven business and people wanna do business with other people that they feel they could feel comfortable with. So in a way it's actually, there's a little bit of stagnation in the industry, in the whole sports world. And it's like, who do you know? And all that. So, with me coming into the space, I'm new to kind of the world of professional of sports. We apply a sort of a approach that we're no longer purely in the B2B business, right? If you're B2B, you're take your clients out to l

unch, you kinda establish a relationship. It's a business to business kind of sale. What we're trying to do is to shift our business models from a B2B model to more of a B2C model. Who's the C? It's our fans. I'll give you an example today. Barclay Center has 18,000 seats. And every game, in the NBA, we'll make more profits if we fill the arena, if more people come into the arena, right? Because the seats are fixed cost. So, it makes a difference between how much season tickets we sell, versus g

ame day tickets. If you think, if I sold my season tickets, 18,000 seats, all in the form of season tickets, the season ticket holders effectively are buying at a discount, because they have to commit for the whole season, we sell 'em at a discount. But if we leave some room for game day sales of tickets, I can charge whatever is the market price, the retail price. So the mixture between season tickets and single game tickets is a very important thing, to have that mix. So this is just an exampl

e of a B2B mindset and a B2C mindset. But it's much, much harder to acquire fans if we're in the B2C business, if we sell just single game tickets, because it's much riskier. What if it rains that day and people just don't wanna get to the arena, and all the factors that you can't control. So anyway, an example of how we are thinking about how we run our team, more of a consumer facing type of thing, and more activities in in marketing our team on social media. If you go to China and you look at

Chinese social media, the Brooklyn Nets are the number one team on Chinese social media. We have overtaken the Lakers, we've overtaken the Golden State Warriors, and it's because we actually have a dedicated team that's creating China specific content in Brooklyn. We take that content and we make it so that we tailor it to the Chinese audience, And then we also operate our own Weibo accounts, et cetera, to gain more fans, more of a following, in China. So that's just an example of how you go B2

C, right? You have to directly engage with your fans. So anyway, that's the presentation. I'll be happy to answer any questions. (class clapping) I'm Clark, I'm an undergrad, I'm actually the co-president of the Yale entrepreneurial society, so I'm sure you'll be hearing Yeah. more from us. You got the t-shirt, yeah. Yeah. Sorry, shameless. But I'm a baseball player and I've watched how data, and you alluded to this, has really transformed the landscape of not only player evaluation, player deve

lopment, but also sports betting. And so we see stuff like how many hours of sleep Patrick Mahomes gets, measured by his WHOOP, informs the sports betting lines. And so there seems to be a growing sort of legal dispute, Patrick Mahomes isn't upset that that data's being collected and that people know he only slept seven hours, Patrick Mahomes is upset because he's not cut in on the deal. And so do you think that this is gonna trend, do you think Patrick Mahomes is ultimately gonna be able to cas

h out on his WHOOP data? Yeah. The answer is probably yes, Patrick Mahomes will eventually be able to get a cut of whatever data they collect on his body and on his habits. And it's because you still need individual player permission to wear that device. If he says, "Look, if I'm not in on this, I'm not gonna wear the device." What are you gonna do? Right. So I think eventually, they do have the leverage, each individual player will have the leverage to, if it's their personal data that's being

collected. I mean, this is a very interesting area that I haven't really studied, I am certainly not an expert on it, but you also just raise a very interesting issue of kinda the rich gets richer kind of phenomenon in many sports leagues where in football it's quarterback, it's the quarterback that will determine the outcome of the game. Basketball, we're in the league of stars, right? Baseball is the pitcher. So, I think certain players will be able to monetize their own data, bodily data, whe

reas other players, I'm not sure will be able to participate in that. But that's just the nature of professional sports, you have stars or certain positions that are much, much more valuable. I think that's the nature of the game. So, that's another issue, sort of the inequality issue, that people haven't really thought about. I had a question about regulation in regards to the government as the industry starts to expand into different countries. I actually do investor relations for sport radar

and it was cited as one of the risks. And going back to your question, I think there's an organization called Project Red Card where a lot of players are frustrated with their data being used and it was on the news today. So I was just curious what your thoughts on regulation in different countries. On regulation? Yeah. Regulation of data? Yeah, data and just in general how the government thinks about the industry as a whole. If you're talking about the betting industry, the government is thinki

ng about it from sort of more of a moral standpoint, right? Legislatures are struggling sort of, should we legalize gambling because that may incentivize bad behavior? But if you're thinking about, if you're talking about how data is being used. Look, I think game related data is not sensitive, right? It's not personal. It's not PII, it's not personal identifiable information. I think the issue here is, it's a broader problem with digitization because of digitization on different platforms, you

have a lot of different users, you can collect a lot more data. So that's a broad issue. I'd rather not have the government get involved in that debate, and have the players and the leagues work it out themselves. We use the free market to determine how we split the economics. I'd rather see that. I mean, look, it's kinda hard for a politician to step in and say, "The guy that makes," how much does Patrick Mahomes make? $30 million a year? "Guys makes millions and million dollars a year. We have

to protect their rights." In today's world I'm not sure politicians will pick up that fight. I think they would prefer to leave it to the market. Hi everyone, my name's Olivia, I'm the first year MBA student in Yale School of Management and before Yale I worked in Ant Financial, Alibaba, it's very exciting to (indistinct) that digitalization. And my question is, I guess this is a possibility to link the sports betting website to the game site. I mean, (indistinct) finds who watch the sports in

person can have another way to engagement with the sports, or enrich the engagement into another level. Or do you think about it? For example, Sorry when we watch the basketball game Yeah. and we also have a screen to look at the sports betting result or the prizes. Yeah. Yeah, well, you mean having a screen that presents all the lines and Yeah. and you watch and bet at the same time, right? Yeah. And what do I think about it? Yeah. I mean, if you're watching, you can't do it on a TV screen beca

use you can't interact with TV. If you do it on a digital device, I think you can directly interact in real time. Is that your question? Yeah. Yeah. I think, yeah. Yes, absolutely. That's why digitization is so important, because it actually brings the interactiveness of fans between the fans and the game. So digitization opens up a lot of different opportunities. And the other thing is mobile betting, you can have actually fans in their seats, in the arena, because they have a mobile phone they

would be able to bet real time on the game. So it is already exists in the arena or not? In the arena, yes, it already, in the states where mobile betting is legalized, it's already happening. Okay. So do you find there is interaction, or kind of fans network between the fans who was in the game site and the fans in website, online? Is there more interaction Yeah. In the live or online? Yeah, I'm curious about that. Well, I think if you're a real better, I think you'd be doing it online because

in the game environment, if you're sitting in the seats, there's just too much distraction. If you really want to bet, because the data flow is instantaneous. We were talking about the latency problem if you're not there live, but if it's only just a few seconds; I would say you probably stay online to make bets. Oh, I got it. Thank you. Hi. So we got (indistinct), undergrad. I just had a question. While personally working in a publicly traded company this past year, you talked about the B2C bu

siness model, which relates to the public market directly, as I learned, with this engagement to fans directly and the massive use of social media, what have you thought has been the most successful way you've seen, or this trend, that you have reached the fans or market directly with the B2C business model? I think everybody is still trying to figure out how to do it. Everybody seems to intuitively feel that we should evolve the IP owners, content owners, should go to a direct to consumer model

, but people are still trying to figure out how to do it. But the advantages of that model, clearly, is if you're directly engaging with a consumer, you can have better data to improve your services, improve your service offering, that's number one. Number two, you could have better pricing. If you're selling your rights to a cable TV operator, and then they distribute it through cable TV. You've sold it once and that price is already fixed. But if you are directly providing content, direct to c

onsumers, you can change your pricing every month if you want. You can understand the data better. You can provide more services and then increase your pricing if you wanna capture kind of the retail margin. So, I think this is, there are a lot of advantages to going direct to consumer. Everybody understands the theory, but how you do it is very, very difficult. Because it's very, very expensive to directly acquire users onto your own platform. Hi, I'm from SOM and my question is following miss

Olivia, but more basic one. Actually, if I understand right, in the beginning you help us identify two trends; why would sports become more like gamification, and the game become more in real time and online. I believe the one core idea of computer game is to control and to represent the role inside the game. This would ultimately become a problem in the gamification process of sports. So, do you have any idea to tackle with this? Sorry, the game is to control what? Inside the game? I think a co

ol idea of a game, Yeah. like traditional computer game, Right. is to control and to represent the role, the main role, in a game. I guess I would sort of challenge your premise that the only meaning in games is to control the role. I mean, you can gamify something that's happening that you don't have control over. So, I don't think you necessarily need to, I can't control if Kevin Duran makes a three point shot or not, right? It's up to him. Okay, fans collectively did control, did have some in

fluence over whether Giannis made his free throws, right? That's why you have the away team is always under a lot of pressure, because you have the fans, right? Okay. Yeah. I mean, it's like the 12 man in Seattle, the fans gained some satisfaction that they were able to control or influence the outcome of a game. If it's an important basket, that's the satisfaction, right? That in itself is also gamification, remember I said gamification is about engagement. So if you can engage the fans in the

game, then that's gamification, in my sort of definition. Yeah. Okay. Hi, Joe. So, I have a question quite similar, so you're talking about, you are making the game more interactive and you're providing a lot of data, and you're talking about the B2C model. So I feel like this is, in many ways, kind of empowering the fans and they have a lot more data to criticize the club owner's decision. And they are more close, they pay more close attention to the games. I'm a soccer fan, and I know soccer f

ans can be very harsh and was this trend. As a owner, do you think the opinions of the fans are becoming increasingly important for your sort of daily operation and for management and that to make their decisions? And how does that sort of affect your decision, compared with what a club owner would do, say 10 years or 20 years ago? Yeah, sure. So I have a pretty simple principle. Separation of church and state. The business of basketball, and the basketball of basketball, alright? Fans can alway

s gimme their suggestions and opinions about the business. If the beer is cold enough in the arena, if we shouldn't sell ribs instead of hot dogs in the arena, when they come in, anything that has to do with the fan experience, I'm all ears. I wanna listen to the fans. And I would self adjust and improve our services to the fans. But if it's a basketball decision, who do we trade for, which draft picks we make, how do we set up the lineup, the roster for every game, I would leave it to the exper

ts. And the experts are our coach, our GM, that are making these basketball decisions. The fans, I soak in some of their opinions, some of them are pretty good, but that's only for reference, and I'm not gonna let fans influence our GM's decision or our coaches' decision. But do you feel more like pressure with B2C model, you're kind of more vulnerable towards like fan's opinion? No, because the objective of the team is to win. Is to win games, to win the championship. I don't want the fans to i

nfluence that decision. We have one objective, and I will rely on the experts to do that. Hey, Joe, my name is Jamele, I'm a Yale basketball player here. (indistinct) So I had a question regarding, I know you were talking a lot about the sports books and sports betting companies kind of losing money and them being kind of the front end of profitability and stuff like that. Do you see them kinda moving out to global markets, just like you guys kind of going to China and trying to market towards t

hem, in terms of getting more, I guess, users for their business, or do you think the regulation and legal issues are too heavy for that? Oh, I'm sure, where it's allowable, they will move international markets, but they will have to deal with the local regulatory requirements. But, in time these companies will go abroad. Because of the licensing requirements, the betting business is actually fairly local, you have to go from market to market. But they will, yes. Yeah, they will. Hello, I'm RJ,

I'm also with the basketball team and I was curious, I know a lot of NBA teams have intense data about their practices. And I'm curious if you see any teams ever monetizing on that data, or is that too valuable to the team's success to sell to a company or. Yeah. Yeah, no, that's dangerous, right? Again, we would never allow our internal practice data to be used by people that are not interested in winning games. If they want us to lose a game using that data, that's a terrible outcome. So, it's

proprietary to the team, and yeah, I just don't see how that works. Hey, prereq, MD-MBA student. So, my question was; it kind of reminds me of stocks because with stocks, it's not so much if insider trading would happen, but when, and I kinda see, especially with betting, it's very tough to have it entirely clean, whether that's something small of like, "Oh, I saw Kevin Duran at 5:00 AM this morning. He probably didn't get much sleep." Something simple like that. And even with stocks, there are

resources, for example, like PitchBook, or like things that people can access that give them data that other people may not be able to access to give them that little bit of edge they would need to find the alpha. And I feel like the same thing could happen with FanDuel giving, maybe premium subscription, more statistics, whatever. Do you anticipate any sort of regulation or regulatory agency being needed, kinda like the SCC with stocks, to make sure? 'Cause obviously the NBA will look over big

threats, but it just seems like sooner rather than later there's definitely gonna be something that's gonna implode to a certain extent. It's just gonna be how big and how do you regulate against that. First, you have to distinguish between insider information versus original research that people do. I know a lot of stock investors, if they invest in retail, the retail business, they'll literally go to a Walmart parking lot and count the number of customers that walk in and they could buy satel

lite images of retail store parking lots, right? I would consider all of that as sort of publicly available information, or information that you can obtain legally if you pay for a service, right? And insider information is very different, it is literally someone, like CEO of the company said, "Hey, next week, Monday, we're gonna launch this big product and you should load up on the stock." That's just wrong. So there's gonna be a lot of betters that will do their original research on things. Wi

ll someone start to camp out in front of Kevin Durant's apartment and figure out when he gets outta bed and goes for breakfast? Maybe. You have to sort of look at the cost benefit of that little piece of information. So many other factors will go into whether we're gonna win the game that night or not, right? Rather than just the single piece of information of him getting out of bed. So the cost of obtaining all that information could be too much for anyone to gain an advantage. To your question

, I think the league itself is very interested in keeping the into integrity. I mean, it is basically everybody's livelihood. If a betting scandal tarnishes the reputation of the league and we lose fans, it's a multiyear damage, that'll create not just reputational problems, but also economically, all the teams and the players, everybody will suffer. So, it's in everybody's interest; owners, players, team staff, the league, to ensure that integrity. So tit's sort of self policing, but we also ha

ve an interest in policing. So I expect the league will continue to obviously monitor and investigate any kind of problems. So in that way, I don't think we need to have a separate SCC kind of entity to do this. So, yeah. Yep. Hi Joe, first of all, thank you so much for sharin'. My name is David, I'm a second year MBA. When you mentioned the trend that's going on with the Brooklyn Nets, such as moving into gaming, moving into sports betting, that makes me think about building up a brand, such as

Ferrari, it has its own racing team, has Ferrari fashion. So, I guess my first question is, how do you see Brooklyn Nets, as a brand, building into the future? Is it gonna be more sports business focus, where it's gonna be a variety of portfolio? And a follow up question, that we know that Ferrari is going public. And when you mentioned that the fan energy can be spread in terms of betting, how do you see the possibility, the cost and benefits of being a sports brand by taking it public? Thank

you. Yeah. It's a very interesting question. I have to say, you could probably, I mean, our core business is basketball, so you could play sort of in some of the adjacent spaces, but I think we still have to remember that we're a basketball team, we're part of a league, that's the NBA. At some point do I wanna use the Brooklyn Net's brand to, let's say, go into the apparel business? Well, first of all, I have to get league's permission to use the Brooklyn Net's name for something that's not bask

etball. Let's say if it's allowable, maybe, maybe not, but that's not gonna be my core business. I'm not going to allow that to be a distraction to what we do in basketball and winning games. So that's really, I mean, you really just have to have a focus, especially sports teams, we're here to win. So, it's very simple. It's very simple. And we put ourselves in the best position to win in terms of roster, construction, player health, any advantage you can get, to win games. So I don't see us bra

nching into all these other adjacent businesses and lose our focus. We shouldn't lose our focus. To your point about being a public company, yeah, the public ownership for sports is a big topic. I have to be honest, I haven't thought through all of those issues. I have a personal opinion on this, but that's very, very personal, which is, I don't think the Brooklyn Nets, as long as it's under my ownership, I don't think it'll ever be a public company. Because, if I'm a public company, I actually

have a fiduciary obligation to listen to the fans as to who we start, who we play. No, I'm sorry. It's not gonna happen. And then you get into a lot of public governance type of issues. I want our fans to have a great experience as a fan. I don't want them to have an experience as a coach. They could be sort of virtual coaches. They get to express their opinions, but I wanna make sure that when they come into the arena they have a great experience within the arena, or when they watch a game on T

V, they have a great experience. But when they start to get into governance issues, I'm sorry, I don't wanna open ourselves up to that kind of pressure. Thank you so much for sharing. Yeah. Hi Joe. This is Lin Han, MBA student as well. Can you elaborate a little more on how crypto and blockchain can influence the sports gaming industry? And to follow up with that question is, traditionally less focus markets such as Latin America, Southeast Asia, have less of a focus in the business of sports. B

ut, as we progress we see that their population is extremely young, very low, medium age, and the adoption of media, of mobile antenna, is very strong. What are some long term thoughts on that? Yeah. Well, I'll answer the second question first. I think some of the emerging markets, Latin America, Southeast Asia, definitely could be huge potential for a sport like basketball to grow, because basketball is a truly international sport. It's international in the sense that it's big in the U.S., it's

big around the world. Unlike soccer is big around the world, but not big in the U.S.. And unlike, American football, it's big in the U.S., but not big around the world. So basketball is truly global. So, definitely as these economies develop, we will have more opportunity to gain more fans in these emerging economies. And today, our biggest fan base, obviously outside of the U.S., this is in China. But the other markets are by and large more developed economies, in Europe, in Japan, Philippines

is big, but Indonesia is not as big as it should be, given it's population. Brazil should be big. So, I think over time, definitely, there's a huge potential to have more fans. To your first question on crypto, I would encourage you to sign up for the class on October 26th. And we can talk about that. Okay. Thank you. Appreciate it. Thank you, Joseph, for the presentation. I have a question because for the gaming is quite a nichey idea for the fans, however, you are a public figure and also you

need to consider about the public, especially during these days we are talking so much about the ESG, especially about the social impact. So, will you consider, if there is any moral hazard, or even regulation issue, which might change hurt potentially hurt your core business, or even public figure. So if you do have the concern, what will you do to prevent this damage to you and also to your business? Yeah, it's not just in the context of gaming or betting, everything we do we could be accused

of chasing profits at the expense of our ethics. You have to be very aware of all of those potential risks. What do you do? I think there's some basic principles that you operate on. Number one, you wanna be very transparent. You wanna be very clear in, if the team has a decision, has made a decision, you wanna be very clear as to the rationale behind that decision, you wanna be transparent to our fans. Alright? I mean, obviously as a officer of a public company, transparency with shareholders,

transparency with regulators, is very, very important. Especially on the regulation side, if the regulators don't have that transparency, don't really understand what you're doing, then they get very nervous. So I think the basic principle of transparency is important. The second principle is, I don't believe in setting aside an ESG department, and then the rest is non ESG, like business. They're not mutually exclusive. Business and ESG should be combined. So, this is what we've done over the l

ast 22 years at Alibaba, is we have incorporated the concept of social responsibility into our business model of doing what is good for society. So Alibaba started as a company that's helping small business. We believe that creates a lot of social good, and it creates jobs, creates employment. And it also evens out the inequality between the big companies and the small guys that otherwise would not be able to compete without the internet, right? So, these are all sort of basic principle that we

operate on that we think should be baked into our business model, and with the sports team I think it's the same thing. I believe the players, they're like icons. They're idols, right? People really look up to them. So I think they should live their life in a way that think of themselves as a model for young people. And I think players understand that. As a sports team owner, if you delight your fans and give them a very good experience, that's like the most important ESG thing. I talked about n

ot getting fans involved in the basketball decisions, and that's because we have to be very clear what the goal is. My goal as the owner is to win championships and to build a long term franchise and make Brooklyn proud. So I believe that is actually a social good, right? As a team owner, I'm not thinking about how can I get profits out of the team every year, I'm thinking about how do I build a franchise in Brooklyn that, just 10 years from now, 20 years from now, people will look at Brooklyn a

nd say, "That's like the Boston Celtics. That's like the Los Angeles Lakers." Having that long term franchise, make Brooklyn proud, is a social good that I'm trying to bring to Brooklyn, so. (class clapping)