Cashout is at interesting times: Part 1.

MAY YOU LIVE IN INTERESTING TIMES is one of those sayings that people get confused by.

The phrase is actually a misconception and nothing to do with wishing one well. It’s a curse, not a blessing. And the genesis of it, is confusing, at best. More background on it here.

I can see the same type of confusion around some of the claims & counter-claims related to the genesis, development & rights ownership of sports betting Cashout functionality, particularly as it relates to the fast-growing US sportsbetting market and a generally litigious US commercial and tech IP environment. It’s interesting times.

This piece focuses on some of the companies that have some sort of cashout offering that is targeting the regulated US sportsbetting market, patent history & what the challenges could be.  I’m going to follow up this piece (Part 2) by trying to dive into the overall numbers to get any sense of the size of the cashout market & what its worth to people.

But first…

A recent Twitter conversation flagged a tier 1 CEO (unofficially) saying Cashout is “…the 4th biggest global sport (by betting volume)…” In simple terms, that puts it in the billions (globally) in terms of turnover. That’s a significant number. (Ref: @GuyHardingOC on Twitter, a good industry follow).

Here are some examples how the likes of Fanduel, Foxbet, are already talking up this “4th biggest sport” to their customers.

Since the “opening up” in the US sportsbetting market (on a limited state basis) there has been a number of companies (that I’m aware of) – that are specifically focused on the Cashout IP space. Some have claimed “invention”, some have claimed “first to file” and some have claimed nothing generally, but definitely have plans to file claims around the cashout experience.

Some of these sample companies include Colossus Bets (patents here – first filed Aug, 2013). Get Out Ahead LLC (patents here – first filed Feb 2016). Marketmaker Software Ltd (patents here – first filed April 2007) and some that have more a secondary market cashout focus include Bet Prophet & Prop Swap. Prop Swap is live and Bet Prophet is due in the next few weeks.

Regarding progress in the US, in particular (because of the different treatment of IP), there have been claims & counter-claims (in particular, on social media) regarding the “invention” of cashout – and this is where it’s worth looking at the differences between the EU patent system, and what’s happened in the US over the last 20 years.

(An important thing to note is that claiming “invention” has little to no value (in terms of the IP/patent process) VS actually being “first to file” – ie: being on the record with the Patent office as filing a patent and thus (in their eyes) – “inventing” something).

The internet can get pretty heated in terms of some of these conversations. Regarding the EU (and UK in particular) my own opinion is that anyone can claim “invention” (in particular) for something like Cashout – as there isn’t the same paper trail as there is (now) in relation to the patenting of business method(s) IP for the US. There is varied opinion as to whether the first (obvious) enterprise versions were front-ended by Betfair / Extrabet / bet 365. I don’t know – but lots of people have an opinion on it!

My interest here – is about where the growth from a US perspective may be.

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Some background:

About 15 years ago, the US Supreme Court (and by proxy the USPTO) made a far-reaching decision in the “Bilski case” that allowed business methods to be patented (a case won by US attorneys Finnegan IP).

Previously, only physical inventions “for machine or transformation” were allowed (to be patented).

The European (patent) system doesn’t confer the same weight to business method or UX IP – and thus, methods that may be outside the patent system in Europe, can actually be patented in the US. This has both protected (companies in the US) and resulted in massive investments in overall IP ownership.

The world’s leading tech innovation companies of the last 50 years are all correlated USPTO IP owners, and include companies like IBM, Google, Apple, Intel, Microsoft and Qualcomm. The US had slipped back in the global rankings for IP, but a new more protective regime has (been) refocused since Trump came to power. We’ve also seen tech-focused household names step into the sportsbetting IP arena with the likes of Microsoft (filed Oct, 2014) & Sony targeting the sportsbetting space, in advance of the legal movement we’ve been seeing.

The ownership, licensing and aggregation of sportsbetting (and related) IP, is something that’s not particularly familiar to EU operators & firms. So, the standard approach (that I’m aware of) has been to sit back and “let the lawyers deal with it.” Which may not be the smartest approach – given how the US subsequently deals with breaches of IP ownership & remedy.

The most important element in terms of setting an initial bar (around IP ownership) is “first to file” VS “first to invent”. The reality is that a claim to “invent” something, that also confers ownership of the IP requires an individual (or organisation) to be first to file around the (invented) IP with (in particular) the USPTO. (There was a good recent Twitter example of claim VS counter claim re: cashout ((in the overall betting space)) – but given that it (cashout) wouldn’t have been patented in EU – the argument could only really have been resolved via looking at a “first to file” with the USPTO, for the US Market).

Typically, as far as patent offices are concerned – the person or organisation that files the patent first, is classified as the owner of the monopoly right to exploit. This is where “prior art” is so crucial in the field of patents – and talk of “invention” is cheap VS actually having a verified date and staking a federal claim to inventing a method or process that has been officially recorded.

A good recent example is the GAN ownership of offline loyalty card linking to online accounts in US casinos (patent awarded Sept ’14). Offline loyalty has existed longer than the online gambling industry – but GAN were smart enough to recognise the power of that technical link between on-property/in-house behaviour, before other organisations got there.

Brad Allen from EGR – commented on a recent article that looked at this area “”For betting and gaming firms without key patents then, the US system could present major cost barriers in the future.”

…and this is where Cashout starts to get very interesting.

Given that we know that there are key differences between patenting business methods and UX’s in the EU (in this case, the Cashout method) VS the US – there no “single source of truth, (ie: first to file evidence) for Cashout in the EU. However, the landscape is different with regard to the evidence in the US.

There is (current) evidence that suggests that Oddsfutures (Marketmaker Software Ltd) have actually been first to file around the broader business methods (April, 2007) that relate to Cashout IP in the US. Their US patents are also cited as “prior art” by a number of other companies that include: Winview Inc, Colossus Bets, Bspot and Wall Street software provider Trading Technologies International Inc. Marketmaker’s original incarnation was as a betting exchange back in ca. 2007 – so there seems to be historical  direct experience of the design of a sportsbetting product here.

My understanding is that while it’s possible to claim “invention” of a UX  for a business method or process, it doesn’t really have any validity (in the eyes of the USPTO) if a) you haven’t been first to file (for that “invention” and b) you (or your business) refers to the invention that you claim as “prior art” in any filing (which seems to be the case for Colossus Bets).

Where I think that this gets really interesting is that my own experience (of large betting & gaming operators) is that when something gets flagged from a potential “legal issue” (in this case, IP) point of view – that it gets passed over to internal legal teams to deal with. Not product or commercial people.

My own experience also reflects that there can (sometimes) be a disconnect between a legal understanding of what a simple piece of bet functionality is VS or even what a UX or business method is VS how that business method is made real from a product or commercial POV. There can be a disconnect between a legal team’s theoretical understanding of the impact of something VS the “real world” application of the “thing”. In the case of cashout + UX + graphical user interface – this could prove to be a very costly error for firms that don’t join up communications between the product & commercial side of the business & the legal side.

Colossus Bets have been pretty vocal in terms of claiming significant ownership of the cashout space in the US. My understanding is that they’ve built a portfolio across multiple countries with ca. 12 patents that relate to the US – and ca. 20 on a global basis. My sources tell me that there has been a significant 7 figure investment in getting to this point. Current licences (to third parties) are focused on pools & slots.

Marketmaker have had much media coverage, in terms of their earlier (ie: first to file) claims around more general sportsbetting / cashout IP. Their historical experience in the Exchange space, is supported by the early filing of cashout specific IP claims. Their (current) approach seems to be less adversarial & more partnership driven, as my sources tell me that their preference is to partner and build on their historical industry experience to develop an IP focused business that works in tandem with industry leaders – that can then strategically align with Operator’s long term sportsbetting plans.

The challenge for Marketmaker (in my opinion) is bridging the gap between a business that’s active from a sportsbetting market POV (eg: like Colossus) VS being seen as a company that’s currently not developing it’s own solution (eg: Bet Prophet / Colossus) and is attempting a pure “IP focused” play in talks with (US facing) Operators.

In my own opinion, their (Marketmaker’s) patent portfolio looks the most interesting, in terms of the clearest application against new sportsbetting cashout product in the US – BUT, this application is probably going to mean that Legal depts (in particular) are most likely to try and put it on the “broad application” category (ie: “we think that this might not be applicable to cashout in general but we can’t be 100% sure…”) Personally, I see this as different to more niche cashout that relates to pools or slots (a la Colossus).

Some personal observations:

Getting a view on what IP owners have done / are doing in terms of enforcement actions of cashout IP, is not easy. My understanding is that yes, some of the companies in the space have commenced initial “cease & desist” actions against those they believe to be infringing.

I also know that some are taking a longer term view in terms of building the most compelling long-term partnership based vision for the space – and this is where there are still opportunities available for Operators to bridge that disconnect between legal opinion VS future cost of remedy by partnering / licensing the relevant cashout IP – not to mention a number of available tax benefits, with the right structure.

From my conversations over the last few weeks, my opinion is that Colossus seems to be taking a more aggressive approach (in terms of enforcement) and Marketmaker are taking a lower key approach (at the moment) in terms of pursuing partnerships with the largest T1 operators.

The secondary market operators are more focused in terms of how they can build a compelling general proposition and worrying about liquidity, acquisition, retention, etc – and may not have really focused on the IP ownership piece yet. In my opinion, that’s an error – and they need to move that on.

There are some big questions that need to be asked around secondary markets in particular. The likes of Bet Prophet & Prop Swap have significant challenges around a) building enough liquidity to offer enough depth and choice to make their offerings attractive from a consumer POV and b) do they have IP that is defensible? My own experience with Tailorbet showed me that the liquidity (choice) piece, combined with the challenges around building a compelling user experience that both simplifies and informs player choice and experience – are not small.

Anyone who has ownership of business process IP in the US, that directly reflects the process & user experience of the typical cashout experience that has been so successful in the EU, is only at the beginning of the journey in relation to US sportsbetting claims. Given how the focus (by US-facing Operators) has been about getting on the ground with US companies & brand partnerships and then getting go 2 market with plans agreed & signed off & in place and the lack of need in the EU to be as focused on the patent & IP requirements – I think that we will only start to see real progress over the coming quarter or two.

My Operator experience also tells me that if there’s any chance that secondary markets were to have any impact on the volume / margin / customer numbers VS actual direct sportsbetting market operators that both a combination of repricing of cashout models, as well as a defensive push to shore up market share would happen very quickly. We’ll have to wait and see what happens there…

Finally – for me there are some interesting questions that still need to be explored in terms of the Cashout space?

For Operators targeting the US & planning to use cashout:

Given how different the US IP space is VS learned (sportsbetting product) experience in the EU, is there enough focus (by Operators) in terms of a clear understanding of the difference between a historical EU experience VS operating under a new IP paradigm in the US?

As an Operator, are you comfortable / happy that you are relying purely on an internal Legal opinion in terms of veracity of any IP / patent claims?

Have you walked / talked through what’s being claimed (not just with Legal but…) with sportsbetting and/or product + UX people too?

Has there been a financial risk assessment of the impact of remedy (ie: not licensing, pushing ahead and then being found in breach) VS the upfront cost of doing (even a limited term) licensing deal with relevant (claimed IP) owner?

(OBSERVATION: Companies that have signed multiple US facing deals and are B2B sportsbook suppliers & dependent on revenue share could be strategically exposed to infringement claims (from IP owners).

This is an interesting area in the US, as with the rush to a) get to market and b) gain market share – there is a question as to the financial exposure of Operators (that are using 3rd party software) to potential (IP) infringement via the offering of Cashout to their end-users.  My own understanding is that the USPTO federal framework can be aggressive in terms of significant “remedy” if a 3rd party is in breach. How comfortable are the decision-makers that their organisation is not exposed to IP infringement claims? This will be very interesting to see who liceneses what over time.

For secondary market operators:

How will you build enough liquidity to make end-user experience interesting at scale?

How do you make the user experience so simple, that a typical recreational market punter can buy/sell ideally more quickly & simply than at a typical bookmaker?

How do you acquire customers in the first place? Is there a super clear USP as to why the secondary market should be an option in front of the primary market?

What US facing defensible IP is there that can be patented / owned? Does the secondary market provider know what prior art exists in terms of their offering?

Finally – I had direct experience of the North American bettor, early in my career. The drivers of value or perceived value, the ability to de-risk (particularly in accumulators) coupled with the Operators’s need to lock in margin, as well as driving overall turnover – mean that, in my opinion, cashout will be in the top 5 “sports” in the US, over time.

It’s going to be very interesting to see whether the overall USPTO treatment of IP has as big an impact as I believe it’s going to – particularly where we’ve seen the market share that has been taken by both Operators and software providers (eg: Kambi) in the fast-growing and developing US market.

There will be winners & losers. Just like every day in sportsbetting. How big will those wins & losses be? Only time will tell.

(Part 2 to follow with a focus on the numbers).

Twitter follows that are relevant here:

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Based in Ireland, I’m available for consulting / advisory projects focused on marketing, leadership, betting & gaming, ecommerce. Contact me here.