Global Daily Fantasy Sports CEO Darcy Krogh talks to Cantech Letter

Almost overnight, Canada became a world leader in the online gaming space. The seminal moment, of course, was Amaya’s shocking $4.9-billion acquisition of Oldford Group Ltd., the parent company of Rational Group Ltd., the world’s largest poker business and owner and operator of the PokerStars and Full Tilt Poker, in 2014. That deal was a signal to the world that Canada had come to play.

Since that time, Canada’s online gaming sector has been defined by its sheer nerve, its disruptive nature, and the outsized returns it has delivered to investors. Names like NYX Gaming and Intertain Group have had their time in the sun on their way towards carving out their particular slice of an expanding pie. What’s behind the land grab? Analyst Manish Grigo says the accelerating growth in mobile and social gaming is being driven, in large part, to the growing geographical exposure of LTE networks. He says this expanding presence broadens a product’s reach to a much larger number of consumers, who are increasingly wagering using mobile devices. This trend, says the analyst is a nascent one. He says LTE networks currently have just 635-million subscribers globally, or 9% of the global mobile market. That number is expected to rise to more than 29% of the mobile market by 2018.

Darcy Krogh is unique to the Canadian online gaming sector because he helped shape its very existence, and along the way has influenced the course of the history of some of its most notable players, including NYX Gaming, Chartwell, and Amaya. With two decades of experience in the sector, Krogh has seen just about every business plan. But he felt there was a glaring hole to fill in the space. So earlier this year, Krogh founded Global Daily Fantasy Sports (Global Daily Fantasy Sports Stock Quote, Chart, News: TSXV:DFS), a company that began life as a public company last week.

Global Daily Fantasy Sports is a company that was founded to bring Daily Fantasy Sports to mature regulated markets and offer a B2B platform for others to enter into the space. Cantech Letter sat down with Krogh to talk about why he thinks his most recent idea might just be his biggest.

Darcy, can you tell us about the background of this Global Daily Fantasy Sports?

It all started early in 2015 with a phone call from Chris Neville our CRO who introduced me to the space. I started to do my research on the business and the major players. I really liked what I was finding out and it reminded me of the early days of poker. After spending a number of months talking to some of the CEO’s of the incumbents, I decided that this would be an unbelievable product to take to Europe and offer it up as a B2B networked solution as opposed to being consumer facing brand.

Why Europe?

I’ve spent seventeen years working in Europe as a B2B technology provider of content and just felt that this North American phenomenon would jump the pond at some point and see some significant traction with the sports book operators in Europe. During this time period I was helping Amaya transition the sale of its B2G assets, including the company I co-founded Chartwell Technology over to NYX Gaming Group who purchased the assets. I had a meeting with Matt Davey CEO of NYX shortly after that transaction closed and discussed my vision and the fact that I was very interested in the space, we both felt the idea had some merit and if it made commercial sense we could do some type of joint venture or strategic alliance to take advantage of NYX’s incredible distribution network and reach in Europe. While doing research it became obvious that valuations in the marketplace were crazy and existing platforms weren’t ready for prime time in Europe to do business in regulated markets this ruled out any M & A options at the time, so I decided to put my own team together and build ground up to get what I wanted as opposed to renovate. I left NYX in March of this year started building the product with my own Global team, and just recently finalized a exclusive distribution deal with NYX and we will launch the product in Q4 this year. Very excited about the product and platform we are building which will be totally European facing initially. The relationship with NYX is a key component to our strategy and I’m excited to see what we can do together to introduce this exciting new sports betting product into the market.

You have a pretty extensive history in the gaming space. Can you tell us a bit about that?

As I said I co-founded Chartwell Technology Inc in 1999 and that brand continues to live on in the market today. We were the first company to introduce browser based online casino content in Europe as a B2B technology provider. I believe we actually were the first company to bring the sports book community in Europe into the casino business, if not the first we were one of the first. Today this component of their business is one of the largest revenue contributors and fastest growing verticals in their overall business. From 1999 to 2011 I served on the Executive Management team and a Director of the company. In 2011 we sold Chartwell to Amaya Gaming Group, they had plenty of opportunities in regulated markets including B2B business and needed a digital solution and content. It was a perfect fit for what they needed. I stayed on and joined that management team and continued on in a business development role with Amaya. They went through some major M&A activity during my four years with Amaya and it was a very exciting time in the industry and the company to be part of that growth. In 2015, Amaya sold its B2B assets to NYX Gaming Group and I carried on working with NYX helping to transition that business and relationships over to the NYX group. I left NYX in March to put a new team together to pursue this new business venture and eventually solidified a commercial arrangement and a strategic alliance with NYX to distribute our DFS product. I’ve had seventeen years in the iGaming business and developed many great relationships. I am very excited to bring our DFS product to Europe and other strategic markets. We have assembled a great team and very experienced in both B2B and DFS businesses, a winning combination.

Why this space? Isn’t it already really crowded with the likes of DraftKings and FanDuel?

In North America yes, DraftKings and FanDuel pretty much control market share and have done a remarkable job building their businesses and educating the market, but that’s not our market or our strategy. Our idea is to take the DFS business to other markets, which are mature regulated markets and offer a B2B platform for others to enter into the space. The added component is to provide it as a networked solution, which will add to over all liquidity on the site and larger prize pools. There has been very little innovation with sports betting in Europe over the last few years and in our opinion this was a perfect fit for large gaming brands to enhance customer acquisition and engagement. We will focus on the regulated markets in Europe first and look at Asia and LATAM as our business warrants.

We have no interest in the North American market at this point. The regulatory environment is too fractured and very tough to navigate right now to build a business.

The other issue people might see with Daily Fantasy Sports is the regulatory environment. Isn’t that a brick wall to deal with?

We have no interest in the North American market at this point. The regulatory environment is too fractured and very tough to navigate right now to build a business. We may come back when things become more clear but for now we are focused on regulated markets with a European focus where the licensing regime is established and online gaming is a mature business. This is a market we know and what it takes to be compliant.

Who do you plan to sell to?

Since our business model is a little different than most others in the space currently we are after well established online gaming brands with large databases that wish to get into offering daily fantasy sports. We are not a consumer facing brand so we will white label our turnkey solution to our customers so they can offer daily fantasy to their clients. So typically our clientele will be large sports books, land based gaming operators, media groups, and big database companies whom all have a digital business. We will combine these clients in a multi tenant network as regulation permits to share liquidity and prize pools.

Why is what Global Daily Fantasy Sports offers better than what your potential clients could build themselves?

It really isn’t a question of building something better its more about offering a network or community of large customers or tenants with enthusiastic sports bettors as their members. This product is more about where social interaction meets gambling. Where you match your skills against others in either a head to head contest or a network contest to win a stake in a large prize pool based on the performance of your fantasy team. Our team has years of experience in both DFS and B2B business and we will share this with established gaming brands that want to get into the DFS business. So as a client of ours its not about building your own platform its about becoming part of a network.

Why is Global Daily Fantasy Sports paying Bellwether Technologies so much for its platform? What is their technological expertise?

This was a proven and established digital platform already built and in market since 2010. It had all the functionality we needed as a base platform and was built for multi tenant and regulated markets business. So rather than start from the ground up and take a number of years and considerable investment to develop a new platform we decided to buy a perpetual license for our use and build the DFS product onto this platform. It was a speed to market decision. We own the IP and we wanted to go with a proven platform that we knew scaled, was flexible by design, secure and had all the CRM, analytics, reports and functionality that we needed to run a network. It may seem expensive to some but we believe was very reasonable considering its pedigree. The beauty about this transaction is it comes with a technical team that will most likely transition to full time staff of Global.

They know the platform and they love our strategy, so much so the principle of Bellwether, Andrew Costello has agreed to be our CTO. Andrew has been involved in the software industry for over fifteen years, specifically in the digital interactive industry for over ten years and spent the last six years specifically in iGaming. In 2010, he architected, developed, and sold what would become SHFL Entertainment iGaming Platform. He served as the Director of Online Technology for SHFL Entertainment from the end of 2010 until they sold the business in 2013. Post-merger he continued his role until February of 2014, after which he founded Bellwether. His teams knowledge and expertise are key components to our execution and success of the plan.

How will Global Daily Fantasy Sports make money?

Each contest/pool will have a management fee associated to it. This is pretty standard in the industry today. This typically ranges from 10-15% of the total prize pool. We will revenue share with our Operator clients on this management fee. Depending on the size of the clients this will be a negotiating point but because we are covering a lot of the cost to manage this network and provide a turnkey solution for their ease of entry we expect this revenue sharing ratio to be 50/50 with our clients.

We feel our product provides a different experience where by it can be used as retention, reactivation and also a conversion tool with the value DFS provides to the players. We plan on selling this vision to all our potential customers and again make this as seamless as possible for them to enter the space.

Can you tell us about the experience of the team you have put together?

Well, we only started in April of this year and we have a pretty aggressive plan to launch in Q4 for this years European football season. Our speed to market plan is quite remarkable actually and a testament to the Executive Management team. This team is small at the moment but all vested and aligned and very experienced with their own set of skills. We will add to this team in the coming weeks and as we get closer to launch. Chris Neville who is our CRO will be responsible for driving the revenue plan to the company. He will work closely with our CFO and all our network partners to make sure they are maximizing player acquisition and participation in the daily fantasy contest. Chris has a ton of experience in both poker and daily fantasy sports as a player and will be a valuable asset driving growth to our business and the business of our partners. Justin Shulman is our COO and will be responsible for the worldwide operations across the gaming network, execution of the corporate development strategy, leading the product lifecycle, and building out the team and corporate culture. Justin helped pioneer the DFS industry, co-founding Fantasy Feud Inc. in 2011 which became one of the top 5 consumer facing player sites in North America. Justin sold Fantasy Feud to Gaming Nation Inc. in 2015 and was also recognized as one of the top 50 DFS industry influencers at the same time. Andrew Costello is our CTO and is responsible for all things technical and will oversee our technical team globally. This will include platform and the build of our DFS product. As I mentioned earlier, Andrew has been involved in the software industry for over fifteen years, specifically in the digital interactive industry for over ten years and spent the last six years specifically in iGaming. In 2010, he architected, developed, and sold what would become SHFL Entertainment iGaming platform. He served as the Director of Online Technology for SHFL Entertainment from the end of 2010 until they sold the business in 2013. Harvey Lim is our CFO and has tons of public company experience. Mr. Lim holds a Bachelor of Commerce degree from the University of British Columbia and is a member in good standing of the Institute of Chartered Accountants of British Columbia.

Do you think Global Daily Fantasy Sports will grow primarily through acquisitions or organically?

Acquisitions are part of our strategy but we believe primarily our growth will be organic by signing up network partners via our strategic relationship with NYX Gaming which we just announced, direct selling via our own sales team and expanding into new markets which will be client driven.

Can you provide some further detail on your recently announced relationship with NYX Gaming Group?

Certainly, this is a key relationship for us as a new business. NYX is a giant in the B2B space and Matt Davey and team have done a remarkable job growing their company. They service most of the largest gaming brands around the world with digital content both there own and third party. This was a very strategic deal for Global and we are delighted to be their exclusive DFS partners for the next 5 years with an option for another 5 years assuming certain deliverables. With the one integration into their OGS platform gives us access to over 200 clients, which is key. One of the big issues when taking any new product into a market is getting customer resources to do integration work because everyone is busy. Since most of the operators in our key market are already integrated with the OGS platform and being serviced by NYX we feel this distribution channel will be a path of least resistance to gain clients and DFS market share. We are hoping to convert many of their customers with our DFS product since they are already integrated and NYX have agreed to market and promote the product as well.

What do you want to accomplish in the next twelve months?

Pretty simple really. We know we have a big task on our hands we are taking a new product into a new market that needs to be educated. I did this back in 1999/2000 introducing digital casino content into the European market. This is dejavu for me but the online gaming market is way more mature today, we have mitigated as much of the commercial risk as we can now its just execute on our plan and make it really easy for those customers interested in Daily Fantasy Sports to join the network. Realistically, our goal is to establish ourselves as the dominant B2B player in the European DFS marketplace and expand our sports and contest types. We feel our product provides a different experience where by it can be used as retention, reactivation and also a conversion tool with the value DFS provides to the players. We plan on selling this vision to all our potential customers and again make this as seamless as possible for them to enter the space.

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