Against the odds: Smarkets’ CEO on beating the bookies on price

Jason Trost is no ordinary gambling company executive. “I think the world would be a better place if sports betting operators didn’t make so much money,” he says in the below interview, which covers a broad range of topics from politics and price sensitivity to remote working and M&A.

Trost – a former programmer, equities trader and analyst – founded Smarkets in 2007. A labour of love followed as he transformed the company into a major sports betting firm capable of stealing exchange market share from Betfair.Smarkets, which also boasts app-only sportsbook brand in SBK with prices taken from the exchange, is built on proprietary technology, an asset increasingly popular with US casino giants looking to enter the online betting space.

SBK is live in Colorado and will enter Indiana shortly, and Trost is more than happy to spurn the advances of the land-based Las Vegas legacy crowd to tackle the US independently and “in the right way”. Here, Trost shares why he thinks the operator can go head-to-head with the leading brand names with SBK and how Smarkets has made a name for itself in the realm of political betting.

EGR Intel: 2020 is a year most are keen to forget but how did it go for Smarkets?

Jason Trost (JT): 2020 was the year we launched in the US. Even though we suffered from a lot of challenges that other businesses did, we still pressed ahead with our headline goals, the biggest of which was launching in America. I’m incredibly proud we managed to achieve that with everything else going on.

EGR Intel: How was the business affected by Covid-19?

JT: For a couple of months after March, things were challenging and it wasn’t clear when sports was going to come back. Sports did come back in a big way but slower than I anticipated, so we had to do things to manage cash and make sure the business was able to operate smoothly through a bumpy period. It allows you to take stock of what is working, what isn’t and make changes. You could call it a spring-cleaning exercise. We were able to cut costs that we didn’t need and it’s good for business hygiene to be able to take a step back and look at how you’re running the business day-to-day.

Smarkets’ razor-thin margins on markets like horseracing means its odds are extremely competitive

EGR Intel: Are you able to elaborate on which costs were cut?

JT: It was as simple as trying to save money to make more money. Subscriptions we didn’t need, rents we didn’t need, downsizing this and that. It was all the standard cost-cutting that under better circumstances you wouldn’t necessarily take the time to consider.

We didn’t shut down any offices or lay anybody off, so I’m proud of that. We turned the marketing off when sport was gone and one of the advantages in being one of the smallest major betting companies in the world is that we can move a lot faster than our competitors. For a big company, these changes might be quite disruptive, but we have a very streamlined decision-making process.

EGR Intel: Smarkets has a state-of-the-art office in London with an in-house chef and major perks. How have you coped with the pivot to remote working?

JT: Before the crisis, I was not a fan of working from home. Even with all the experience of the last year, I’m still not a fan of it. Part of the reason we put so much effort into building a nice office environment is that I believe that’s where people do their best work. That said, because we’re a nimble company, it was a very quick pivot to a remote workforce and a painless process for us.

The downside is that motivating people, solving problems together, having fun and all those other human elements are almost impossible to do remotely over webcam. We have tried different things to varying degrees of success to try and inject some of that life back into the company. We kept the office open so that if people felt comfortable, they could come in. But it’s definitely taken a toll and I think everybody is missing human contact. This is not unique to us.

EGR Intel: Another interesting development last year was the addition of SBK (which is often best price as it takes the current odds from the exchange) to the oddschecker comparison grid. Has that led to an increase in site traffic?

JT: Absolutely. SBK is going great but is still quite new. The whole reason I founded this business was because I couldn’t stand the fact traditional operators rip customers off. To me, the margin that bookmakers charge customers is insane. Smarkets joined oddschecker originally in 2018 but everybody treats exchanges as this different product off to the side. With SBK, it’s the first time we’ve been able to go head-to-head with the brand names who I think are taking advantage of people.

EGR Intel: The maximum stakes on SBK are sometimes limited depending on the liquidity on that same betting market on the exchange. Could that deter some of the big spending, price-sensitive punters that use oddschecker?

JT: That is one of those things. We’re a fluid real-time market. We have our own pricing division internally called Hanson and we have 60 to 70 API customers right now. As our exchange gets bigger and as we grow more, those issues will become few and far between. It is definitely an area I would like to improve because I think our liquidity isn’t nearly as big as it should be, but I think it’s at least competitive with Betfair most of the time.

EGR Intel: Smarkets is a leading operator when it comes to politics betting. How was that achieved?

JT: To be honest, it took a long time. There are two reasons I founded Smarkets. One was to do political betting and the other was to change the pricing of the industry. It’s heart-warming to see us make this much progress on the political side. We made a key hire two years ago when we brought Sarbjit Bakhshi (head of political markets) onboard and that was the first time we dedicated somebody to politics. He’s in charge of creating interesting markets and coordinating some liquidity for those markets. He’s been great, and our efforts have paid off after trying to invest in this space. It culminated in an amazing US Presidential Election for us.

EGR Intel: How did Smarkets carve out a niche in this area?

JT: I don’t think our competitors invest very much in it. Ladbrokes Politics is probably the most well-known and Betfair is okay but they don’t have as many interesting markets, so I think there’s a lane there for us. I’m personally extremely passionate about political betting. I want our markets to become part of the news cycle because they are such a great way to inform the public about the wisdom of crowds and what they think is going to happen in the future. Everybody is obsessed with the future – think how many people check the weather forecast every day.

EGR Intel: The US Presidential Election became a huge betting event. Betfair took a long time to settle, which drew criticism from punters on Twitter. What were your thoughts?

JT: I think it was quite unethical for them to keep the market open that long. If they wanted to handle the uncertainty, they should have just halted the market. They had it open for five or six weeks after the election and Biden was trading at 1.06 (1/18). In general, I like Betfair. I think they do a pretty good job of running an exchange, but I was disappointed by that. I thought that was a poor move on their part and played into the incredibly incendiary narrative that it was a poorly run election.

EGR Intel: Sticking with the US, how has SBK performed in Colorado since launch?

JT: I’m extremely happy but it’s still early days. We’re just in the infancy of getting into the American market, even though I’m American and we have an LA office. The culture isn’t that foreign to us but the product is different from a European offering, so there are lots of things we’ve had to do to improve for that market.

Also, the infrastructure around regulation, taxes and payments is different so we’ve spent a lot of time in the trenches ironing those issues out. But we’ve been open to customers since June and we’re super happy with the progress and our customers are as well.

EGR Intel: What does your roadmap for further US expansion look like?

JT: Our next state is Indiana. I’ve been a little frustrated on the slow progress we’ve made there but we hope, touchwood, to be launching in Indiana shortly. Other than that, our next step will be focusing on operational issues and trying to grow our market share in Indiana and Colorado. We are one of the smaller companies in the industry so we’re not in it for the first-mover advantage. By going big in Indiana and Colorado, I think we’ll be able to get enough of an exposure to the American market to build the best product and then eventually we’ll go to the rest of the states.

EGR Intel: Who do you think the big winners are in the US market?

JT: It’s no secret there’s a duopoly (Fan-Duel and DraftKings) going on right now,but I don’t think it will look like that long term, although I do have a horse in the race. I don’t think they’re particularly interesting products or brands. I think they’re relying on the novelty factor and the fact they are able to spend hundreds of millions of dollars. It gets lost in all the commotion that these companies lose money hand-over-fist to acquire customers, so I don’t think it’s sustainable. We’ll see. The space is getting a little bit nutty right now with MGM in for Entain and Caesars in for William Hill and all this M&A. It’ll be interesting to see what happens but, ultimately, I think price and product will win the day.

EGR Intel: You mentioned M&A and the Las Vegas casino giants looking to acquire tech-led European firms. Smarkets fits the bill, so is that something you would consider?

JT: Our doors are always open and I would be happy to talk to anybody about partnering up or working together. I’m always happy to have that conversation but I’m very happy being an independent company as we’re doing things in the right way. This might sound a little bit American and cheesy, but the reason I got into this industry was to change it. I didn’t get into this industry to make Ladbrokes 2.0. We want to go from Blockbuster to Netflix. I’m here to squeeze, squeeze, squeeze the margin under the industry and nobody else wants that.
All of my competitors don’t want a low-margin industry, so I’m still passionate about fighting for that vision, because I think consumers deserve it. I think the world would be a better place if sports betting operators didn’t make so much money.

EGR Intel: On the flip side, are there any add-ons that Smarkets has looked at acquiring?

JT: We kick around ideas all the time, whether we want to partner with a media company or a fantasy sports company, but we haven’t gone down that path. We’ve taken the path of staying independent.

EGR Intel: Smarkets is alive and kicking in the UK. What are your hopes for the 2005 Gambling Act review and is further legislation required?

JT: I think responsible gambling is very important but for me the two big areas that the UKGC and the government miss are the influence of illegal operators in the UK market. For example, some sponsors of Premier League jerseys are illegal operators. I have a problem with that. I also have a problem with the fact there is no emphasis on price whatsoever. All the emphasis is usually on loss limits and affordability, but there is never a discussion about what odds you are legally allowed to offer somebody. I would like to see the UKGC move more in that direction, but I think they are coming from a good place and trying to do the right thing and are a positive force in this industry. I welcome a lot of the changes but, to me, one of the most overlooked issues is the lack of accountability operators have for the prices they offer.”