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July 6, 2023

VC-Backed Peer-to-Peer Contest Platform Emerges from Stealth Mode

Splash Sports, a peer-to-peer contest platform that has been operating in stealth mode since 2021, recently announced the acquisition of two popular pool-style gaming sites (RunYourPool.com and OfficeFootballPool.com).

The company has been quietly operating the entertainment-only products and plans to continue doing so. It will also release a third platform from private beta, one with payment processing functionality, prior to the start of the ’23 NFL season.

Splash raised eight figures over two rounds (Seed, Series A) to finance the acquisitions, build out its team and user base, and develop the paid platform. Acies Investments, Elysian Park Ventures and Accomplice are among its backers. Jonathan Kraft, Theo Epstein, Sam Kennedy, and Doc O’Connor are all on the cap table, as well.

Investors see a pair of once-profitable businesses, with decades of loyal customers, that can be better monetized.

“There is no better proven platform out there, that already has a relationship with known bettors, that we can now bring onto the [real money] platform,” Edward King (co-founding partner, Acies Investments) said.

They also believe pool-style wagering is going to comprise a greater share of the dollars bet moving forward, as conventional sports bettors realize they get more enjoyment out of playing with friends, and can generate better returns competing against other recreational players than the house.

“It will become a highly important component part of the ecosystem,” King said.

And the presumption is Splash is well positioned to own that market.

Peer-to-peer contests should not be confused with peer-to-peer betting exchanges.

“[The latter is] not really betting with your friends or in a social community," King said. "That’s somebody else just offering to be the house."

Splash’s platforms are bringing people in as, or pooling people together in, a group and then enabling them to compete against one another. The company is agnostic to the outcome of its games and contests.

Acies sees a highly concentrated sports betting landscape and believes the market leaders are all pursuing the same incremental audience. So, the fund looks to invest in some of the other places people are spending their time and money.

One of those is pool-style games (think: survivor contests, bracket challenges). Acies estimates more than 60 million people in the U.S. participate in this type of wagering each year.

“There’s no leap of faith needed here,” King said. “It’s already in action.”

The VC firm suspects more than $10 billion is wagered annually in offline, office-like pools and contests, and that number is expected to climb rapidly as the industry moves on platform.

“Right now, [pool participants] are PayPaling or Venmoing a commissioner who then must take track of the money, tabulate it, [hold it] and send it to the winners. Bring that [process on-line and integrate payment functionality] and you can really begin to think about garnering some percentage of wallet,” King said.

Splash plans to debut in 29 states, including several without legalized sports gambling (see: Florida, California, Texas). The business is regulated as a fantasy sports site.

Company co-founders TJ Ross and Joel Milton understood the difficulties associated with starting a gaming property from scratch. So, they went out and acquired two of the leading pool-contest sites to serve as the backbone of their company.  

“For this kind of business, there’s a network effect to it,” Ross said. “The more people on the platform, the more pools there are to play in, and the more trust you build [in it amongst users]. The result of this is pools grow over time, players join additional pools, and eventually many pool players become commissioners themselves.”

Pool-contest platforms, like DFS platforms (think: Yahoo), tend to be sticky too.

“It’s just hard to get 12 of your friends to move, let alone 500 or 5,000,” Ross said.

Splash will continue to operate RunYourPool.com and OfficeFootballPool.com as entertainment-only sites. Both charge pool organizers a small per player fee to use the platform.

The company spent the last two years quietly modernizing those two sites (think: SEO) and building the user base.

“From acquiring the first business, we grew from 600,000 active players to 2.2 million,” Ross said.

It has also been building out the development team, now 55 strong.

Investing in talent “allows us to accelerate the amount of pools that are run, and have a much better way to monetize the users that are [already] on our platform today,” Ross said.

Come September, commissioners will be given the option to enable Splash on eligible pools and to have the company take responsibility for the processing of entry fees and contest prizes. Splash will take a rake on supported pools, much like a DFS operator does on a contest. That will become the business’ primary revenue stream moving forward.

2.2 million active users is a meaningful number. For perspective, DraftKings reported 2.6 million monthly active users in Q4 ‘22.

It is not an apples-to-apples comparison because the former is annual users.

“But it gives you a sense of the reach [of the Splash database],” King said.

The plan is to keep the top of the funnel growing for the two entertainment only sites and drive players through the funnel to Splash.

Splash will look to acquire customers directly too.

King believes the company will be able to onboard new users for a “single digit fraction” of what the sports betting market leaders are currently paying. That is because it just needs to attract the commissioner. That individual will bring all their players over. Splash plans to do that by offering pool/contest commissioners a commission on handle and/or users registered.

Splash is not a sportsbook. It doesn’t want to be, at least not yet.

Sportsbooks make money by absorbing risk on the outcome of games. Splash never loses.

“We will offer the game, give you the platform, do the payment processing, all with an entertaining UI/UX,” King said. “[But] it’s a fixed rake and therefore a no-risk model.”

That does not mean its upside is any lower. The business maintains the same scale dynamics as sports betting.

It remains to be seen if Splash will eventually venture into sports betting or iGaming.

There are no immediate plans to veer from peer-to-peer contests. However, “they certainly have a big enough audience,” King said. “It would be natural to go down that path, but long-term.”

The venture capitalist believes at least 70% of Splash users would wager on sports if given the opportunity.

The gold rush mentality followed by a subsequent industry-wide shift to profitability has caused sports betting’s market leaders to overlook the pool betting opportunity; or at least not pursue it as seriously as they might have otherwise.  

So, if Splash can rapidly grow the business, there would seemingly be a natural exit to those same strategics.

“Because they should be in this space, and they’re not,” King said.