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Provided by Sharp Alpha Advisors
Today’s guest columnist is Lloyd Danzig, Managing Partner at Sharp Alpha Advisors.
Recent years have witnessed mainstream adoption sports betting, retail stock trading, cryptocurrency speculation, NFT marketplaces, esports, niche collectibles, and niche sports leagues. These consumer behaviors all satisfy a similar psychological need for “competitive entertainment,” which refers to any form of entertainment where winning is paramount.
While the prospect of financial upside is what motivates competitive entertainment seekers, it’s only a small piece of the puzzle. For example, in sports betting, most recreational users have no real expectation of long-term profitability. In fact, most people don’t even want to withdraw money. These users mentally classify their deposits as entertainment expenses rather than capital investments to earn a return. Businesses thrive by serving these audiences with experiences characterized by negative expected value but positive expected utility,
Competitive entertainment is popular and sticky because it satisfies a basic, primal need—providing a compelling escape from the complexity and stress of everyday life by providing a single purpose and focus for a defined period of time origin of. Betting on sports, entering a poker tournament, or playing a video game can instantly engage people in a world that consumes their full attention. Suddenly, the first touchdown scorer, river or battle royale winner matters.
This pastime provides a sense of connection to the community. When users place sports bets, they instantly become members of a fraternity of people who bet the same, as well as people who bet differently, or even oppositely, on the same game. This community can come together to commiserate when their bets lose and celebrate when they win. The future can also draw on public experiences, even those not directly shared in real time.
Humans are inherently competitive. The prospect of defeating an opponent, whether they be friends, foes, markets, blackjack dealers, or video game artificial intelligence, unlocks something deep at the heart of anthropology.
People exhibit different utility functions, but for many there is an inherent pleasurable value to the risk-taking process, regardless of the outcome. Of course, the possibility of achieving a desired outcome is part of the appeal, but many people prefer the risk-taking process to the reward itself.
The raw appeal of competitive entertainment can drive some users to exhibit unsustainable behavior patterns. Avoiding the complete monetization of such actions is not only socially responsible, but also economically important. Forward-thinking operators are weaving responsible gaming into the fabric of their customer experience and using artificial intelligence to provide real-time digital guardrails to keep consumers safe.
At the end of the day, the competition to create a one-stop shop for sports fans and gamers is fierce, as competitive entertainment touches on fundamental aspects of the consumer psyche. It represents a business opportunity to cater to users keen to trade money for experiences, and then cross-sell those users to adjacent entertainment sources.
The optimal combination of products has not yet been assembled into a profit-maximizing flywheel, although this is an active area of research and development. Investors should expect the next few years to bring a creative mix of ticketing, merchandise, gaming, collectibles, games and more.
Sharp Alpha Consultants is a venture capital firm focused on sports, gaming and entertainment.
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