June 4, 2021 – On today’s podcast, we welcome special guest Tony DiMatteo, CEO and founder of Lottery.com. Lottery.com is a leading online platform to play the lottery from your mobile device, offering official state-sanctioned games, like Powerball and Mega-Millions, in the U.S. and around the world.
On the podcast, Tony discusses:
- His journey as an entrepreneur and the idea behind founding Lottery.com
- How they were able to acquire their web domain, which was worth as much as $10 million
- The macro thesis behind the company including the online penetration opportunity for lotteries globally
- Key details on their merger with SPAC Trident Acquisitions and future growth opportunities as a public company
- Tips from an insider on the most attractive lottery games
- And more
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Transcript:
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: All right. We are live with Tony from Lottery.com. Excited to get into a few things today, specifically, if you have any tips on winning the lottery, I’d be glad to hear those. But prior to getting into that, just wanted to touch on your background quickly, classify you as a Serial entrepreneur, behind a number of startups that you co-founded prior to Lottery.com. There’s Bay Area Mobile Fusion, Glimpsable. Do you want to walk us through your journey as an entrepreneur and talk about ultimately what led to the founding of Lottery.com and specifically, how did you get that domain? It seems like that one would be fairly pricey, Lottery.com, That’s a pretty good one.
Tony DiMatteo: Absolutely. Thank you, and thank you for having me. You know, so I’ll say. I was born in Denver when I was 15 moved up to Northern California. And, you know, I’ll say I barely graduated high school. I’m just not a good student in any type of formal structure, no college. I moved to San Francisco and I think I was about 19. This is about 1998, got into tech very early and just tried to soak up and absorb as much knowledge and information that I possibly could. So, you know, I was an I.T. guy by training and, you know, I still get call on by my parents and family to help them fix their stuff. But, you know, I was really was just an entrepreneur. I think of myself as a sort of a perpetual entrepreneur. I don’t mind failing. And I just see any failures, you know, a chance to learn about how to not do that again.
Julian Klymochko: Right.
Tony DiMatteo: You know, I can write a book about how to not build companies because I’ve made all the mistakes, I think I possibly can, which I think has helped, you know, Lottery be successful.
Julian Klymochko: Right.
Tony DiMatteo: And just to avoid those and so, you know, I’ve even, you know, I’ve had more, I don’t even rise to the level of startup just projects that I’ve tried to launch. See if it works, see if it doesn’t, does anybody care about this? Then, you know, like even counts but you know, I’ll say after doing that for a while, I met my co-founder probably about eight years ago, Matt Clemenson, who was also brilliant. At the time I was running a tech company, he was running a different company and we met up for coffee and we just started talking and, you know, we realized like, we should just build things together on the side. You know, and see what happens. And we had a thesis, which is that we should build things that should exist for, that are inevitable to exist, things that are just going to happen at some point. The idea was we should just be the guys to go and build that. And so that’s what we did and we self-incubated probably four or five projects in completely different spaces. We’ve got a couple of patents actually on it’s very cool Wi-Fi tech and then, you know, these things were moving along, but obviously the thing that took off was, was a Lottery. And, you know, the idea started as auto lotto. And it was simply as, you know, is there a way to let people play the lottery from their phone in an illegal and compliant way?
Julian Klymochko: Right.
Tony DiMatteo: And we found that mechanism as a courier service, sort of, if you think about us, like a DoorDash or Uber Eats, where we get the product for you and we bring it to you and we manage that whole process. That’s effectively what we did. And we very quickly learned that the way to be successful in the long-term is that we cannot be a disruptive force in the industry. You know, we can’t go with the Silicon Valley playbook, which is to, you know, go into a state or country and get as much market share as we possibly can, and then fight all of those legal battles.
We knew that wouldn’t be successful because from the state’s perspective, it’s their game. You know, they run the lottery, they own that. And so, we looked to just become additive to that and help them go online. And that’s been, you know, I think the key to our success. And then as far as the domain, it was interesting. We, you know, again, we started as Auto Lotto and then in 2017, we were raising our Series A. We got a new investor and he said, hey, you know, I know the owner of Lottery.com. And so, I flew out to meet the owner of Lottery.com. It turns out that he had bought the domain in 2006, I believe for north of 10 million.
Julian Klymochko: Oh, wow.
Tony DiMatteo: Yeah, and his initial intention was that, you know, he was going to do what we’re doing now. And then he obviously realized, like, that’s very difficult, especially if you can think back to 2006, how tough that might be. And so, he sorts of sat on the domain for about 10 years. So, we met him in 2017. I just laid out our vision for him, which was like, we intend to be the synonymous name for all things lottery. Like our goal is to be a global marketplace for all types of games of chance, not just a lottery, but for anything, whether that’s sports betting or casino or slots, et cetera, charitable sweepstakes and on and on. And so well, to cut to the chase, you know, he ended up investing cash into our Series A, and then he contributed the domain on top of that. And so that’s how we got Lottery.com.
Michael Kesslering: And so, before we get into a bit more about some of the regulatory and other sides of your business, can you give us a little bit of background on some of the technology infrastructure that’s required for you to deliver Lottery online?
Tony DiMatteo: Sure, absolutely. So, you know, again, at the moment, our core business is as a courier service. So, you know, when you are on our app or the website, it looks and feels like buying, let’s say a Powerball ticket on our platform, but what’s actually happening is, you’re placing an order for us to go buy a ticket on your behalf. And then we manage the interest of that ticket for you. Meaning we acquire the ticket, you know, we checked the numbers, we redeemed the winnings, and then we credit your account. And what that looks like on the backend is that we have obtained lottery licenses in the states that we operate in. We have a secure facility where we have, you know, banks and rows of terminals to print out actual physical paper tickets.
And that’s just required by law in almost every state. And then we scan that ticket back into our system. And with OCR, we can say, here’s the numbers that were printed, here’s the numbers that were ordered, here’s the numbers that were actually printed and do those match. And if they do match, then that’s a good ticket. And then we can securely store those so that nobody can tamper with any of that until well after the drop. And so that’s the core of it. Everything is built in the cloud, like we leverage AWS and all sort of modern technologies, but that’s a fairly simple explanation. Does that make sense? I’m happy to dive deeper. If you have questions around that.
Julian Klymochko: I wanted to get into the macro thesis behind the business. Now, the global lottery and market fairly massive $400 billion. So, from a top-down perspective, why is this an attractive market for a new entrant? And the other question that I had was, why is online penetration so low? I noticed there is sub 7%.
Tony DiMatteo: Right. So, you know, it is a tremendously huge market which is one of the reasons why we really sort of stopped all of our previous projects and focused on this one. Because this, you know, represents the biggest opportunity that we could ever have. It is literally one of the biggest markets on the planet. And so that why we started to focus here. The reason why it hasn’t gone online is, I’ll say from a stage perspective, if something’s not broke, they don’t tend to go and fix that thing.
Julian Klymochko: Right.
Tony DiMatteo: While from a capitalistic side, we can say like, obviously lottery has to go online eventually, but no, just in the U.S. it’s around $80 billion a year. And the States are very happy with the way that things have worked previously. The real inflection point for us and for the industry was when COVID happened. And so, you can imagine that, you know, the state lotteries for the most part are dependent on those retail sales. And you walk in with paper money, you walk out with paper ticket and if there’s a quarantine, then that can’t happen. Then they have lost a tremendous amount of revenue. As soon as that started, that was sort of a black Swan event that nobody really accounted for. But now that has happened and you can see, and just sort of how many States we’ve opened up. You know, it took us about five years to open up four states in 2020 and 2021, we’ve opened up another eight. And that really sort of changed the conversation and the mindset of these states to actually go online.
And so, you know, now that they’ve sort of seen like, okay, they must go online. The question is, how to get there? They can either do that internally, or they can, you know, allow us to come into their State and operate as a courier. For a State to go online themselves, internally one, they have to figure out the political landscape and fight those political battles internally as a State, if then it does get approved to have their own sort of eye lottery. At that point, then they have to, and by the way, just the first step can take a couple of years to get done historically. Then they have to sort of put out an RFP where they, you know, open it up to see who might sell that contract, that can take another 18 months. And then, you know, once that’s approved and they’ve actually chosen someone. [Inaudible 00:09:56] to actually go and deliver on that product.
So, it’s a very long cycle for a State to go online themselves. Whereas what our value proposition to the States is, that we will come in, we will operate, and we will give you our legal opinion of how and why we are legally allowed to operate in your State. You don’t have to change any laws or regulations. This is how we operate, and we can conform to your particulars of how that happens, and then we can go. And so, we are here to sell the State product for them for free. Reach a new demographic that they haven’t been able to reach before, which obviously younger folks they want, they don’t carry cash and they don’t go to the store as much. And so that’s a very attractive value prop for the States to allow us to come in.
Michael Kesslering: Are you seeing similar demand and interest in Lotteries? And I guess in particular interest in Lotteries online internationally. Are you seeing similar patterns internationally as the U.S. and if so, I guess, where are you seeing the majority of that interest internationally?
Tony DiMatteo: Sure. So, well, I’ll say absolutely in U.S. game, like a Powerball has a tremendous reach internationally. It is known, I will say as sort of the biggest and you know, most trustworthy game with the highest jackpots globally. Everybody knows the name Powerball. And so, there’s absolutely that demand. And if you look again at the sort of the Tam, 80 billion of that 400 million is in the U.S. North America, the rest is 320 billion is outside of the us. So, we know that there’s a huge demand there, and it’s really a universal game because people either play sort of every week, you know as going forward, they have their lucky numbers and they want to play that, or they played occasionally when the jackpot is very high. We’re very well aware that, you know, Powerball as [Inaudible 00:12:06] brand and other U.S. games are very attractive to other parts of the world. And in some cases, in some countries, they actually trust the U.S. game more than they trust their local game to actually be paid out to win, to make sure that they actually are received those winnings, if that makes sense.
Julian Klymochko: Right, oh. That totally makes sense. And Tony, I’m sure you got the insights scope. Can you fill us in on what games have the highest probability, like, where can we make money and conversely, which are ones should we stay away from, like, which have the worst odds out there?
Tony DiMatteo: Well, you know, it’s interesting. The question of the lever of, you know, odds versus profit is, you know, if you’re playing a game like Powerball, the way that I see this, that’s a game of entertainment.
Julian Klymochko: Right.
Tony DiMatteo: It’s like, you know, I do a quick pick, which in the U.S. about, I think 70% of people just do a quick pick. They just want some numbers and they want a chance to win. And they have, you know, a couple of days of imagining potentially what their life might be like if they actually win that.
Julian Klymochko: Yeah, just a fantasy.
Tony DiMatteo: Yeah, it is. It’s one of the cheapest forms of entertainment, you know, for $2, you can have a couple of days of fun.
Julian Klymochko: For sure.
Tony DiMatteo: But you know, I’ll say. Daily games, like in Texas, the games that are played three or four times a day. Those are, I think probably the best odds that you’re going to get, but they’re obviously not going to be the highest payouts. The way that I see it, obviously we are a tech company, we’re a gaming company, but really, we are entertainment company. And we just want to deliver that to people and obviously mitigate any type of, you know, problematic gaining behavior that we can.
Julian Klymochko: I was checking out your investor presentation that you have on your website, just going through all the data, you provide a ton of good data for investors, potential investors. One thing I did notice that stuck out to me was your revenue forecast, forecasting five-year revenue. Compound annual growth rate of over 160%, which is obviously significantly higher than the growth of the market and forecasting north of 1 billion in revenue by 2025. What’s really going to drive this way above market growth?
Tony DiMatteo: Sure. So, one, I think if you think about us, I mean either online casino or sports betting space is that most of that activity is already moved online. Again, look at the tech is, you know, the overall market share that transitioned from being offline to online has already happened. And with us, as we have a very small amount of just globally, you know, sub 7% of all lottery tickets being sold online, and it’s much less than that in the U.S. that’s really, our opportunity is, one is geographic expansion as we move, you know, State by State and entering more States, but also other countries that will drive that revenue as we go forward. I think we’re very blessed because of the name of Lottery.com is that we have a very tiny cost per acquisition is we acquire user at about $4 domestically and internationally since right around that.
And so that allows us to then have that user, which are very sticky. They stay with us for a long time and then expose them to other types of either games of chance or other value-added services and products as we go along. And so that’s really our goal, so you’ll see us over the next couple of years, do a tremendous amount of geographic expansion. Again, if you come back to the idea of being a global marketplace for all types of games of chance, we want to be everywhere. So, when you open up our app or our website is, we want to check your location, verify your identity and age, and then allow you to play whatever types of games of chance you’re legally allowed to do at that moment in time. And then I think you’ll also see quite a bit of, you know, partnerships and M&A, we’ve worked really hard to build a B2B API that allows any e-commerce company to sell our products easy as an upsell, whether they are a gaming company or not. Meaning if you just, you know, have a website that just sells t-shirts or widgets is you can now add a lottery ticket to that, and we have to compliance to do that. So that’s how we get there is geographic expansion, but also really, you know, we’ve created a really good, you know, funnel to acquire users at $4 or below. And so, as we pour more money into that funnel, we can increase our market share in every jurisdiction over it.
Julian Klymochko: Now comparing to some of your online betting peers, such as DraftKings and Golden Nugget, would your customer acquisition costs be significantly lower? And if so, you know, besides the branding, is there any sort of secret sauce that would drive that?
Tony DiMatteo: So, I’ll say if you look at sports betting, you know, and also just sort of unlike Casino, you’re looking at a cost per acquisition, I’ll say conservatively of over $200 to acquire a user.
Julian Klymochko: Oh, wow.
Tony DiMatteo: And we, again, we have a, you know, a CPA of around $4 and that was not to say that every lottery player is a, you know, sports better, or, you know, somebody who wants to play casino games, but there is an overlap there. And so, if we can acquire those users at $4 and then expose them to, again, either just value-added services or other types of games of chance, that’s very attracted I think to any sports or also any gaming operator in the space that can help that conversion. If we can just have their CPA, that’s a huge win for them. And again, lottery is a universal game. You know, almost everybody plays this game at some point in their life. And so that’s just our goal is to just acquire users and help retain them, you know, keep that trust that we’ve built with them over time and then sort of move forward from there.
Michael Kesslering: Another aspect of your business that I guess a little bit smaller at this point, at least but also very high in margin on a gross margin basis is the data subscriptions to digital publishers, such as Amazon and Google, that you’re able to provide. Can you provide a little bit more detail on what sort of data this would be and how that would work for the publishers?
Tony DiMatteo: Sure. so, you know, if you ask Alexa right now, you know, what’s the Powerball numbers, or what’s the jackpot, or, you know, when’s the next drawing, she’ll tell you. And that’s all powered by us, without additional skilled installed. And so that’s a big thing for us. And so, we have about 15 years’ worth of data for all lottery that has happened. I think we have cover; I believe 600 games in about 45 countries. And so, all of that data is very useful for people who just want to either check the results, which we obviously, if you’re a digital publisher, like let’s say [Inaudible 00:19:28], which is one of our partners, you know, and you wanted to go see, if I have a paper or ticket in my hand, and I want to go see the results then [Inaudible 00:19:39] can deliver that. And then we have a call to action to confirmed you to Lottery.com user. That’s a very high margin product for us because we have that data and it just always accumulating every day. And so that’s very simple for us to do but all of that is a really a funnel to eventually, you know, turn that offline user into an online user for us. That’s why we made that acquisition back in 2018.
Julian Klymochko: One thing I wanted to touch on is the live SPAC merger. You guys are going public through Trident Acquisition, symbol TDAC. I was wondering, how did this deal specifically come about? Was it inbound? Were you guys specifically seeking to go public via a SPAC, or were you looking at other strategic alternatives?
Tony DiMatteo: That’s a great question. So, at the time, if you think back Q3, Q4 of last year. We were looking to raise our Series B actually. We talked with quite a few firms like GA and Warburg, et cetera, to do a private Series B and we were introduced by a sort of a mutual advisor between us and try to going public through us a SPAC. And we had been approached previously by several SPACs in the last couple of years, none of them sort of gave us the confidence to go forward with them. But I’ve always believed that, you know, the destiny of Lottery.com is that we should be a public company because we do have this incredible branding and you know, very strong position in everything that we do. And so, we did our diligence on Trident, they did it on us and we realized like this is actually the best possible team to go forward on. And so, it was really, I would say very harmonious is that this was the best decision that we could do going forward, as I knew we would be public eventually. And, you know, with this team, I realized, this is the actual best time to do this.
Julian Klymochko: So, once you’re completing this deal. Up and trading as a newly-minted public entity, ultimately, what are you looking to achieve outside of, obviously you’re seeking capital, but do you think it elevates the growth rate being public instead of private? Like, what are some of the positives and negatives with respect to, you know, flipping to the public markets at this point?
Tony DiMatteo: Sure. You know, I think again, I would say our brand as Lottery.com is one of our best assets, if not the best asset. I would say that there’s a tremendous amount of, if you think globally of gaming operators in various spaces for sport betting or casino, sweepstakes, et cetera, that have a very strong revenue, very strong EBITDA that operate in some country and their issue is that they may be doing very, very well, but either they don’t have any exchange in their country, or they have a very small exchange. And so, by doing an M&A transaction with them is that we can help accelerate them, give them a better brand than they have right now, and then also give them the liquidity of being in a NASDAQ listed company. And so, I think you’ll see quite a bit of that happening over the next 12 to 18 months.
Julian Klymochko: So, there are some significant M&A opportunities, roll up opportunities on your radar?
Tony DiMatteo: Yes, there is. I can’t get into details obviously.
Julian Klymochko: Oh, for sure.
Tony DiMatteo: But I’m happy to say we’ll have some significant announcements that we’ll be able to release in the next couple of weeks, I believe. But that is really the plan is to, you know, again, back to the Amazon of lottery or just a global marketplace for all types of games of chance is that we believe we have the right brand and we just want to cast a very wide net, have a very large umbrella to onboard all of these other types of gaming operators around the world to ultimately all, you know, flow up to us.
Julian Klymochko: No, that certainly is a key competitive advantage versus private companies is now you’ll have public liquid paper in which to conduct a consolidation strategy.
Tony DiMatteo: Exactly.
Julian Klymochko: That being said, you do have a number of high-profile peers that are publicly traded in the sports betting sweepstakes online betting market. I was wondering, how was Lottery.com going to stand out amidst some of these super high profile peers like, and you know, why should an investor consider Lottery.com versus, you know, some of the very well-known ones DraftKings, Golden Nugget, et cetera, et cetera?
Tony DiMatteo: Now, that’s a good question. You know, I would say we are we’re very much in the beginning, again, if you you think back to what I said previously about the natural progression of taking something that is offline to online. So, if you look at sports betting, most of that has already gone online.
Julian Klymochko: Right.
Tony DiMatteo: You know, that market is mostly settled, right? And there will be winners and losers there, but that’s pretty much done. Whereas we, as sort of the first public company to do this type of transaction and to be in this business, is that really, we have a tremendous amount of blue ocean ahead of us. And it’s really just a question of execution and can we continue to acquire users and enter into more geographies than we’re in now? And I firmly believe that we can do that. From an investor perspective, the upside is that, you know, we are a company that is very lean that has a huge total addressable market. And we have a very low cost per acquisition. And really all we need to do is keep executing, you know, along the plans that we’ve already laid out. And if we do that, and I think we will, then we’ll be very, very successful. So that’s really it, it’s fairly simple.
Julian Klymochko: I mean, if you can attain the five-year revenue CAGR of over 160%, I’m sure investors will likely be pleased with those results and looking through your materials, I see that you guys are up to something in the blockchain space as well. Could you quickly talk about that and what you guys are up to there?
Tony DiMatteo: Absolutely. just real quick, I wanted to say that the GAGR projections that we have in the presentation. Those are actually lower than the GAGR that we have seen the last couple of years. It’s all built off of real data that we’ve already seen, and we know that we can get there, you know, even in a conservative manner. But in terms of blockchain, you know, I believe that blockchain is the future of all games of chance. And the reason for that is, if you have a, you know, a ledger that is distributed publicly available is that you no longer have to, as a consumer or player, you don’t have to trust the house necessarily. You don’t have to trust the slot machine because you can trust the technology that, you know, that whatever the outcome is of that game or that flight is that it is legitimate.
And whoever is, you know, if somebody won, they are actually getting paid out. And so that is, again, what is eventual going to happen no matter what I believe that’s, what’s going to happen. And so currently, like we use the chain right now to just validate every transaction that goes on our system. So, we tied the user ID and the numbers of the transaction time, et cetera, to that ticket, to that purchase. And then we’d go on from there. The evolution of that platform is really to be able to run and operate our own games under international licensing, where we can have a, either weekly or semiweekly or even daily game, or instant game, completely done on our platform where you can play either with Fiat or Crypto and, you know that if you won, you definitely won, and there’s no question about the legitimacy of the game. And so that’s the natural evolution of all gaming, in my opinion, it must go on blockchain and we just want to be the ones that helped shepherd that through.
Julian Klymochko: Yeah. It reminds me of that old blockchain game Satoshi Dice, which was interesting, but perhaps before it’s time, just given I’m sure the complex web of regulatory issues when pursuing a strategy such as that, but totally understandable from a long-term perspective. It definitely makes sense to the extent investors are interested. Trident stock trading under the symbol TDAC, and once Lottery.com wraps up this merger, you guys will be trading under the symbol, LTRY. So Tony, I’d like to thank you for coming on The Absolute Return Podcast today. Thank you for sharing your insights, tips for us on winning the lottery. Always appreciated, and if you could send over some free Powerball’s, we’d be more than happy to take a look at those.
Tony DiMatteo: You got it. I’ll tell you what. We’ll have to figure it out, but anybody who sort of, you know, wants a free Powerball ticket that has listened to this podcast, we’ll make it work and we’ll give you one.
Julian Klymochko: Okay, awesome. Well, another bonus to our listeners. So, thank you very much Tony. Wish you all the best and excited to see how your story unfolds.
Tony DiMatteo: Absolutely. Thank you for having me. I really appreciate it.
Tony DiMatteo: All right. Bye everyone.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
