⚽ Inside SA's R1bn Sports Betting Club…

Plus: FNB shuts the tap, bigger paydays in SA & how to hire top talent on a budget.
Newsletter
February 6, 2024


Hi

Some people, eh? A 21-year-old product manager was pulled over and reportedly arrested for driving his Tesla while wearing a new Apple Vision Pro headset — on the day it released, nogal!

More importantly, though: Cue the confetti, The Open Letter grew by 22% just over the last 3 months (we flew past 5000 subs 🎉)! Remember: if you share this email with friends using your unique share link, you get free startup tools, a coffee on us and loads of free AI tools.

In this Open Letter:

  • Big leagues: Inside SA’s lucrative sports betting space.
  • Cape to Kruger direct, R48bn acquisitions and bigger paydays.
  • Lean team: Hiring the best people on a tight startup budget.
  • Where we shop fresh: The results are in.
  • Tell a friend: Share this and get free stuff.

Making The Big Bets

When Takealot recently announced its leadership changes, a lot of the focus was on Frederik Zietsman becoming group CEO and Mamongae Mahlare stepping up to group Executive Chair.

Understandably so, with the coming of Amazon’s marketplace coming to SA and all.

But something interesting is to note where Takealot's founder and former chairman, Kim Reid, is likely turning his attention – the BLV group, owner of BetKing.

Founded in 2018, the Nigerian sports betting service serves 9 million customers and employs around 350 people globally. Something even MultiChoice noticed, investing an initial R1.5bn for a 20% stake in BetKing in 2020 – upping that to 49% with a cool R4.4bn in 2021.

The perfect match?

Sports betting’s number one cost by a long shot is its customer acquisition cost. 

Buying media in popular sports content slots is very expensive – so partnering with a company that owns a lot of media can help you get a better acquisition cost for the win. 

And it's not a novel strategy, Barstool Sports was bought by Penn Entertainment, a Pennsylvania-based sports content platform and casino operator which runs ESPNbet, for more than $550 million.

They ran into regulatory challenges, though, and eventually had to sell it back to Barstool’s founder for $1. But there’s still merit to the idea of marrying a content platform to a betting service if you can navigate the red tape.

ChatGPT imagining what sports betting in SA looks like

The margins

What makes sports betting easier than traditional casinos, though, is the precise nature of how they offer bets to customers. 

Bradley Prior did a great job of unpacking it in this article, but the TLDR is that they offer you either side of a specific outcome. 

Let’s say in the upcoming Bafana Bafana vs Nigeria game:

  • they would offer a bet to say Nigeria will win by one goal or more and you can pick whether this will happen or not.
  • the odds are then set up so that you can’t profit from by betting on both sides.
  • and they often skew it a bit by offering less value to a popular outcome. I.e. you win less by picking the popular outcome even though that outcome is less likely.
  • and some even change odds as time goes on, to balance their risk and ultimately make better profits.
The struggle is real

With these models, their gross margins sit typically around 4% to 6%, with cost to service per customer typically going down as you add new users. Meaning: the bigger the book, the bigger the profits — and that’s why you need media… lots of it.

Sports betting is big

We know betting’s big internationally – estimates say over 50 million Americans placed bets during Superbowl 2023, with over $1.3bn expected to be wagered in 2024.

Locally, data is scarce – but we can tell you it's rumoured that the amount of Flash 1Vouchers (sold mostly at spaza shops) getting used for sports betting and casinos at one of their 46 partners is in the region of R1bn per month.

The moral of the story is: Yes, there are some massive players in this space (for good reason), and you will need deep marketing pockets to take them on. But with the sheer amount of cash flowing, there’s bound to be some peripheral opportunities for startups – we’re watching this space.

IN SHORT

🙅‍♂️ Acquisition Denied. French broadcaster Canal+ is facing an uphill battle in its bid to acquire the MultiChoice Group. Its latest offer of R105 per share (a deal worth R48 billion in total) was rejected by MultiChoice shareholders last week.

🗝 Decentralised Social. The crypto world is abuzz with the rise in adoption of Farcaster, a decentralised platform that allows people to build social apps that connect to it. Think X, Facebook, etc but you personally own the data and can move it across different apps.

🦁 Direct Lion. Off the back of a bumper tourist season, Cape Town is getting a direct flight to the Kruger National Park from the 2nd of April. Two of SA’s hottest tourist destinations are now that much closer, with the 2.5-hour flight going for under R2k one-way.

🤳 Turning off the Tap. FNB will sunset its tap-to-pay functionality in April in a move to encourage customers to switch to existing contactless payment methods like Google Wallet, Apple Pay etc. due to the rise in popularity of these platforms.

🤑 Insured Takeover. Sanlam Limited, SA’s biggest insurer, is preparing to buy 100% shareholding in Assupol Holdings Ltd for R6.5 billion. This comes after the announcement last year that 2 major shareholders in Assupol are looking to dispose of their shareholdings.

💸 Better Wages. South Africa’s minimum wage is set to increase by 8.5%, well above the 6% CPI. The new minimum wage, which comes into effect on 1 March 2024, will see an increase from R25.42 to R27.58 per hour (or R220 odd per day).

BUILDER’S CORNER

How to Hire (the Best People) on a Budget

– By Ben Shaw author of The First Kudu

Finally! – you’ve found the perfect candidate. You consult your cofounders. You receive nods of approval from your board. Your poor understaffed team’s begging you to make this hire... 

But, you don’t simply have that amount for the salary.

It’s mostly fun if you like 2-min noodles and a shot at being one of tomorrow’s big tech leaders.

Look, if you’re even trying to compete with corporates on salary offers, you’re playing the wrong game. Startups have things to offer that no corporates can – so it’s worthwhile learning the startup hiring game…

A winning startup hiring formula

1. Acknowledge you need to do more with less

Your first hires need to buy 100% into what you’re building. The risks, personal development opportunities, improbable rewards and ultimate company vision need to be the core reason they want to join you. 

Now, that limits your options but it also enables you to make it your core offering – “you’re gonna learn and do things here you simply can’t do anywhere else!”

There is some good news here – there are many excellent people in SA who will jump at the chance to work in a stimulating, empowering environment. And there are ways other than monthly salary to remunerate them.

2. Get the tough conversation out of the way early

You’re not just hiring for skills, you need to know exactly how much each position will add to your company’s value and earning potential. If they can demonstrably bring in X new revenue, partnerships, subs etc. how much equity (shares) can you realistically give them in exchange for that?

You need to understand and start all hiring conversations by exploring this idea of the delivery-remuneration ratio. Literally, ask them how much new business they plan to bring in and calculate what that’s worth to your company right now.

Then, ask them: “On a scale of 1-10, if I offered you the job at R[x] per month, how would this opportunity rate for you?”. It’s not a direct offer, but it anchors the candidate on your expectations and lets you see how they respond. You could even make the R[x] slightly lower than what you have in mind, so you have room to negotiate.

3. Prepare non-cash incentives to sweeten the deal

Equity (company shares) is the ultimate long-term incentive, so reserve that for senior hires that you really want to make core to your team. For most new hires, the major incentive (especially if they’re coming from corporate into the startup space) is the ability to “Learn and Earn” – you get to learn the startup game first, then earn bigger later.

Then, as a founder, offering access to your network is a great incentive for ambitious candidates. Offer to introduce them to top contacts and take them with you to events etc. It helps them feel secure that, even if this startup fails, they still get long-term value and opportunities – which helps them get over the initial jitters of joining your team.

Don’t rely too heavily on lifestyle perks like hybrid working, extended leave, free food and free days to work on side projects – almost everyone’s offering that these days.

4. Sense-check your own expectations

Let market conditions guide you a bit – check the role’s earning bracket and balance it against how much the role will meaningfully contribute to your business.

Then share this openly with each candidate – transparency helps you build quick rapport. And then just treat the hiring process as a conversation as much as possible.

Try to keep it simple and look for the candidate who will love waking up to build the future with you.

Getting the best people can often be a matter of life and death for a startup, so it’s worth the founders to put in the effort here.

Got startup hiring insights? Hit reply and let us know (and maybe you get featured here, too).

Today’s Builder’s Corner was written by Ben Shaw who is an experienced founder and author of SA’s must-read startup insights book, The First Kudu.

Connect with him on LinkedIn here or via his website.

THE RESULTS

We asked where you buy fresh veggies, and no wonder “fresh” seems like a growth opportunity for retailers…

⬜️⬜️⬜️⬜️⬜️⬜️ 🍓 The old housewife market (10%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🌾 Direct from the farm (5%)

⬜️⬜️⬜️⬜️⬜️⬜️ 📱 On Match Exchange, of course (3%)

🟩🟩🟩🟩🟩🟩 🛒 The retailer’s fresh section (77%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🍖 What are “vegetables”? (5%)

Your 2 cents…

Wow, R35-flat delivery fee on their website! Thanks for the tip, Nita-Marie.

Ooh, well that settles it: Can we come over to yours for Easter, Chris?

FOR THE MEMES

Instagram post by @theopenletterza

Got startup memes? Send them our way or tag us on socials.



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