“Any horse that has the name ‘Awesome’ in it? I bet on it!” Walter Hessert told us earlier this week from inside one of those noise cancel-ish sofa pods in the south wing of General Assembly. Also present in said pod: his brother Thomas Hessert. Along with a third brother (Bill) and their CTO Eric Gay (no relation), the Hesserts are the cofounders behind Derby Jackpot, an addictive online game that almost made Betabeat late for our meeting.
Showing up for an appointment seemed more professional than waiting to see if we’d parlayed the $2 offered to beta users into something more, so we sucked it up and hopped on the N. But it was a heady example of why companies like Zynga are counting on real money gaming to offer real revenue in the otherwise hits-dependent social gaming industry that relies on ad revenue or virtual sheep.
Users who visit Derby Jackpot’s HTML 5 site–the company is opting for the mobile web over an app–are greeted with a big countdown clock at the top of the page that tells you when the horse race is happening. Horses are displayed according to their actual names and the odds of winning (at the time.) You can place different kinds of bets–”monkey bets” offer higher payoffs than “grandma bets”–and chat with other players. Once the race starts in real-time, you can see feed from the track. The suggested betting amounts are small, and it’s easy to keep an eye on the race while toggling between tabs.
Unlike other horse betting sites, Derby Jackpot’s overall effect has the come hither look of a slot machine with the friendly, simplified interface of your average social game.
“It’s built for social gamers and casual players,” said Tom. “We didn’t want it to look hardcore at all. Or too intense. Or huge numbers. Just for players who want to come and test their luck and have fun.”
Derby Jackpot expects to come out of private beta early next year. And thanks to a new partnership with the payments company Dwolla–hyped during a recent gambling party with Derby Jackpot winnings flashing on high-defs TV screens–users can take out their earnings immediately rather than wait for a check in the mail.
The idea came to the Hesserts during a trip to the Preakness, said Tom. The machines were complicated and the racing lingo intimidating, but it had all the components of the core gaming experience. Especially after he won $25 on 5:1 odds. “So we looked at it like why haven’t we done this before and why isn’t it easy to do online? Why do you only hear about this maybe once a year during the Derby or the Preakness?”
Bill Hessert, a data scientist, had been studying horse racing while getting a masters degree in quantitative finance in Princeton and knew that the 50,000 live races that happen 364 days a year (ponies get the day off on Christmas) offered ample opportunities. As a research project, he had been working with the Jockey Club to study data like efficiencies and handicapping. In fact, as Betabeat mentioned back in April, Freakonomics author and economist Steven Levitt, one of Bill’s former professors, is an advisor to the startup, which also boasts an advisor from Zynga.
The brothers are still tight-lipped about the “billionaire” investor, who helped contribute to the $1 million they raised in seed funding. However, they did say Derby Jackpot’s team of seven is well capitalized and not looking to raise.
They also maintain that they’re not looking to get acquired, should Mark Pincus come sniffing around, which seems inevitable. Almost every question during Zynga’s last earnings call was about their partnership to offer real money poker games in the U.K. Derby Jackpot, on the other hand, is able to get into the U.S. market because unlike the crackdown on online poker, online horse racing is legal in 29 states.
In order to let off-track-betting (OTB) locations call in their bets to tracks, said Walter, the Wire Act, which prohibits placing wagers across state lines, made an exemption for pair-mutuel horse wagering. “Gradually that’s evolved into including Internet ADWs or advanced deposit wagers and that’s been updated in all the online gambling laws,” added Tom. Derby Jackpot is required by law to ask for the last four digits of your social security number and address.
The company’s relationship with regulators and individual track owners might be enough to keep competitors (ehem) from simply copying their concept. Track owners may not be a tech-savvy bunch, but they’ve had rudimentary APIs in place to serve OTBs and casino for decades. “If you’re betting on horses that are running around a track in Philadelphia, your bets are going to that track and betting against all the other bets,” Walter explained.
“They could just copy our interface,” he admitted, but navigating the industry is tough. Derby Jackpot has contracts with 100 tracks in the U.S., although not exclusive ones. It has deals with video providers and went through the year-long regulatory process. The company has rev share deals with the track owners as well. “It’s like a gas station,” said Walter. “A gas station sells lottery tickets, you get a small percentage of each dollar bet. We don’t take any of the players winnings,” adding, “At the end of the day, you have to get permission from the tracks to put your users’ wagers in their pools.”
Among beta users, the average player typically deposits $25, and usually plays for two hours or so. “Some people like to go bigger, some people like to play the Granny bet all day long. Literally you can play that all day long. If you pick the favorite in the Granny bet, chances are you’re going to win,” said Tom.
During a chat session with Derby Jackpot’s fellow friendly beta users, we were buoyed by one user fondly remembering the day Walter “hit $947.00.” Sadly, despite an influx of $10 offered to party-goers and a one-time high of $18.40, our account is now at 40 cents. Betabeat came close to Dwolla-ing $25, and the cha-king sound to let us know the first race just started makes us want to pull the trigger. The surprisingly fun social features also help suck you in. As do the the stream of tweets announcing tips and winnings, although our Twitter feed might be biased.
@andrewjbryk also don’t bet until under 2 minutes before. odds are not locked in and change rapidly at end.
— Alexander Taub (@ajt) November 29, 2012
The public version will enable even more interaction with players. “There’s a lot of very complex things that happen in horse racing that take some creativity to turn them into a super product,” Walter said. “So we’ve really worked out a lot of that. Now we’re just making it more robust in a social sense.”
According to the countdown clock luring us in, Betabeat has 53 minutes and 49 seconds to decide if we’re gonna pony up for the next race.