Minneapolis-based SharpLink Gaming preps for more rollout of legalized sports betting

Rob Phythian has successfully built several companies in the fantasy sports and sports data industries. Through his current venture, he plans to to take advantage of the rapid increase in legalized sports betting across the country.

His new company, SharpLink Gaming, is developing a software engine to connect users on websites of sports teams, leagues and media companies with legal sports books.

Phythian's previous companies have been privately held but he has taken his newest company, Sharplink Gaming, public.

"The public market is obviously a lift. There is plenty of proof that if you can get to the public market with an idea that is going to play in this nascent gambling space, then the public markets are going to reward you with a valuation you can't get in private equity," Phythian said.

Phythian is also founder of SportsHub Games Network, which is the largest shareholder of SharpLink Gaming. SportsHub is the rollup of various fantasy sports sites into one company and gives SharpLink access to another set of users that could become bettors with the sports books.

SharpLink has already made some deals with Nascar and the PGA, but it is also testing its software engine with the fantasy sports players that compete for cash through SportsHub's websites. And the company learning from them what is working.

Phythian also was a co-founder of the sports data company, SportsData, which he sold to Sportradar in 2013.

To take SharpLink public, he and his partners explored several options.

There has a been a huge surge in companies completing initial public offerings in the past few years, including seven Minnesota IPOs in 2021. A growing number of companies also have done direct listings or reverse mergers, when a growing company takes control of another existing public firm. There also are deals with special purpose acquisitions companies, called SPACS, which are basically shell companies that list on an exchange and then find a company with assets and a purpose.

Other Minnesota-based companies have had success being listed on foreign exchanges, including those in Canada and Australia. The Minneapolis based electronic-payments company Sezzle elected to first list their shares on the Australian stock exchange, they may eventually transfer their listing to a U.S. exchange.

To find the best way for SharpLink to go public, Phythian got a tip from Doug Polinsky and Larry Zipkin. Among others, the pair advised one of Minnesota's original gambling entrepreneurs, Lyle Berman, on his gambling-related companies, which include Grand Casinos, Lakes Entertainment and Allied Esports Entertainment.

They turned SharpLink on to GreenBlock Capital, a boutique M&A advisory group in Palm Beach, Fla., that advises small private and publicly traded companies.

"We were too small for a SPAC, we were too small for a pure IPO. This was the one that made the most sense for us and our stage of company," Phythian said.

GreenBlock helped SharpLink Gaming identify targets. In the end, SharpLink merged with Israel-based Mer Telemanagement to take over their listing. Mer got a small percentage of the company, and SharpLink got a listing on Nasdaq. After the deal the name changed to SharpLink Gaming Ltd. and the ticker symbol to SBET.

The stock-for-stock transaction valued SharpLink at $17.9 million at the time. At the close of that merger, SharpLink also got a $6 million investment from an institutional investor.

The company is still officially registered in Israel. Phythian says there is more legal and accounting work to do to exit the country, spin-off the telecom business and complete a domestication process that would make SharpLink officially U.S.-based.

In 2018, a Supreme Court ruling opened the door for states to make sports gambling legal. Since then, states, including those around Minnesota, have slowly been legalizing it. Sports betting is legal in Iowa and South Dakota, and limited sports betting will be legal soon in Wisconsin. Many believe sports gambling will eventually be legalized in all states, including Minnesota, at some point.

Because of the slow rollout among states, Phythian and SharpLink have some time to further develop the technology and Phythian's connections with sports teams and leagues, media partners and sports gambling companies. The software will be able to show both sides how many visitors on the team, league and media websites move over to the sports books sites to make wagers there.

"We are just now starting to leverage all my connections with the leagues and media companies talking about the business and why we are needed in the middle," Phythian said.

SharpLink has more than 30 employees, with about 70% of them product developers. Many of those developers have worked with Phythian in the past. He's also filled his management team with people with expertise to deal with the financial and regulatory requirements of being a public company so he can concentrate on strategy and execution.

Phythian is looking ahead to what he calls phase two of the sports gambling market, where companies that are getting big sponsorship dollars from the likes of DraftKings, FanDuel and other sports books will have to demonstrate they can direct customers the sports book way.

"When that phase hits, that's where I want to play," Phythian said. "That is going to happen someday and I think the executives that I'm talking to understand that."