Astralis Capital’s Adam Kaplan: “The establishment has had to recalibrate”

In November, venture capital firm Astralis took on SportsGrid COO Adam Kaplan as its new general partner. Kaplan brings years of immersion in the industry across various roles to Astralis, including six years each at SportsGrid and FanDuel.

No stranger to venture capital, Kaplan has himself already provided an injection of personal investment to DFS giant PrizePicks, the largest company by enterprise value in Astralis’ portfolio. In September, Allwyn acquired a 62% stake in PrizePicks for $1.6bn, implying a value of $2.5bn.

Upon joining Astralis, Kaplan spoke of a “critical time in the gaming and sports industries, with innovation and disruption happening everywhere”.

One month into his new role, Kaplan sat down with EGR to talk about significant shifts in the igaming landscape and what he looks for in a startup.

EGR: What are the key challenges currently facing the gaming and sports industries and how do you plan to address them?

Adam Kaplan (AK): The industry is facing both positive momentum and real challenges, but one clear tailwind is the emergence of new gaming formats – DFS 2.0, sweepstakes, prediction markets, social, and crypto – all of which are creating fresh ways for people to engage.

EGR: How do you assess the current state of the market, and how does it impact your approach to risk management?

AK: On one hand we’re seeing companies interpret existing laws differently and there are new developments coming on the back of that. On the other, you have regulatory pushback in certain states. New guardrails are being put up, and there are attempts by regulators to thwart innovation in the space. 

The establishment, by which I mean online sports betting (OSB) and igaming companies, has had to recalibrate its operations. They have had to curb some of the marketing spend and have quietly been turning people over – a change of priorities. ​​They’re also moving past the idea that they can simply regulate competitors out of existence, instead launching similar products themselves, such as DFS 2.0. 

I’m a big believer in Robinhood’s financial services perspective, as they can cross-sell the fact they’re on-chain. It’s an interesting time, not just because of the struggles but because of the opportunities too. There will always be cycles of regulators trying to rein things in, but ultimately innovation always outpaces regulation.

When it comes to risk management, we believe we have to be good stewards of capital in all ways and be rigorous with our due diligence. We also apply that same rigour to our companies.

EGR: Are the valuations being touted for Kalshi and Polymarket overblown? Or are prediction markets here to stay and alter the industry?

AK: The valuations of Kalshi and Polymarket are very high, considering that both are yet to turn a profit. There are similarities between the strategies of DCMs (designated contract markets) and those of the large tech direct-to-consumer firms, compared to what we see from OSB and igaming operators. The DCM path is to raise from top venture capitalists and get high valuations to make speculative profits and build the widest tent possible. This is evident because of who they choose to bring in as execs and because of their marketing strategies. 

Some of the wind is being taken out of the sails of the traditional operators – if you look at their stock charts since the Allwyn-Prize Picks deal in September, most of them are down 20-30%. The market is realizing, despite executives from OSB talking about market share, that there are other scoreboards.

EGR: What advice would you give to startups looking to secure funding?

AK: It’s all about optionality, profitability, and scalability. We’re in a world where the cost of capital is more than it was from 2010 to 2020, so it is imperative that companies can sustain and grow responsibly and profitably – they need to be able to stand on their own two feet. At this point, it’s a requirement for every business. 

We want to see focus on KPIs, unit economics, and risk management from our founders and executives. We’re very big on people. For me personally, getting to know the founder and team is critical. Ultimately, everyone can put on their dancing shoes and pitch well, but you need to know what people will do when the bullets start flying. Will they be good stewards of capital? These things are tougher to measure in a model or deck, so you have to get to know people.

EGR: Given the series of market share slumps for listed US operators in recent months, is there a case for remaining a privately owned entity?

AK: It’s about the company strategy. For some, there are advantages to remaining private, for some there are advantages to going public. Of course, there are market cap slumps right now but the market has been good to them before too. It’s that volatility that makes the market go round. Some companies do get undervalued, and that’s just the market being the market. Downward forces can give way to upward forces – if you’re undervalued now, then your value has more of a chance of increasing.

EGR: How do you see the gaming industry developing in the near future and what will Astralis’s place in it be?

AK: New types of gaming will emerge. We’re very interested in a lot of markets in different areas of the world where there are interesting opportunities. We’re focusing on finding innovative founders – great leaders driving real change. New categories of game will be created, and innovations will be made in existing categories.