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Skillz Part II: Change The Vig, Change The World

Apr. 19, 2022 7:20 AM ETSkillz Inc. (SKLZ)355 Comments
The Lone Contrarian profile picture
The Lone Contrarian


  • Skillz (SKLZ) announced significant operating changes during their Q4 2021 earnings call, including material cost cutting having to do with ineffective marketing spend.
  • Cost cutting is critical.  But as important is cutting their excessive fee structure (i.e., their "vig"). Because their problem isn't getting betting players, but rather keeping them betting.
  • Reducing their dispiriting 50% betting fees to the industry standard 10% won't affect revenues and could be key to creating sustainable profitability, possibly 1-2 years ahead of guidance.
  • I have a Strong Buy recommendation on SKLZ.
Businessman analyse investment marketing data.

ijeab/iStock via Getty Images


Skillz (NYSE:SKLZ) announced major operating changes in their Q4 2021 earnings call, including material cost cutting having to do with ineffective marketing spend. This cost cutting is critical. One doesn't need to look past their Q4 2021

This article was written by

The Lone Contrarian profile picture
Over two decades as a technology entrepreneur and investor.  Founded several companies, took one public, and had two other exits.  Multiple software and process patents.  Received B.S. and M.S. in Industrial Engineering from Stanford University.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SKLZ either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This article cites my reasoning for recently opening a SKLZ position.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (355)

The Lone Contrarian profile picture
Anybody awake at SKLZ?

I again opened 2-Minute Football... and I again was bombarded with "Hot Summer Sale!"... which is trying to BRIBE me to buy in.

I will NEVER do that. Because I can NEVER win against a 50% house vig. Neither can my opponent.

But ultimately neither can YOU because my opponent and I will NEVER buy-in a second time against a 50% house vig.

That's why you don't recurring revenues.

That's why the money spent for these marketing promotions is COMPLETELY WASTED.

That's why you need to FIRE the person that has COMPLETELY WASTED $1/2 BILLION DOLLARS on these COMPLETELY INEFFECTIVE promotions.

Please... unless you want ANOTHER 1-to-20 stock split in your future.
The Lone Contrarian profile picture
@The Lone Contrarian AND if anyone is awake at SKLZ... please know this: Even fun arcade games get old. If you don't fix wagering price, at some point people will just stop playing altogether.

Oh, wait, from your player trendline, you can see that that's already been happening now for a long time.

Change the vig... change the world!
kpmedia profile picture
@The Lone Contrarian I still (accidentally) had it on my alert list (now deleted), and got the $8 low alert notice today.

I see it's imploded by another 33% since the reverse split. Not surprisede whatsoever. At this point, it's a long train going over a cliff, and there's probably nothing can stop it. The company is hemorrhaging cash, users, everything. Let me know when it gets to $4 in another month or two.

I logged into Skillz a few days ago, after probably a year away. I had $75. Of that, $74 was funny money with no cash value. The fee to withdraw my $1 was $1.50. Best of all, by withdrawing, I'd have surrended the funny money. The best part is this: I put in maybe $50 cash, and got the same as funny money. And played and played. Win some, lose some. But all I have is fake money now? Something is bogus there.

Best of all, I was bombarded by pop-up ads in the app to win trophies, and collect virtual crap. It's not a gambling app, it's a really pathetic video game. If I want to collect virtual coins, I'l hook up my NES, and play Mario from almost 40 years ago. At least it's still fun.

We were lied to, like all the others SPACs. This would have never passed regulatory for IPO.
The Lone Contrarian profile picture
@kpmedia I don't agree with the "lied to"... or the "never passed regulatory for IPO"... or such... and I don't agree nothing can stop it. But I do agree that the continued missteps by management have been disastrous for this play. Long train going over a cliff indeed.
David Locke profile picture
LOL now less than 200k paying users

So SKLZ is roughly as valuable as your local McDonalds
The Lone Contrarian profile picture
@David Locke With abusive pricing, we should expect deterioration across the board.

With that said -- and to put it in perspective -- two things:

(1) Cute analogy but your local McDonalds isn't doing about $160m in revs a year.

(2) If they hadn't done the 1-for-20 split, their net loss would have been just 5 cents. The market would have welcomed that.

And if they could have cut their WASTED sales & marketing expenses in half... and trimmed some of their re-escalating G&A... THEY WOULD HAVE BEEN PROFITABLE...

... which doesn't mean the company wouldn't still be a hot mess given it's horribly ineffective pricing strategy...

... but profitability would have meant that the stock shouldn't be priced for death any longer.

My take: (1) Thank you for trying to cut fat where you can, (2) if you want to get to sustainable revenue growth -- which you do NOT have today -- you have to stop mispricing your product, and (3) fire the guy that's in charge of the wasteful sales & marketing effort. The spirit of what David is saying is correct: It's laughable and painful.
The Lone Contrarian profile picture
I don't want to state the obvious... but replacing -- at a minimum -- CSO would have pushed share price above $1 and made a 1-for-20 reverse stock split unnecessary.

Instead, we're trading at half that level.

Is CSO really that valuable? He's wasted $1/2 billion with nothing to show for it.

"The stars might lie but the numbers never do." — Mary Chapin Carpenter.

Anyone on Skillz board of directors listening? Andrew? Jason? Anyone?

You are pricing your product wrong. Which is the reason why you don't have recurring revenues. Which means you don't have a sustainable business.

It's awesome to cut the fat. But the fat will all be cut away soon. Without recurring revenues *our* stock price really can go to $0.00.

Anyone in the company listening other than all of us other shareholders who are wondering if anyone is listening?
kpmedia profile picture
@The Lone Contrarian The recent "login or else we charge you a fee" is already backfiring. It disincentives returning players, not encourages return. Not sure if you've read about their latest boneheaded move.
The Lone Contrarian profile picture
@kpmedia For some reason my alert wasn't working and I wasn't notified of your comment, sorry for delayed response.

What?! I've been playing my usual 2-Min Football (sometimes Big Game Hunter) and haven't seen anything about charging a fee?

Yes, charging a fee would be dumb.

Why when they can get me to WAGER and they can take a RAKE if they just priced it REASONABLY.

If I have to pay a fee I will be gone. And they will lose the potential to ever make a rake from me.

Is this the "latest boneheaded move" you're talking about or other (other than the awful, horrible, UNNECESSARY 1-to-20 split)?
The Lone Contrarian profile picture
What did everyone think of the news that SKLZ is moving their HQ to Las Vegas?

Here's my quick take:

— Since they're now in LV, here's a test for the Skillz executive team:

Q: What is your vig (i.e., vigorish, juice, or the fee for taking a wager)? And how does that compare to other 50/50 Vegas bets?

A: They don't know. Or didn't know. I know this for a fact, the exec I spoke with had to guess... and was off by 2x.

A: It's an abusive 50%... as compared to 10% for a standard 50/50 bet in Vegas. (See article above for the math.)

I'm sincerely hoping that, once in Vegas, some average, low-level sportsbook teller can help Skillz out with the basics of wagering: You can't beat a 5x premium on a 50/50 bet.

More importantly, you can't even fool yourself into thinking you can. You know you can't because your stack simply vanishes. That means you will never inspire recurring revenues... it's "one & done." Bettors know better.

— This is one way to solve the issue of SF workers' outrageously high salaries *and* not wanting to return to the office... just move the office. Smart.

— I'm guessing buying in Las Vegas may actually be cheaper than renting in SF... but you gotta ask is now the time to tie up that cash (rather than taking advantage of even cheaper rent)... before you even know if you can get to b/e? Or maybe they're feeling more comfortable about that now?
Omer Altay profile picture
@The Lone Contrarian stick a fork in it. This company is long been hopeless/done.
@The Lone Contrarian Please keep posting your thoughts. They are well appreciated.

I was really surprised they bought instead of rented.

I really believe there are a couple possibilities why they are working the way they are:

1) They are quietly solidifying the infrastructure (taxes with various states and countries, cheating prevention, lean customer and developer support, advertising through the ticket store, interactive advertising which I saw on Diamond Strike, getting Aarki up to speed, Exit Games, etc.) and taking their grand time (Why take their grand time? They’re getting tons of stock based compensation and buying up shares on the cheap, and they don’t seem like they can be kicked out by the board because they are the board.). Once they feel the infrastructure is set and can handle the worldwide traffic, they’ll turn on the spigot in various ways. Paradise has stated in various interviews this is a 100 year vision.

2) Their business model never worked and they’ve given up, gotten their money, and are letting things play out until the company dies.

Why do I believe these two possibilities? Because nothing makes sense after reading the LinkedIn articles by Paradise, watching his Motley Fool interview, and reading Glassdoor reviews, several of which said it’s a stifling work environment where workers need Paradise to sign off on everything.
The Lone Contrarian profile picture
@Omer Altay Certainly feels this way!
David Locke profile picture

ONE question on the call
NO guidance [other than adjusted EBIDTA positive at end 2024]

$47mm(ish) of revenue but $20mm(ish) of that was engagement marketing so the real (not round-tripping) revenue number is something like $27mm a quarter. Presumably with the user base still rapidly diminishing that real revenue number is even lower in Q1.

User acquisition marketing under $10mm. They used to spend $50-70mm a QUARTER on user acquisition. What in the actual $&#+ were they spending that on?

Clown show and Paradise should frankly be imprisoned.

Stop with the ridiculousness that the “vig” is the problem. This was never a real business, and frankly near as I can tell it never even had any intention to be. Just a scam to fleece retail baggies.
The Lone Contrarian profile picture
@david Locke Hi, David! I'm as frustrated as you are. But the business is not a "scam"... it's not trying to fleece retail baggies... if anything, we could both make a case that greed didn't help anyone's investing strategy... who would have ever invested in a hugely unprofitable business hemorrhaging money at, what, 30x's revenues? I certainly didn't get interested in SKLZ until the price was a fraction of what it was.

And, we clearly don't agree on "the ridiculousness that the "vig" is the problem." It is. They are simply mispricing their service. Nothing more complicated than that. Actual players know this to be the case... that's why 80% of the players *continue* to play the games but will only play for free. No one will buy a $10 burrito for $50.

Who cares about future guidance of a stock that's trading for 50 cents? What investors should care about now is:

(1) Cash... and they seem ok here.

(2) Cutting out the crap. Also called "financial engineering." All they're doing is cutting all the crappy things they spent money on that absolutely didn't work. And what's amazing is when you do this, it doesn't really hurt their business... because the things they were spending on weren't contributing at all, just sucking down more $'s.

(3) That the installed base is still intact. And it is... HOWEVER, it's rapidly deteriorating, which is actually my biggest concern now (well, that, and what I mention in #6 below).

(4) Fixing what's broken. They don't have sustainable revenues. But this is a wagering business. Wagering businesses DO work. So they just need to emulate other wagering business models. i.e., CHARGE A STANDARD VIG (or "take" or fee, whatever you want to call what you're mispricing).

(5) Enhance what's not broken. They still have an installed base. MONETIZE THAT. Create new wagering games, i.e., tournament play. Subscriptions. Digital advertising. Whatever. None of this is new and all of it is successful in the industry. JUST DO SOMETHING.

(6) Clean house. Whoever is in charge of "Engagement Marketing" should be fired. Whoever is in charge of "User Acquistion" should be fired. That person has wasted going on $1 BILLION... do you need more evidence?

If you take out the non-cash $117m impairment charge (which was always a questionable acquisition and the impairment charge speaks for itself), the EPS number is not $0.34... or even double-digit which we've (sadly) gotten used to... but just a measly $0.06.

And if you half Engagement Marketing, then it starts getting even closer.

And, recognizing G&A is artificially high due to severance stuff, that means that's a one-off and that cost bucket comes down more dramatically next Q.

So when you actually financially model what's going on, they ARE getting to b/e. Which means they will actually have a lot of cash left to figure things out.

Is all of this worth hanging in there?

It is if they figure out their business model is broken and fix it. It isn't if they don't figure that out. That's been my investment thesis all along.
Omer Altay profile picture
@David Locke it's a zero. Business never made sense and never will. You should thank the pumpers and baggies for giving us this opportunity. I already covered, but regret doing it so soon. May short again though as the business has gotten so much worse.
The Lone Contrarian profile picture
@Omer Altay I just commented on the new thread. But, take out the $117m *non-cash* expense and their $0.34 loss goes to $0.06. That's approaching b/e... and they still have a lot of cash in the bank to right the ship.

But I do agree with you... if they don't change their pricing model and continue thinking they can charge an abusive 5x premium for their service, then the company will only continue to drive itself into the ground.
mpcascio profile picture
I had my dance with that pig a couple of years ago. I wouldn’t touch it with a barge pole.
The Lone Contrarian profile picture
@mpcascio Yep. So frustrating, eh? Just stop gouging players. That’s it. Bettors know better.
The Lone Contrarian profile picture
Anyone notice that yesterday SKLZ moved their earnings call back from today (3/14) to Thur (3/30)?

I can't remember seeing a public company do that with such late notice.

My initial take is that it's negative... that the stuff has really hit the fan.

Then -- in what I hope isn't just wishful thinking though it probably is -- I realized that maybe the new, professional management has *finally* wrestled running the asylum back from the inmates? Essentially a capitulation scenario? That would also be a reason for delaying an earnings call to the extent they have... massive internal disagreement and strife... with an eventual winner that requires time to "pivot"... that is, to enact changes *now* so they can be quite definitive about the new direction during the call.

Why do I keep rooting for this company? Because my investment premise is, and always has been, this ill-performing company can be fixed with a simple change to their pricing model (i.e., charging standard rates vs. an abusive 5x premium).

So my hope (and I realize "hope" shouldn't be an investing strategy) is that there are real, sustainable changes happening even as we type.
Omer Altay profile picture
@The Lone Contrarian I don't think you've convinced anyone (except yourself) on the idea that the vig is the problem. Good luck. No position, used to be short a while ago.
The Lone Contrarian profile picture
@Omer Altay Well, unfortunately, certainly not at the company!

What's that lyric from a great Mary Chapin Carpenter song? "The stars might lie but the numbers never do."
David Locke profile picture
@The Lone Contrarian Delaying the release to the last possible date, and still be in compliance, is generally not a good thing.
Hi @The Lone Contrarian

At least I’m certain investor relations knows about your article (at least one person, worker’s name in the email). I wrote them and they responded, if only with “Thank you for the feedback. It’s very much appreciated.” That’s a start, right? (don’t have subscription anymore to SA, so may not be able to respond.)
The Lone Contrarian profile picture
@LedZeppelin I'd like to believe that. But their silence is deafening. Their inaction confounding. What's so hard about understanding that no one will pay $50 for a $10 burrito?
kpmedia profile picture
@The Lone Contrarian I keep getting free money emails. They have no idea how to market, no idea how to retain customers. I've never fully liked your vig idea, but it can't be worse. Anything is better.

Lack of access on the Play Store hurts, no quality games (NFL, UFC) hurts. This whole company was smoke and mirrors. I should have sold at $2, not held. It's my only hopeless holding.

At this point, the only hope for SKLZ is buyout from another player, maybe TTWO or EA. Gut it for the tech, keep some of the talent.
The Lone Contrarian profile picture
@kpmedia Exactly, do they need to spend *another* $1/2 billion in ineffective marketing to tell them what they already know? That buying revenues is *not* sustainable... ? Really, they don't get that yet??
Looks like Skillz has what could be a great betting service but if management keeps doing a idiotic betting service then they will continue to fail. This company stock price has only gone down down down and so far no light at end of tunnel
The Lone Contrarian profile picture
@David Locke Hi, David... I'm answering this publicly because I still hold out hope that someone in the company reads these things.

I'm not worried about any of the kinds of things you're worried about. Not that they don't have merit... I just think there are bigger problems.

I like that they hired a new President. What I don't know is if the guy has a spine. Roswig has been with the company about five months. The longer it takes him to realize it's their abusive pricing that is killing recurring revenues, the more I think he doesn't have one.

I also worry about Casey's continued involvement. The only play he has in his playbook is to buy revenues... and that's clearly been a disaster going on a few years now.

So I don't know what to tell you. I still love the potential in the company. But the longer it takes them to make meaningful -- and SIMPLE -- pricing changes... heck, even to TEST simple pricing changes... the more I think they just don't understand the sports wagering business they're trying to extend.

SUMMARY: No one will pay 150-to-win-100 for a 50/50 bet when the standard Vegas sports bet is pay 110-to-win-100. That's why they don't have recurring revenues. That's why they're failing. It's that simple.
David Locke profile picture
@The Lone Contrarian So I’d take one SMALL issue with your reply [though, you’re still directionally correct].

The “standard” Vegas bet may be -110 (on a spread or over/under),


the mobile sports books ($DKNG et al) earn about 60% of their total rake from parlays, and the hold on parlays recently has been high-teens to twenty percent (not the 5% hold you earn from -110s). moreover, they HEAVILY market the 3-5 leg same-game parlays, which have rakes in the 25% area AND the pricing is completely opaque to the bettor [since there is no “this parlay WON’T happen” contra-bet to keep pricing honest].

This maybe just makes your point, as the online sports books appear to have a customer base that’s comfortable with a 20-25% rake on some portion of their gross betting for the weekend……but that’s still a far cry from the 50% ridiculousness that SKLZ tries for.

With all that said……the actions of the company to ME continue to indicate they’re not really interested in building a business; but are rather just interested in raping shareholders and customers to line their own pockets. Just a giant grift, a la FTX. A golden goose that they’ll keep alive as long as they can, because they know there’s no actual sustainable business here.

I kinda hope they prove me wrong, as I’m not super excited to live in a world where public companies are basically money laundering operations; I much prefer to just assume people are acting in good faith. SKLZ hasn’t really given me any good reasons to assume that, though…..and plenty of reasons to assume not.
The Lone Contrarian profile picture
@David Locke Good thought but parlays aren't 50/50 bets. A standard, 50/50 bet is pay $110-to-win-$100. Been that way for centuries. Probably millenniums.

But, parlays ARE an interesting way to potentially earn more vig: Wager that you win two Skillz games in a row... or three games... or such... and even though you pay more vig, you also have the chance to *win* more, too. I like that thinking as a way to *reasonably* drive the vig higher, smart!

And maybe that's the point *you're* trying to make: You don't even work for the company and you just came up with an exciting way for them *reasonably* drive their take higher. Like you, SKLZ is just not giving shareholders any good reasons to assume they have a handle on what they're doing in an environment where money isn't free -- whether it's VC's giving it to them... or them giving it to bribe players to play.
David Locke profile picture
@The Lone Contrarian The rake on parlays doesn’t have to do with the probability of winning…..it has to do with the way they are priced. The books could price the parlays such that, on average, they provided a 5-10% hold. But they don’t. They price them such that the holds are 15-25% [over the large sample of parlays]

This is why no serious bettor participates in non-correlated parlays. It’s completely idiotic bankroll / money management.
mpcascio profile picture
I’m into this pig for about 12k because I thought they were on the right track. Now, I’ll have to take the loss against my gains. I would’ve preferred to pay the taxes. You sure can’t win them all.
The Lone Contrarian profile picture
@mpcascio They are on the right track (in terms of inventing gaming wagering)... they're just a pricing change away from making it sustainably work... please write to nonmanagement-directors@skillz.com and tell their board that the answer to their non-recurring rev problem is *standardize pricing*... because their current 5x premium (50% vig vs. 10% vig) chases all their recurring rev away.

Maybe if enough of us let the board know this, one of the board members will actually do their job and look into why Casey and/or Andrew is stubbornly sticking by abusive and unrealistic pricing.

The data is CLEAR. Half a billion in wasted marketing dollars in 2021 alone. No matter how much they spend to RAM unrealistic pricing down players' throats, it won't work. Bettors know better.
mpcascio profile picture
@The Lone Contrarian Thanks for that. You know I wrote investor relations and I never received a reply. Whenever I don't get a reply I'm out. They clearly haven't got a clue.
The Lone Contrarian profile picture
@mpcascio Thank you for writing them. When did you write them? If it was in the last few months, my guess is it was right in the middle of all the layoff turmoil... meaning, who knows who's left standing, right? For all we know, most of the IR people were let go. And since I think they need to keep slashing their headcount, that would actually be positive. Can you reforward your email? And maybe this time say that, as a shareholder, you would like a reply... because there aren't that many shareholders that have stuck with you and you DESERVE it.

This is one of those times where shareholder activism will help shareholders. :)
The Lone Contrarian profile picture
SKLZ Q3 2022 Earnings Call:

Sorry for posting here but it's faster than article submission (I'm stretched for time!).

I hope someone at Skillz reads this.

How could they not? Literally no other analyst is writing about them... from what I could see, only one even bothered to do an earnings follow-up... and that was a price target cut.

At the very least I have some positive things to say.

And continued constructive criticism, too.

I'm saying both because I continue to believe in the potential of this business. Painful as the company makes it for me.

The way to profitability is (1) cutting costs, and (2) recurring revenues.

The company seems like they made *sincere* strides cutting costs and head count in Q3. In fact, if I'm comparing financials correctly, R&D cutting was an appropriate bloodbath ($18m to $8m)... which is a *difficult* thing to do... and kudos to them for doing it. If you take out the $48m in impairment, they would have had just a 7 cent Q3 2022 loss on an operating basis. UA and EM are significantly down from previous quarters as well.

However, UA and EU should be dropping waaay faster.

Why spend ANY money acquiring players (UA)? About 80% of your players STILL play for FREE -- like me -- why not try to convert us into paying players? Cheapest player you can acquire is an existing one.

But I'm certainly NOT suggesting you do this by giving us gobs of "free money" to spend... your Engagement Marketing (EM) -- where you PAY players to turn around and pay you -- had utility when investment money was plentiful... but is a financial disaster when it's not and it's coupled with a mispriced service. ("Did anyone see that extra $1/2 billion I had in my pocket in 2021??") The EM cost line should literally be a tenth of the $24 million spent.

How do you reduce these? A bunch of ideas are in the article above.

Cutting these could have meant another 7 cents reduction in your Q3 2022 operating loss.

Wow -- there you go -- operating breakeven in 2022... about two years before you're projecting it.

But all of that is for not if you can't generate recurring revenues.

Andrew's statement about "There is no quick fix" drove me crazy. There is a quick fix: Stop mispricing your service. Your 5x premium is *killing* recurring revenues... and therefore your business...

... as evidenced by Jason's statement about, "Our strategy is to use our capital to get to break-even"... which says to me, "we will try to get to breakeven before we run out of money."

Both of these statements mean the company still doesn't get how detrimental their pricing strategy is to their business.

Given the massive amount of money you've spent, isn't it abundantly clear by now?

Punitive Premium Pricing = no recurring revenues.

Standard Pricing = recurring revenues. This is what your business is missing... recurring revenues, the gift that keeps on giving q after q after q.

C'mon... isn't it worth at least a test? Today someone wagers $0.60 to win just $0.40. A 50% vig. How about testing a $0.55 wager to win $0.50? A standard 10% vig. I'd be back at the money table in a heartbeat. Because I'd actually have a chance to win.

C'mon, someone at the company please read this before it's too late!
kpmedia profile picture
@The Lone Contrarian At this point, I'm looking for an out, anything with multi-bag gain potential. Maybe even a biotech. It can't be any worse that this.

Have you erad any of the Glassdoor reviews? They just keep coming, awful and revealing. The CEO is clueless.
The Lone Contrarian profile picture
@kpmedia I have read the reviews. They sound terrible. But there are two sides to this: People simply aren't going to write good things when (1) the ship starts to sink, and (2) they get fired. Clearly emotions are involved.

In general, I think Andrew is simply an old tech styled manager from a decade or two ago: He wants his people in a physical office for at least 12 hours a day... 14-16 for those employees that truly "kick ass." That's the way it used to be done: The project was the most important thing in your life... the mission all-important. Anything else and that would jeopardize success!

There's nothing wrong with that IF you have a crew that signed up for that. In fact, there's a lot of things right with that.

If you don't, well, then that's why you have a work force that has a lot of hate.

So that's why the terrible reviews don't bother me. As a shareholder, I think slashing headcount (and that huge expense) is infinitely more important than stepping on some toes right now. I hope they continue slashing.

Re: Biotech: Can't advise because it's not my thing! ;)
kpmedia profile picture
@The Lone Contrarian Sometimes comments are more than sour grapes. I think this is one of those times. Some of the comments are telling.

The pandemic rightfully killed that attitude of company first, workers last (or never). So if that's Paradise's idea of management, then I really need the GTFO out of this stock ASAP. It's just divorced from reality. Take my literal pennies per share, take my loss, and go elsewhere.

Even something like WBD is interesting, if I think it will 3x in a year, and SKLZ will not hit $3. Sadly, it's looking more like a delisted OTC penny stock than a $3 stock. TWLO, BAND, DKNG, SHOP, BYND, BLZE ... lots of alternative spec SPAC/IPO options that seem to be far more likely to regain losses, with a large runway to gain back those losses. SOXL, TQQQ, SPXL, also good options, leveraged claw back some losses. It's all about timing here, and I have my eye on it daily. I'm now worried about recovering losses.

I've lost all longterm faith in this company. I should have dumped when new broke about that 10% loan last December, bad omen. They didn't capitalize on football this year whatsoever, and that was their last real chance at doing anything. I'm tired of getting emails about free funny money for giving them my cash. I just do not care anymore. That's desperation, not a viable business plan.
CPA Bob profile picture
Time for Part III?
kpmedia profile picture
@CPA Bob What's the point?

At the end of last month, I got a "voucher" to my email, $5 free house money to play with. I didn't bother claiming it, I no longer care. I've not logged in or played for months. Skillz entirely disgusts me right now.

I'm starting to think retail investors should file a class action against. Motley Fool. I don't think any research was done into these companies as claimed.
The Lone Contrarian profile picture
@CPA Bob Sorry for my tardy reply... lots of excuses, none of them very good.

Part III would read something like this:

After all of this analysis, you *still* don't get it?

You charge 5x's the standard Vegas bet. No one can make money against a 50% vig. Which means no one buys in again. Which means no recurring revenues. Which is *exactly* your problem.

This *isn't* rocket science. You charge too much.

Don't believe me? Why not run a test? That's what a smart company would do. Instead of continuing to lose hundreds and hundreds of millions of dollars on a failed pricing model.
The Lone Contrarian profile picture
@kpmedia Motley Fool is probably as frustrated as I am. It's a great business. With great potential. Mgmt is simply pricing their product incorrectly. You would think after losing hundreds and hundreds of millions of dollars that Paradise would figure this out. Here's the way it works:

Millions of people play SKLZ games. THAT'S GOOD. But none of them will buy-in again. THAT'S BAD. So they continue playing for free. THAT'S GOOD.

Why is it so hard to spot the, "THAT'S BAD" part of this equation??

P.S. $5 house money means NOTHING. Because you can't beat a 50% vig. So I agree -- WHY EVEN TRY?

P.P.S. I still play every single day. But only for free. In fact, I started playing Big Buck Hunter... to see what all the fuss was... and I have to say I got into that game, too. They have fun arcade-style games! They just have a failed pricing strategy.
The Lone Contrarian profile picture
Change the vig, change the world.

Don't change the vig... then you're not really changing anything...

... SKLZ's world continues to spiral downward... desperately in need of recurring revenues that their excessive pricing is discouraging.

Here's something quizzical that the management team said in their Q2 2022 call:

"The primary causes of the sequential decline in revenue and revenue after engagement marketing was really lower retention for some of the mature cohorts of users on our system." ... "As we pull out some of those incentives, we're pulling out low or no value users who are still counted and are paying MAU calculation."

I think the way this translates in English is:

"Our revenues dropped because we stopped paying people to pay us."

... and...

"Instead of us considering that overcharging players by 5x might be the problem, we're happy to simply chase away players that came to wager... that WANT to wager... but AREN'T wagering because of *your* abusive pricing approach?"

Maybe what you're calling "low or no value users" are just "one & done" players... i.e., players that *know* you can't beat a 50% vig on a 50/50 wager so they don't buy in again.

What do I fear? That every NFL bettor will know this, too.

Why not test this? Have two games: "Bet 60 cents to win $1"... and "Bet 55 cents to win $1.05"? See which one is more popular? See which one drives additional buy-ins?

That's the whole point, right? That's what you've been missing in your Q results for a long time now, right? Actual recurring revenues?
rafaeltross profile picture
@The Lone Contrarian Always appreciate your insight. I just wonder, after so many of your posts, why management still won't listen to you. Thank you again.
kpmedia profile picture
@The Lone Contrarian "lower retention for some of the mature cohorts of users" means you were right, in a rough sense. I didn't think you were right. But you're right.

I still think, however, that it needs to be tiered and incentivized vig, not simple across-the-board. And the phrase "mature cohorts" also shows I'm right. You need to appease the high end, and overcharge the low end, while incentivizing low to become high. High meaning more deposits, more play.

Low end players don't even know what a vig is. It's just lottery tickets, throw money at games to win money. You give the low end far too much credit.

A/B testing is a great idea here.

I think you're right, but not your solution isn't finesse enough.

I'm starting to think the CEO is a dunce. Have you seen the Glassdoor and Indeed reviews? Yikes.
The Lone Contrarian profile picture
@rafaeltross Thx for the nice sentiment.

I'm hoping it's not that they haven't listened, but that they figured out something wrong with my analysis.

For the life of me, though, I can't think of what that could be... and not a single reader has been able to shoot down my thinking.

Quibbles here and there about how scalable their tech is, the desirability of arcade-styled games, and the intelligence of their mgmt team... but nothing to refute my main premise that charging 5x premium discourages (destroys?) additional buy-in's (i.e., recurring revenues).

But maybe it has to do with the big spenders... that they're making all their money from those few folks so they can't afford to rock that boat?

But if this is the case, (1) it's not working, as evidenced by spiraling financials, and (2) the complete lack of recurring revenues, i.e., the vast majority of their players -- 81% -- play but don't buy in again.

So if it does have anything to do with the whales, maybe the company is simply trading smaller-but-steady-and-sustainable-AND-RECURRING (i.e., GROWING) longer term revs for bigger and *not* sustainable short-term revs? Clearly a bad tradeoff if the goal is to grow a sustainably profitable company.
So maybe they just need to bite the bullet and become a smaller company? But one that's profitable... with what would be a growing base of recurring revs?

Actually, I take that back. If they price at a standard NFL betting vig, and if the NFL is really going to push them, they'll pick up a ton of new *sustainable* players.

And, actually, I take that back a second time: If they price at a standard wager vig for a 50/50 bet, they have 81% active-but-not-paying customers that would LOVE to get wagering again.

So, actually, I don't think they become a smaller company at all. Just a sustainably profitable one.

I suspect not a single person on their board of directors have played any games for real money... and really tried to WIN real money... or even grok that SKLZ is charging an excessive 5x premium over Vegas. If they had, all of this would be apparent to them.

If there is something wrong with my analysis, I'd love to know what it is.
the company has a runway of 3 quarters and a ton of debt. They either have issue more shares or raise more debt.
The Lone Contrarian profile picture
@down_to_finance ... which will be a challenge doing either of those...

... OR...

... they can simply price their product correctly...

... which will turn on the recurring revenues spigot... which will allow them to eliminate their wasteful "Engagement Marketing" spend... and if they simply focus on monetizing *existing* non-paying players, that will help them dramatically reduce their "New User Acquisition" spending... and, voila, with higher, *sustainable* revs, and much lower mkting costs, they are profitable... their shares go up, they start paying down their debt... and then they could do all the secondary offerings and/or new loans they want.

But it ALL comes down to not mispricing their product.

They charge 5x what Vegas does. Bettors know better.
@The Lone Contrarian sounds like that you're planning to take a board seat and start making executive decisions for the company. The CEO is a joke and I can't imagine any good talent even wanting to work for him
The Lone Contrarian profile picture
@down_to_finance Wouldn't that be something, eh? : )

We'll have to agree to disagree about the CEO... he's not a joke... he's created a terrific company with many top-flight accomplishments... marred only by mispricing... and every day he doesn't fix that, is a day closer he gets to burning through all the company's money.
@The Lone Contrarian I am sorry to say that you are totally wrong. SKLZ is going to $0.10 no matter what. Their business model cannot succeed no matter what. Moreover, the SKLZ leadership is a useless bunch of clueless clowns.
The Lone Contrarian profile picture
@romrhk Re: Leadership: I don't think SKLZ leadership are "useless bunch of clueless clowns," but the longer they take to fix their broken pricing, the more concerned I get.

Re: Business Model: I financially modeled this and showed you how the math *does* work. Lower vig. Same number of games being played (between paid and free games). No negative effect on revenues. Potential positive effect on revenues given additional buy-ins due to standard pricing. Big effect on unnecessary marketing spend.

I'm happy for you to share your financial models to support your statement, though.

Until then, respectfully "cannot succeed no matter what" is just an unsupported qualitative statement. But if you want to go qualitative, let's not forget there is an entire sportsbook industry that has succeed forever. Your statement reminds me of the folks in the 90's that said there was no way online retail was ever going to succeed.
@The Lone Contrarian someone on the Blackout Bingo chat wrote “@blondie203, you don’t win $1.00, only $0.40. We should be paying $0.40 and winning $0.60. You lose more than you gain.”. So in this case, the pot would be $0.80, and Skillz would get $0.20 (half of this to the developer). Would the vig be 30%? Is it calculated as Skillz’s portion of the whole pot, or just the winnings, .20/.60 or .20/.80? I’ve watched videos on how the vig is calculated and it seems there are several types of vigs. Thanks!
The Lone Contrarian profile picture
@LedZeppelin The short answer is @blondie203 has figured it out, you can't win against a 50% vig!

To your question: It would be the equivalent of a MINUS 33.3% vig. That's because @blondie203 is asking to bet LESS and win MORE... in a standard 50/50 bet, you bet MORE -- 110 -- to win less -- 100.

What kind of bet would Vegas let this happen with? Bets that aren't 50/50... harder bets. For example, a two team parlay where you have to win both bets to win -- and if you lose one of the bets you lose them both -- but that's why they give you a bigger payoff to compensate you for the bigger risk.

In the case of @blondie203, the house is going to pay you MORE than you bet but you have to win *both* ends of a 50/50 bet... which means that the probability of of winning is only 25%. They'll pay you more because the probability of you winning is less.

Back to Skillz: This is all confusing because Skillz doesn't represent its wager in a standard way. I think it's done on purpose to (1) distance itself from the gambling world (a good reason), and (2) to obfuscate the premium they're charging (a terrible reason).

It can also be confusing because mathematicians came in with fancy vig formulas (as you figured out).

The non-fancy bookies kept it simple: If you want to win $100, then you're gonna tack on $10 (10% vig) and bet $110 to win that $100. If you win, I pay you $210... the $110 initial bet and your $100 winnings. If you lose, I keep the $110.

Let's see what happens with what Skillz does: If you want to win $100, then you're gonna tack on a whopping $50 (50% vig) and bet $150 to win that $100. If you win, I pay you $250... the $150 initial bet and your $100 winnings. If you lose, I keep the $150.

While there may be some variability on the definition of "vig", there is no variability in the way Vegas expresses a bet: -110. The Skillz equivalent is -150.

Regardless of how it's expressed, Skillz is taking 5x the rake.

Here's what should happen if @blondie203 was trying to fit Skillz into a standard Vegas bet:

For a $0.40 bet, $0.04 should be tacked on (10%) so the initial wager is $0.44 to win $0.40.

But here's what Skillz does: $0.40 bet and $0.20 tacked on (50%) so the initial wager is $0.60 to win $0.40.

For both bets, every time you win it's the same $0.40. That should happen about half the time for a 50/50 bet.

BUT, every time you lose, instead of losing 4 cents (10%), you're losing 20 (50%) cents ON TOP OF your 40 cent wager.

Let's use real money. With a 10% vig, I lose $110 with every loss. With a 50% vig, I lose $150 with every loss. $40 more just poofed away. NFL betters won't stand for such a lousy 50/50 bet.
SeaRain profile picture
@The Lone Contrarian Thank you for the razor-like focus on the VIG - pulling all of us along the learning curve. Well done. And very collegial back-and-forth between you and the commenters.

We're all getting smarter now on SKLZ. Seeking Alpha at it's best!
The Lone Contrarian profile picture
Everyone: A new twist was just introduced to this... supports the analysis above... but for a slightly different reason.

I always ask knowledgeable people if they know how a standard Vegas vig compares against SKLZ.

I'm shocked that people -- I'm talking analysts and large shareholder types that absolutely *should* know -- do *not* know this.

It's 10% vs. 50%. Or, another popular way to state it: -110 vs. -150.

That's like buying a $10 burrito for $50 and then checking the money in your pocket and you aren't sure where it all went.

There's another explanation: People just think they lose... that you win when you first start... but as soon as you start leveling up, you're playing harder competition and get creamed.

But that's impossible... because Skillz whole IP portfolio -- what they *brag* about everywhere -- is that it's FAIR, evenly-matched competition. i.e., a 50/50 proposition.

So, no, they're NOT losing their stack to better players... but to the HOUSE that takes a 5x rake.

But regardless of why you think your stack went away quickly, the effect is the same: One & done...

... which is why they don't have recurring revenues... and why they have so many active non-paying players... because they're simply chasing bettors to the free practice fields.

If they changed their vig to an industry standard 10% instead of 50%, watch what happens: Bettors will magically think they are getting better. Which will cause them to want to play more. The very definition of recurring revenues.

Anxious to hear thoughts about this...
Agree with article 100%. They also need to make it easier for a player to link up with one or more friends (eg a list of your poker night friends and other friends you gamble with that you click and can play real time with each other). Most of mine have never heard of SKLZ (because the marketing sucks) but I am sure if the made the above possible I’d be paying for playing every day (if the Zig is low). I gave this feedback more than a year ago. I’m presently one of those people who paid the initial $10 and have never paid again even though I play A LOT ever day for free tokens (they are so generous with free tokens I’ve played thousands of times over the last year without ever having to stop)
cwfuchs profile picture
@Barry Whittle
right ... increasingly it appears to be more and more obvious that management does not know how to run Skillz's business properly.
Although there were and still are lots of good ways to make profit in a fair way, there also is misjudgement and lack of willingness to improve.
The Lone Contrarian profile picture
@Barry Whittle I think most of the 82% of active but non-paying players are just like us. One and done. Not going to buy a $10 truck stop burrito for $50. But it’s a great burrito and a great truck and if you charge $10 for it I’ll buy it every day.

Love the idea of being able to play your buds. Viral marketing at its best. :)
kpmedia profile picture
@The Lone Contrarian I know you keep focusing on the vig, and assuming lowering it will fix everything, but I just disagree. The house is burning, and you keep focusing on the drapes. "OMG, the drapes are burning! Quick, let's put this out."

The vig doesn't stop overspend, doesn't fix the platform technical issues, doesn't get more and better games to the platform.

Really, truly, I wish it was that easy. But I think the head-up-butt runs far deeper, and might even be a cultural issue. I've seen that before.
The Lone Contrarian profile picture
CAN EVERYONE PLEASE CAST THEIR ANNUAL MEETING VOTES? The meeting is Thursday, May 12 @ 10am pst. Would be good to send them a message that investors do *not* like what they're seeing. If you're a shareholder, you would have received your proxy voting material in the mail. Takes 10 seconds to fill it out.

ALSO, PLEASE SUBMIT QUESTIONS. Here are the important questions... all data that other companies readily share:

(1) What % of non-paying MAU's have bought-in at ANY TIME in the past? (If that data is not available, then the last six months.)

(2) What is paying player churn rate?

(3) What is User Acquisition spending for Q1? And Engagement Marketing spending for Q1?

(4) What % of players are iOS and Android?

(5) Your vig is 5x higher than Vegas: 50% compared to 10% standard bet. (Or, what some sportsbooks call "-150 vs. -110".) Do you have plans to reduce to the industry standard? And if not, why not? Asking because if Skillz is charging 5x what Vegas charges, maybe that's keeping bettors from buying-in multiple times (i.e., generating recurring revenues), which may be why you've had to spend a spiralingly higher amount each quarter on marketing.

Thank you!
@The Lone Contrarian Do we vote for/against/abstain? And for each person? Thanks, I’ve never done this before.
The Lone Contrarian profile picture
@LedZeppelin The questions are important... if many people ask the same questions, they'll KNOW that we're serious about wanting important data.

The vote, though, is most symbolic... I could be wrong... but I think all the voting power is with all the big shareholders.

Note that I voted against all of them. Symbolically. The cut some. They needed to cut way more. And, of course, stop charging 5x more than other sportsbooks. So the way shareholders can show displeasure is (1) selling their shares... goodness knows a lot of people have, which is why the stock has a 1-handle now. And (2) voting against the entire board slate.

Less symbolically, however, is the vote against the non-insider board members. You gotta wonder if they've been asleep at the wheel. Anyone asking tough questions? Like what % of non-paying MAU's have bought-in at any time in the past? (If that data is not available, then the last six months.) What's our churn? Why are we charging 5x more than other sportsbooks? Why don't we have recurring revenues? Etc., etc.

Also, it's not helpful having two company insiders on the board. The board has to be independent of the daily operations. For situations exactly like this... because while I'm sure that Andrew and Casey are passionate about what they're doing... the board *needs* to be independently critical of their work... and multiple insiders makes all of that a much more difficult dynamic.
kpmedia profile picture
@The Lone Contrarian Vote where? (I generally ignore voting. As a retail investor, my share count is a drop in the ocean. Why waste my time?)

I'll copy/paste the questions.
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