Cross-posted to my blog.
UPDATE: Since I wrote this post before the winter fundraising season, I no longer have sufficiently good information about REG's funding situation to make claims about its room for more funding. I personally would not donate more money to REG without first learning more about how it could use additional funds.
I have received some interest from a few people in donating to REG, and the main concern I’ve heard has been about whether REG could effectively use additional funding. I spent some more time learning about this. My broad conclusion is roughly the same as I wrote previously: REG can probably make good use of an additional $100,000 or so, and perhaps more but with less confidence.
Poker Market Saturation
Tobias from REG claims that about 70% of high-earning poker players have heard of REG, although many of those have had only limited engagement. He claims that they have had the most success convincing players to join through personal contact, and REG has not had contact with many of the players who have heard of it. This gives some reason to be optimistic that REG can expand substantially among high-earning poker players, although I would not be surprised if it started hitting rapidly diminishing returns once it grows to about 2x its current size.
To date, REG has not spent much effort on marketing to non-high-earning poker players. This field is much larger, but targeting lower-earning players should be less efficient because each individual player donates less money. To get a better sense of how important this is, I would have to know what the income distribution looks like for poker players, and getting this information is nontrivial.
REG would like to hire a new marketing person with experience in the poker world. They would probably be considerably better at marketing than any of the current REG employees. For this reason, additional funds to REG may actually be more effective than past funds, although this is difficult to predict in advance.
New Plans and Expansion
REG has partnered with King’s Casino to get donations from poker tournaments. This fundraising model is less explored but has some potential. REG is also moving into marketing toward Daily Fantasy Sports (DFS) players. It’s unclear how valuable these new programs will be, but it’s plausible that they will produce about as many donations per dollar or hour invested as the original REG model. These programs have high learning value, so I am interested in funding REG to help it carry out these programs and see what kind of results they can get.
Then there are REG’s other expansion areas. It has plans to expand the model to a few other fields. The REG founders are putting some thought into choosing where to expand and they appear to be doing a good job making these choices, but even so, it’s difficult to predict in advance how receptive people in a new field will be to the REG message. There’s probably nothing special about poker players in particular, so I would expect similar fields to show comparable conversion rates. When considering that REG could expand into a lot of other fields, room for more funding starts to look like less of a concern. At the same time, the more different a field is from professional poker, the less confident we can be that the REG model will work well. DFS is sufficiently similar that I would expect the conversion rate to look about the same. For other fields REG may move into, like gaming and tennis, it’s harder to predict what the results would look like. Still, I would be surprised if conversion rates among tennis players were a lot worse than among poker players.
Daily Fantasy Sports
To get a stronger sense of REG’s room to expand, the obvious thing worth learning is the size of the DFS market. A report from Eilers Research claims that the size of the DFS market was $2.5 billion in 2015, and that DraftKings (who REG works with) has raised $76M in funding (suggesting a valuation of perhaps $300-600M). The market here is much larger than REG’s current capacity to direct donations, although we care more about the size of the market among high-earning players. This article claims “at least 5 daily fantasy professionals who have won tournaments for over $1,000,000 this year” which is not a lot, although it also claims that a lot more players than that have had large winnings. It doesn’t give any specific numbers or sources.
According to this interview, the online poker market was $2.2B as of about two years ago. This suggests that the DFS market is not much smaller than the poker market (although the $2.2B figure doesn’t include in-person poker–I couldn’t find good data on this). DFS will probably continue to grow, so it looks like REG’s expansion into DFS has reasonably good potential. My guess is that the poker market will result in more overall donations than DFS, but the difference is not large, so REG can probably get a lot of value from expanding into daily fantasy sports.
New York just declared that fantasy sports constitute illegal gambling. This makes the future of the DFS market look somewhat more uncertain. We can make up some numbers to get a rough idea of how important this is. Perhaps this reduces the size of the DFS market by 20% in expectation, and REG relies on DFS for 20% of its money moved in the medium term. That means this decision by New York makes REG look 4% worse. That’s nontrivial but not hugely concerning by itself.
I have been impressed by REG’s openness and ability to answer my questions. When I asked Tobias about the size of the poker market, he had good information about the space and about how REG was positioned. He was optimistic about the room to expand within the poker space. I am somewhat skeptical about this claim because anyone at a charity is incentivized to believe that it can absorb a lot more money; but even if the professional poker space is close to saturation, REG has clear room to expand into other areas (such as partnering with casinos or applying the model to other fields such as daily fantasy sports). At this time I still feel confident recommending that small donors support REG.