2022 Financial Summary
● Trading volume of $56.9 million, a 3.0x year-over-year increase.
● Net returns from trading totaling $2.8 million.
● 4.9% return on trading volume (“Trading ROI”).
By market, the NFL continues to be our largest and most lucrative market, accounting for 72% of our volume and 89% of our trading returns.
Year-over-year, our returns increased in every segment except MLB. In aggregate, we had a year-over-year increase in trading returns of $1.9 million.
By region, Colorado was our highest performing state in both net returns and Trading ROI. Arizona’s Trading ROI lagged the other markets mostly because it hosted the bulk of our MLB trading, which operated at a loss this year. The New York region launched in September. On an annualized basis, New York’s performance was comparable to California.
Performance Over Time
We took another major step forward in 2022. The progression of Cleat Street is demonstrated visually below.
2022 was a year of considerable investment. After a grueling 2021 in which our 8.0x growth in volume was generated primarily by Company principals, in 2022 we took the initial step in trying to democratize sports betting. In May 2022, we conducted an initial launch of the Cleat Street Trading Program. The goal of the program is to equip aspiring traders with the tools, education, and capital needed to generate meaningful profits from sports betting. In exchange, we receive a licensing fee based on a percentage of the profits generated by each trader. We are proud to announce that over $1.0 million the Company’s trading returns went directly to traders in 2022.
The program was not without both financial and operational risks. By providing the initial starting capital for traders, we assumed 100 percent of the downside risk from our traders betting activity. We decided that assuming the downside risk from our traders was the best way to curate the right learning environment and get them adjusted to the variance that comes from trading. We are pleased to report that 100% of our traders who spent at least 4 months with Cleat Street have generated positive trading returns.
From an operations perspective, removing ourselves from the decision making in betting introduced considerable risk. We were no longer in direct control of our bet positions or bet windows. There were times when we wished the Company had more or less exposure on certain positions, or that our traders were more active around certain breaking news situations. We expected that this operational risk could increase our portfolio variance and put downward pressure on our Trading ROI. Our plan to mitigate this risk was further investment in analytics, so that we could increase the number of unique positions and increase the confidence in our predictions. Our investment in analytics allowed us to maintain our Trading ROI (4.9% in 2022 vs 4.8% in 2021) while lowering our annualized volatility from 58.1% in 2021 to 39.4% in 2022.
We will continue to invest in the Cleat Street Trading Program and have recently hired a VP of Trading and Director of Education to further improve the Cleat Street Trading experience.
2022 MLB Challenges
The 2022 MLB season presented us with some unique challenges. The MLB introduced a new baseball that didn’t travel as far as previous iterations of the ball. This caused homeruns to drop 12.3% from 2021 and 23.0% from a record-high in 2019. The impact was a decrease of variance in the outcome of the game. Favorites won at a record rate over the first several months of the season, delivering nearly double-digit negative ROI to underdog wagers through June.
We were slow to react to this change and lost nearly $100 thousand during the first three weeks of the season. After halting some of our markets and reassessing our distributions, we made meaningful progress after the All-Star Break. Below is our comparison of our performance before and after the All-Star Break.
We expect to build on this progress in the coming season.
Our expectation for 2023 is to increase our volume to $270 million, an 5x year-over-year increase from 2022. We expect our Trading ROI to be 5.1%. Much of this growth will come from pricing infrastructure, more additions to our analytics team, and the continued growth of our trading program. Our goal for 2023 is for 90% of our traders to generate $100 thousand in returns.