[UPDATE, March 22: Reddit shares began trading Thursday, with the stock price jumping 48% in the first day.]
The IPO of Internet chat board Reddit is the year’s most-anticipated offering. Expected to price Thursday and value the business at $6.5 billion, Reddit gives a couple of hints in its prospectus that sports could be in its future. Or, more accurately, that selling user-generated sports-related data could be a significant revenue stream one day.
Today Reddit makes its revenue through advertising, feeding users display ads in the categories they are browsing or based on the topics they tend to return to. It’s a fast-growing business—Reddit revenue jumped 65% the past two years to $804 million in 2023, according to data in the prospectus. Despite that growth in what has been a difficult advertising market overall, the business doesn’t make money: Reddit lost $90.8 million in 2023.
To diversify from ad sales and one day turn a profit, Reddit hints at big plans in its offering document to sell its real-time and historical data, including in sports.
“We are in the early stages of allowing third parties to license access to search, analyze and display historical and real-time data from our platform,” the company states in its filing with the Securities & Exchange Commission.
One licensing area would be selling real-time access to anonymous public discussions on Reddit via data APIs, which are interfaces that allow various software programs to communicate. “These data APIs are able to provide real-time access to evolving and dynamic topics, such as sports, movies, news, fashion and the latest trends, unlocking customer use cases such as building third-party applications, behavioral analysis, and algorithmic trading.”
The sports mention is an intriguing reference, but one with no more detail. Reddit declined to comment for this story, citing SEC prohibitions against appearing to be marketing its IPO to the public.
Sports’ only other reference in the 270 or so pages of the IPO prospectus is in the bio of director Patricia Fili-Krushel, who once held an executive position at ABC Sports, among other media ventures. The prospectus also lists Advance Magazine Publishers as a major shareholder. Advance owns the Ironman competition and Sports Business Journal, among dozens of other publications.
The other licensing area Reddit lists for its data would be selling its 20 years of archived chats as source material to train AI models—this plan received an inquiry from the Federal Trade Commission last week, probably over concerns of consumer privacy.
Sports content is the 31st most popular topic on Reddit with 21 million members, according to its own rankings on its website. That lags topics like “aww,” focused on cute animals and the fifth-most popular with 36 million members; “gaming,” ranked third with 50 million video-game focused members; and “funny,” the most popular topic with 58 million members. Overall, the website says it has 267 million unique weekly visitors.
So what might Reddit be thinking about how to monetize sports?
“There is a lot of interest in actionable information for betting purposes (line movements on the part of providers and advantage on the part of bettors),” Adi Wyner, a professor of data science and co-director of the Wharton Sports Analytics and Business Initiative, said in an email. “People will certainly pay for it.”
Paul Martino, a principal at Bullpen Capital, where he specializes in sports betting-related investing, and who has a master’s in computer science dealing with big data sets, agrees.
Can “real-time platforms be used to move lines and affect sports betting? Absolutely,” Martino said in a phone call. “And what [Reddit users] did with the ‘stonks’ and GameStop … there is no question these forums are used to manipulate stocks, they’re used to manipulate sports betting lines—zero doubt about it.”
Specifically, Martino says the real-time discussions would probably be the area of value to sports betting. One possibility: helping to set and adjust sports betting lines on the fly, especially for in-game bets, by crunching Reddit user posts and upvotes and downvotes on posts.
“Line setting as a web service,” as Martino describes it. “Like: you’re a sports book and want to provide soccer lines from Latin America. You can get a data feed and set your lines even though you’re thousands of miles away from where the games are.”
Martino says Bullpen already has an investment in such a business named Swish Analytics. His firm is not an investor in Reddit.
Less useful in sports would be Reddit’s plan for selling historical data to train AI. Training a natural-language AI like ChatGPT wouldn’t produce anything predictive, since that’s not what natural-language AI is capable of.
It’s possible, Martino notes, other forms of AI could unearth statistical correlations buried in historic discussions suggesting similar things may happen in the future, perhaps around betting patterns or outcomes based on certain game variables. That would be similar to the way historical data in stock markets is used as the basis for momentum trading and other technical analysis-based stock trading. Deep analysis of Reddit data may suggest ways of betting that are likely to have favorable outcomes over the course of many similar bets in the future.
In the near-term, the best result for sports—including sports-tech businesses, sports betting startups and other sports-adjacent businesses—might simply be Reddit’s IPO being a success. While the U.S. stock market is up 36% since the start of 2023, the IPO market remains sluggish. There have been just 92 U.S. IPOs the past two calendar years, less than a quarter the annual average since 1980, according to data compiled by Jay Ritter at the University of Florida. The poor IPO market has been the one drag of late on an otherwise robust sports-tech private equity and venture capital market.
Plus, how much dollar value Reddit’s discussion threads may present to a sports tech firm may not be known for a long time.
“What the statistically correct price should be is entirely another matter,” Wharton’s Wyner said, “one that is probably too early to properly assess.”