Sports betting companies have been coy about their intentions to enter the prediction market space, where platforms like Kalshi have been drawing increased trading volume, particularly with the addition of sports event contracts this year.
Sportsbook company CEOs have referenced prediction markets in recent earnings calls by mostly saying that they have been keeping a close eye on developments in the space. But now there are clearer signs that sports gaming companies are taking concrete steps towards being able to introduce prediction markets to their customers.
On Aug. 20, leading U.S. sports betting operator FanDuel announced a new partnership with CME Group, a top derivatives marketplace, which will allow FanDuel to offer “new fully funded, event-based contracts,” according to a press release.
Meanwhile, reports have found that groups connected to DraftKings, as well as leading daily fantasy sports operators PrizePicks and Underdog, have registered with the National Futures Association (NFA) in recent months. NFA registration and membership is seen as a first step towards being able to offer prediction markets.
FanDuel partnership enables prediction markets launch later this year
Flutter Entertainment, FanDuel’s parent company, said that the “groundbreaking alliance” with CME Group will “expand access to financial markets for millions of FanDuel customers in the United States.” CME Group is Commodity Futures Trading Commission (CFTC)-approved as a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), which allows it to offer prediction markets nationwide, while also offering clearing and settlement services for trades.
The press release says that the new prediction markets, which they expect to launch later this year, will let FanDuel customers trade in a wide range of markets by taking “Yes” or “No” positions for “as little as $1.”
The prediction markets mentioned in the press release are financial and economics related, but the language used left the door open for other types of markets, including sports event contracts, to be introduced in the future. The company may be holding back on sports prediction market talk until the various legal battles over prediction platforms’ ability to offer such markets in all states are settled.
“The products will include benchmarks such as the S&P 500 and Nasdaq-100, prices of oil and gas, gold, cryptocurrencies, and key economic indicators such as GDP and CPI, with further details of additional offerings to be determined in the coming months,” Flutter said in the release.
DraftKings recently re-applied for NFA membership
According to reports from SBC Americas and InGame, groups with ties to sports betting giant DraftKings and DFS operators PrizePicks and Underdog have applied for membership and registrations with the NFA in recent months.
The NFA is an independent, self-regulatory organization for the U.S. derivatives industry, designated by the CFTC as the sole registered futures association.
NFA membership and registration essentially serve as a means for companies to show that companies are compliant with all CFTC regulations. The CFTC and NFA work closely together “to examine futures and swap markets intermediaries for compliance with the relevant provisions of the Commodity Exchange Act, CFTC regulations, and NFA rules,” according to the NFA website.
Under the name Gus II LLC, doing business as DraftKings Predict, DraftKings previously filed for NFA membership and registration as a Swap Firm and Introducing Broker in March, but swiftly withdrew their applications. The applications were re-filed on July 30, according to the NFA database.
An Introducing Broker is described by the NFA as ”an individual or organization that solicits or accepts orders to buy or sell futures contracts, commodity options, retail off-exchange forex contracts, or swaps but does not accept money or other assets from customers to support these orders.”
Approval by the NFA on these applications (which are listed as “pending” on the NFA site) could assist DraftKings in garnering CFTC approval as a DCM, which would allow the company to self-certify and offer a wide range of prediction contracts nationwide.
PrizePicks, Underdog have applied for FCM registration
Recent reports also point out that, this spring, entities that appear to be affiliated with PrizePicks (under the name Performance Predictions II LLC) and Underdog (as UDM LLC) applied for NFA membership, as well as registration as a Swap Firm and Futures Commission Merchant (FCM).
A registered FCM has the same privileges as an Introducing Broker, but allows the company to also accept money directly from customers for trade orders. As a registered FCM, Underdog and PrizePicks could partner with a platform that has been certified as a DCM by the CFTC and offer prediction markets directly through their DFS platform. Retail broker Robinhood, for example, is a registered FCM, which has enabled it to host Kalshi prediction markets on its own app.
DFS operators have faced their own legal obstacles. Hawaii, Idaho, Montana, Nevada, and Washington have prohibited DFS and some states have restrictions on what types of contests can be offered. Similar to prediction market platforms’ legal battles over sports markets, some states feel that DFS Pick ‘Em contests essentially function as illegal sports betting. California’s Attorney General made waves in the industry this summer when he issued an opinion that DFS sites are illegal in the state because “they involve betting on sporting events.”
The ability to facilitate prediction markets could give DFS operators another product to offer in states that have restricted certain contests.
Sports gaming operators gearing up to face prediction platform challenge
WIth these latest partnerships and regulatory movements, it’s clear that sports gaming operators are both intrigued by the opportunity presented by prediction markets and also perhaps a little threatened by the success platforms like Kalshi have had with their sports markets, which could potentially lure away customers and cut into their revenue.
It’s looking like FanDuel will be the online sports betting operator first-mover into prediction markets, which could encourage fellow OSB (and, apparently, DFS) companies to step up their efforts.
