As prediction markets continue to make their presence felt in the US sports betting industry, FanDuel is set to offer access to event-based contracts through a new partnership.
On Wednesday, FanDuel parent Flutter Entertainment and CME Group, a global derivatives marketplace, announced a joint venture for products that will allow FanDuel customers access to event-based markets.
The product, which will be a standalone platform, will likely launch later this year, according to the press release.
“Partnering with CME Group will unlock our ability to bring even more new and engaging products to FanDuel’s fast-growing customer base,” FanDuel Group CEO Amy Howe said in the release. “We believe there is potentially a wide audience for trading event-based markets and we want to provide a platform that allows our customers to engage in this activity.”
FanDuel is not the only major sportsbook looking to enter the event contract space. DraftKings CEO Jason Robins recently discussed the products in an earnings call.
FanDuel prediction market endeavour
The joint venture will operate as a non-clearing futures commission merchant. Within a new platform from the joint venture, customers will be able to trade “yes/no” predictions for as little as $1.
Event contracts are subject to US Commodity Futures Trading Commission (CFTC) regulatory review, but will likely include S&P 500, prices of oil and gas, gold, cryptocurrencies and key economic indicators such as the Gross Domestic Product and Consumer Price Index.
“Individual investors are increasingly sophisticated and continually pursuing new financial opportunities,” Terry Duffy, CME group chairman and CEO, said in the release. “Together, our event-based products will appeal to the growing public interest in markets.”
There was no mention of sports events in the release. Reached by iGB on Thursday, a FanDuel spokesperson declined to further elaborate on the timing of the launch and products.
“The regulatory morass around federally regulated sports betting is a difficult one for sportsbooks to navigate. If you charge headfirst into sports event contracts, you risk pissing a lot of people off,” industry consultant Dustin Gouker wrote in his newsletter, The Closing Line. “Instead, FanDuel is building a product that won’t focus on sports at launch, but clearly could be used to that end in the future.”
Prediction market explosion
The sports betting industry has kept a keen eye on Kalshi, a major prediction markets operator that has garnered legal and regulatory scrutiny across the US landscape. It has offered sports betting event contracts to users across the US since January. The CFTC-regulated event trading markets have allowed Kalshi and a handful of other operators to effectively offer sports betting in states where sportsbooks are illegal, such as California and Texas.
There are multiple state and federal lawsuits regarding whether Kalshi’s offerings are a financial product or a sports betting product.
Still, access to the event markets continues to grow. Investment app Robinhood announced this week it will offer Kalshi’s football event contracts this season. Along with sports, Kalshi offers a wide range of markets including pop culture and politics.
Why take on event contracts?
Flutter CEO Peter Jackson hinted at the move during its recent earnings call, noting the company operates Betfair Exchange.
“We offer this product in lots of markets around the world, and it shares some similar characteristics of the event contracts, which will obviously be helpful to us as we consider the landscape and any developments,” Jackson said on the call. “But as you say, we’re evaluating the various regulatory developments and assessing the potential opportunities this may present for FanDuel.
“Naturally, we’ve got a lot of important stakeholders that we need to consider, and so we’re watching this space very closely.”
States have recently begun raising sports betting tax rates, and the federally regulated prediction markets on sports could offer a way to circumvent those burdens. In the past two years, Illinois, for example, has raised its taxes to where FanDuel pays 40% on sports betting revenue, plus per-bet taxes of up to 50 cents.
“As the regulated markets in the US have become less attractive over the last three years (fewer large new markets opening, slow adoption of iCasino & tax increases), it’s smart for any large operator to consider how to expand beyond traditionally regulated online gambling,” Davis Catlin, managing partner at Discerning Capital wrote on LinkedIn. “If the regulators don’t pick a real fight with FanDuel, then this could be a watershed moment for the future of the industry.”
The Flutter-owned brand is joining fellow US heavyweight DraftKings in exploring the controversial prediction markets space.