At the beginning of August, outgoing CEO Peter Jackson was asked on Flutter’s Q2 earnings call if the operator had any plans for its own prediction market exchange. Flutter had just announced a shift of FanDuel Predicts’ sports and novelty contracts to Crypto.com, while its financial event contracts would continue to trade on CME Group’s platform.
Jackson responded: “There’s been news in the last few days around some of the complexities of market making if you own some of the exchange components. We’ve just got to be thoughtful that we position ourselves as well as we can.”
He was likely referring to new rules proposed by the derivatives regulator, the Commodity Futures Trading Commission (CFTC), aimed at tackling “conflicts of interest” between exchanges and market makers. The following week, in another indication of a more cautious attitude, the CEO opined during an Oppenheimer fireside chat that the regulatory permissiveness in the US thus far afforded to prediction markets was unlikely to continue for much longer.
He also reiterated his faith in the traditional sportsbook business model, stating: “Side by side on a level playing field [with prediction markets], online sports betting wins because of the generosity and superior product offering.”
It appears Flutter is holding back from an ‘all-in’ approach to its event contracts offering largely due to near-term regulatory uncertainty. The igaming giant launched FanDuel Predicts with the world’s largest derivatives marketplace, CME Group, at the end of last year, but this could be read as more of a hedge as it prudently waits for the legal side of things to settle (which seems some way off – see New York’s $36bn suit against Kalshi or the Ninth Circuit Court of Appeals delivering Kalshi a major legal blow).
Regardless, Flutter faces a significant threat from Kalshi and, to a lesser extent, Polymarket’s US arm, which both have designated contract market (DCM) licences. Much of Flutter’s two-thirds drop in market cap over the past 12 months can be attributed to the massive growth of prediction markets and their threat to state-regulated sports betting.
DFS platform Underdog has placed its full faith into the disruptive vertical. The operator initially launched prediction markets last September via Crypto.com, before acquiring CFTC-approved Aristotle Exchange in March this year with a view to owning and running its own exchange. The deal left Underdog with a “full licence stack” of DCM, derivatives clearing organisation (DCO) and futures commission merchant (FCM) licences, a key factor in UK-listed retail brokerage IG Group’s swoop for the company in a deal worth in up to $1.3bn.
The in-house question
For some, bringing infrastructure and licences in-house makes the most sense. For others, partnering with external platforms is the best strategy. The remainder opt for a combination of the two. So, how does a company looking to make its mark in the space decide which route to go down?
For Jacob Fortinsky, co-founder and CEO of prediction market Novig, obtaining a DCM licence in June was essential to his vision: “Becoming a DCM was important because Novig was built to be the exchange, not simply a broker providing access to someone else’s marketplace,” he says. “As a DCM, we control the underlying market infrastructure: which contracts we list, how participants are matched, how prices are discovered and how market integrity is protected.”
Fortinsky adds that a DCM licence allowed Novig to “build a sports-native product for sports traders” and to “own the full user experience, introduce products more efficiently and establish transparent, market-driven pricing”.
Adam Kaplan, general partner at investment firm Astralis Capital Management, contrasts this approach with the ownership of an FCM, or brokerage licence: “The FCM path means you’re routing customer orders to someone else’s exchange,” he explains. “When you get a DCM, you own more of the stack. You own the contracts; you’re structuring what the offerings look like, you’re not just routing traffic.”
ProphetX, which pivoted from a sweepstakes sports exchange to a CFTC-regulated prediction market, has both B2B and B2C operations – so again, the DCM licence is crucial. Dean Sisun, co-founder and CEO, states: “Our mission is to attack the B2B market. For any broker that wants to work with us, we are the exchange and the clearinghouse. That means we are not going out and acquiring customers, we are partnering with the groups that are acquiring customers and are effectively sharing in the revenue from those customers.”
Sisun notes the added benefit from the B2B perspective of not spending money on customer acquisition, as FCM licence holders are generally compelled to do: “It’s a more scalable model for us,” he points out. “We can raise a lot less money to go out and compete versus someone who’s competing in the B2C market, like a big-name Kalshi or Polymarket, that are having to raise hundreds of millions of dollars.”
Build, buy or both?
There is also the question of build versus buy and how that debate manifests in the prediction markets world. The latter option has been popular in the last 12 months. In January, Robinhood teamed up with quantitative trading firm Susquehanna to purchase a 90% stake in Miami International Holdings derivatives exchanges (MIAX) to launch Rothera – the backend now powering Robinhood’s prediction markets. Last year, DraftKings looked to accelerate its prediction markets ambitions by snapping up Railbird Technologies (including Railbird Exchange), a swoop which led to the rollout of proprietary exchange DKeX.
As Underdog has shown, the two strategies of build and buy are not necessarily mutually exclusive, although for Fortinsky at Novig, the distinction was clear-cut: “We are focused exclusively on sports, and pursuing our own DCM designation gave us the ability to build the exchange and underlying infrastructure around that from the ground up,” he asserts. “It also gave us greater control over how the marketplace evolves, from the contracts we offer and our market structure to the product and customer experience.”
Meanwhile, Sisun of ProphetX puts it down to how much time a business is ultimately willing to invest: “Building your own exchange is very complicated, and it takes a long time, particularly in sports.” Companies wishing to move faster can and have opted to buy, especially because it also removes the necessity of applying for licences themselves. Yet the ProphetX founder believes some firms may have underestimated the amount of work needed for “building the sports exchange functionality” into a newly purchased exchange.
For Kaplan, speed is also the principal factor in any decision to acquire: “It makes the regulatory speed to market quicker. It makes the product speed to market in theory quicker. You can absorb that group’s best practices instead of learning lessons on your own. Everything about it is faster,” he notes.
Acquiring a DCM licence from the CFTC used to take at least a couple of years from the initial application. “I don’t think it will be fast, but what can we do?” Smarkets CEO Jason Trost told EGR in January regarding the betting exchange’s DCM licence application with the derivatives regulator. Novig bucked the trend this year, however, with a mere five-month turnaround, which Fortinsky put down to going in with “a clear understanding of what we wanted to build and the regulatory framework we needed to operate within”.
But, as Fortinsky has already highlighted, Kaplan also recognises the trade-off when it comes to pricing. If a platform aiming to be “sports-native” builds its exchange from scratch, it has full control over how its markets are priced: “Companies that came from sports betting or DFS often bring stronger internal pricing capability for sports events, player markets, and team markets,” he says. “I think that advantage will serve them well as the industry figures out how to market make”.
Competing with the dominant players
Kalshi, which has the trio of exchange, broker and clearinghouse licences, has become the standard for others to aim for, but how can smaller companies in the space hope to capture market share from this behemoth? Sisun reiterates the B2B approach: “Put yourself in the shoes of a company that wants to move into this space but doesn’t own any of its own exchange technology or those licences – it’s going to have to work with someone either like us or like Kalshi.”
He argues it is disadvantageous for a customer-facing brand to go into partnership with Kalshi because the platform is also in the acquisition business: “You don’t want to be feeding your competitor,” he remarks. “Our whole hypothesis is that companies are going to start taking their business away from the likes of Kalshi for that reason.”
Fortinsky is bullish about his platform’s prospects, after Novig’s trading volume in its first week post-launch was revealed to have exceeded $125m. Data from boutique analyst firm Eilers & Krejcik Gaming (EKG) for the seven days up to 23 August showed a daily average contract volume of $23.3m, putting Novig second place among the ‘challenger’ exchanges to Crypto.com-owned Nadex (where DraftKings, FanDuel and Fanatics route), for which the figure was $31.7m.
Fortinsky focuses on Novig’s focus on sports trading as a differentiator in the market, as well as the benefits of being a “second mover”. “We’ve had the benefit of learning from the shortcomings, regulatory hurdles and user experience challenges others have encountered, allowing us to build a more thoughtful product from day one.”
Kaplan echoes some of the points about niches and B2B angles for maintaining competitiveness. On the flipside, he claims his old company, FanDuel, where he was general manager and vice-president of content from 2015 to 2021, has fallen seriously behind: “I think FanDuel has not been an innovative company for some time, and I don’t think that’s debatable,” he insists. “They’ve been disrupted on several fronts, predictions being the latest, and it’s been a while since they were first to market with new innovative products. By my count, it’s been six or seven years.”
The licence game
In the burgeoning prediction markets world, a wide range of strategies can be observed. Novig has built its exchange, in Fortinsky’s words, “from the ground up”, and ‘only’ needed the DCM licence. ProphetX holds both the DCM and DCO licences, making it an attractive provider for prospective broker partners. Underdog acquired an exchange in order to obtain the “full stack” of licences.
Looking at the more established brands, DraftKings acquired Railbird and by extension the DCM licence, later becoming an FCM in July this year. Kalshi got a head start, obtaining its DCM and DCO licences six and two years ago, respectively, with its FCM approval coming in spring 2026. Polymarket US, which acquired CFTC-licensed exchange QCEX last year for $112m, is able to rival Kalshi with two of the three, having yet to land FCM status.
As for Flutter, FanDuel Predicts only holds the brokerage licence for now. Currently more focused on market making, the operator said it generated $6m from these efforts during Q2 and expects to earn $50m from market making in 2026. So, how urgently will the company pursue deeper involvement with the vertical going forward?
Kaplan opines: “I’d imagine all options are on the table as they try to build toward market leadership and prepare for a world where sports may or may not exist on prediction markets. If I were advising my former company, I’d tell them to get back to their strengths and focus on evolving to adapt, grow and improve in this new environment.”
The challengers have shown there is not just one route to success. If Flutter is to genuinely compete in the prediction markets space, the world of startups may provide some inspiration. While the legal status of sports event contracts in the US may be uncertain, the vertical at large still demands attention from the online gambling industry.
The post Full stack or fast track: experts talk tech strategy in the prediction market space first appeared on EGR Intel.
Leaders and investors in the world of event contracts discuss the pros and cons of the different ways of offering an exchange – and the dangers of falling behind
The post Full stack or fast track: experts talk tech strategy in the prediction market space first appeared on EGR Intel.