After submitting and subsequently withdrawing an application for “DraftKings Predict” with the National Futures Associtaion earlier this year, it appears that DraftKings is pursuing an alternate route to the prediction market industry.
Front Office Sports reported on Monday that DraftKings is in talks to acquire Railbird Exchange, a newly licensed designated contract market (DCM). As of writing, no deal or potential terms have been announced.
DraftKings was neutral in a statement, saying that it “speaks to a variety of companies regarding various matters in the normal course of business”. It said it is “general policy not to comment on the specifics of any of those discussions”.
While the legality of sports event contracts is still largely in flux, the momentum appears to be in their favour.
Kalshi, the most high-profile prediction market, enlists Donald Trump Jr as an advisor, and Brian Quintenz, a Kalshi board member and supporter of prediction markets, is in line to become chairman of the Commodity Futures Trading Commission.
Litigation is ongoing and voluminous, but Kalshi so far has secured three consecutive state and federal court victories. As such, the option of joining them rather than beating them seems potentially more attractive to sportsbook operators, especially as state sports betting tax rates continue to rise.
What is Railbird?
Railbird, which just announced it has received its DCM licence from the CFTC on 18 June, is still largely unknown.
The company was founded four years ago by former financial analysts Miles Saffran and Edward Tian. It received initial funding in the winter 2022 round for Y Combinator, a platform that helps match early startups with potential investors. The press release announcing its CFTC approval said it was “expected to open for trading later this year”.
“Event contracts represent a largely untapped opportunity for individuals and businesses alike to hedge risk,” Tian said in the release. “We are looking forward to allowing our users to apply the power of capital markets to everything from daily news to societal changes.”
There are no allusions to sports in the release, although the Y Combinator profiles for both Tian and Saffran refer to sports connections for both. Saffran previously worked for the NBA’s Orlando Magic, while Tian is said to be “passionate” about soccer and basketball.
Given its infancy, it’s hard to gauge what the startup might sell for. Comparatively, Kalshi was recently valued at $2 billion after its latest funding round, but that was after several months of growing trading volume, most notably from the US elections last November.
No shortage of ideas
In recent years, DraftKings has become something of a contrarian, not afraid to float new ideas. Last year the company made headlines by proposing a surcharge on winning bets in Illinois in response to rising taxes, which at the time was viewed as controversial. It subsequently abandoned that plan.
But when a new per-wager fee was enacted in Illinois this year, the prior proposal seemed ahead of its time. DraftKings and rivals FanDuel and Fanatics have since announced transaction fees for all wagers will be implemented to compensate for the new tax.
Similarly, the DraftKings Predict application was also eyebrow-raising at the time, especially as Flutter CEO Peter Jackson was largely downplaying the rise of prediction markets. But even Jackson has since admitted to transferring Betfair staff to FanDuel, and there have been reports of FanDuel holding conversations with Kalshi directly.
Could DraftKings be the first sports betting operator to cannonball into prediction market waters?