The rise of prediction markets: What DraftKings, Flutter Ent have to say
The landscape of online wagering is on the cusp of a significant transformation with the burgeoning interest in prediction markets in the United States. These platforms, which allow individuals to bet on the outcomes of future events, are extending their reach beyond the traditional realm of sports betting, capturing the attention of major players in the gambling industry.
DraftKings and Flutter Entertainment, the parent company of FanDuel, are among the giants closely observing and strategically positioning themselves within this evolving sector, hinting at a future where forecasting and finance intertwine with entertainment.
Understanding prediction markets
At their core, prediction markets are exchange-traded platforms that enable participants to buy and sell contracts based on their forecasts of future events. These platforms, sometimes referred to as betting markets or information markets, allow individuals to speculate on a wide array of potential outcomes, ranging from the results of elections and movements in financial indices to the winners of entertainment awards and even meteorological phenomena.
The fundamental mechanism involves trading contracts that represent specific event outcomes. For instance, in a market predicting an election, participants might trade contracts based on whether a particular candidate will win. The prices of these contracts fluctuate dynamically based on the forces of supply and demand, reflecting the collective probability of the event occurring as perceived by the market participants.
This trading activity mirrors that of traditional financial markets, where individuals aim to profit by correctly anticipating future price movements or, in the case of prediction markets, event outcomes. The price of a contract often serves as a real-time indicator of the market’s aggregated belief in the likelihood of a specific event, providing a continuous gauge of public sentiment and expectations.
DraftKings’ calculated entry
DraftKings has made a clear move towards establishing a presence in the prediction market sector through the registration of a new entity named “DraftKings Predict,” also known as Gus II LLC, with the National Futures Association (NFA) in July 2024. The NFA serves as the self-regulatory body for the US derivatives industry, which includes futures and swaps, operating under the oversight of the Commodity Futures Trading Commission (CFTC). This registration hints at DraftKings’s intention to broaden its offerings beyond its core sports betting and iGaming businesses into the realm of event-based contracts, where users can wager on the outcomes of various real-world events. The leadership team for this new venture includes prominent DraftKings figures, with co-founder Paul Liberman named as CEO, current DraftKings CEO Jason Robins listed as an indirect owner, and CFO Alan Ellingson serving as a director and chief operating officer.
DraftKings CEO Jason Robins has publicly articulated a “keen interest” in the potential of prediction markets, acknowledging that the company is actively monitoring the evolving regulatory landscape in this area. Robins has indicated that DraftKings is “rooting for” a favourable ruling from the CFTC regarding the regulation of event contracts, recognising this as a critical prerequisite before making substantial commitments to developing and launching their prediction market product. He has also specifically pointed to the potential of election markets as a particularly interesting area while acknowledging the existing complexities within the regulatory framework.
During a recent earnings call, Robins stated, “It’s certainly something that we have a keen interest in seeing how it plays out. So, I think there’s some, in the next couple of months, 60 days or so, there’s going to be a CFTC ruling and all sorts of other things, so I think we’ll know a lot more over the next few months”. These statements reflect a strategic posture of cautious optimism, where DraftKings is poised to act decisively should the regulatory environment become more conducive to prediction markets.
To expedite their entry into the market, experts suggest that DraftKings might consider initially leveraging existing prediction market platforms or even pursuing the acquisition of a company like Kalshi to gain immediate market access and established expertise. Another potential approach involves initially outsourcing the necessary infrastructure for their prediction market platform to accelerate the launch process, with the possibility of developing their own proprietary technology over the longer term. These potential strategies underscore DraftKings’ focus on achieving speed to market in this rapidly evolving landscape.
Flutter Entertainment’s measured approach to prediction markets
Peter Jackson, the CEO of Flutter Entertainment, the parent company of DraftKings’ primary competitor, FanDuel, has also acknowledged the company’s ongoing research and development efforts in the realm of prediction markets. He has stated that Flutter is closely monitoring the regulatory situation, particularly as it pertains to sports futures contracts.
During an earnings call, Jackson said, “We note the research and development on prediction markets and opportunities that may arise for us there. We are monitoring the situation with these sports futures contracts closely“.
Jackson has also expressed a degree of scepticism regarding the current state of prediction market products, suggesting that they “lack the richness of a true sportsbook offering“.
Regulatory maze and future outlook
The regulatory environment in the United States stands as the most critical determinant of the future trajectory of prediction markets and the ability of major operators like DraftKings and Flutter to participate in this sector. The CFTC, the regulatory body overseeing derivatives markets, has historically maintained a cautious stance towards prediction markets, particularly those involving political and sports event contracts. The industry is keenly awaiting an upcoming ruling from the CFTC on the regulatory framework for event contracts, as this decision is widely expected to shape the immediate future of prediction markets within the US. The uncertainty surrounding federal and state regulations presents both a challenge and a potential gateway for companies like DraftKings and Flutter.
