Author: Sportico
Compiled by: Azuma
Original title: Traditional gambling giants enter the market prediction arena, aiming to disrupt Wall Street.
With the explosion of prediction markets, two groups are eyeing the market with predatory intent—one from Wall Street and the other from Morton Street (where the betting company Fanatics is headquartered). One is a professional financial trading firm, and the other is a traditional betting service provider. Both believe they have the ability to become top predators.
Betting companies enter the market to make markets
Three traditional sports betting providers— DraftKings , Fanatics, and FanDuel —have all entered the prediction market to counter the threat this emerging sector poses to their core businesses. After a cooling of investor sentiment, these companies are accelerating their efforts to catch up, viewing their extensive experience in the betting industry as a potential competitive advantage.
DraftKings, Fanatics, and FanDuel have all begun or intend to offer “odds” in their prediction market applications through affiliated market makers. This is similar to their business in traditional sports betting, but the key difference is that in prediction markets, they need to compete with other third parties who can also place orders.
According to Sportico’s discussions with executives and industry analysts, there is currently no consensus that betting companies can obtain higher returns by directly engaging in market making than professional financial trading companies, but betting companies are confident in the profit potential of market making.
Peter Jackson, CEO of Flutter Entertainment, the parent company of FanDuel, said in the third-quarter earnings call in November: "The core capability that market makers need is the ability to accurately price complex and interconnected outcomes. That's exactly what our core business does every day."
Fanatics has an active associated market maker called Morton St. Market Maker LLC—named after Morton Street, the street where its parent company has offices in New York City, within walking distance of some of its Wall Street counterparts' territories. Morton St. Market Maker also provides odds for buying and selling contracts on Crypto.com, the underlying prediction market platform integrated by Fanatics.
Meanwhile, both DraftKings and FanDuel have hinted at the existence of an affiliated market-making team that would conduct counterparty trading with their clients, but it is unclear whether DraftKings or FanDuel has formally established such an entity.
To ensure all users can quickly enter and exit positions at near-fair prices, market makers typically need to provide liquidity on both sides of the "YES/NO" line during specific time periods. Their profits come from the small spread between the "buy now" and "sell now" quotes. For example, if a user buys a contract for the New York Metropolitan Area at $0.50, and the market maker previously acquired the contract at $0.47 through a limit order, the market maker can earn $0.03.
The Wolf of Wall Street Surrounds from Behind
Standing on the other side of the betting company are professional trading firms from Wall Street.
While Wall Street firms like Susquehanna International Group have extensive experience in market making for financial derivatives, some industry insiders interviewed by Sportico said that Wall Street is indeed not as good as traditional betting companies at setting odds for sporting events.
Alfonso Straffon, who has worked in market making for both junk bonds and sports betting on Wall Street, said, "I would warn those Wall Street firms not to underestimate the game; sports betting is a long-established ecosystem."
Sporting events present market makers with more complex risk management challenges, especially during matches where any developments—such as injuries, weather changes, or coaching decisions—can drastically alter the true value of bets. "Parallel trading" introduces additional risks, with even a single mistake potentially leading to substantial losses. These risks are amplified further once exchanges support leveraged trading.
Advanced data models and the ability to access information before the public—these are the strengths of traditional betting companies, and they are crucial for mitigating risk.
However, this doesn't mean that betting companies can guarantee success in the prediction market. Another sports betting company founder tends to believe that Wall Street, with its deeper capital and experience adapting to different financial markets, will ultimately reap higher returns.
Wall Street firms like Susquehanna and Jump Trading, lacking long-term sports experience, are vying to hire sports-specialized market makers. Prediction markets such as Crypto.com and Polymarket have also posted related job openings for their affiliated trading divisions in recent months; Robinhood's Rothera also mentions an active affiliated market maker in its rulebook (sources say it may be Susquehanna); and according to a Bloomberg report this week, Jump Trading is simultaneously investing in Kalshi and Polymarket.
Sportico previously reported on details regarding Kalshi Trading (Kalshi's associated market maker), which is also struggling to make up for its lack of experience in sports. Kalshi co-founder Luana Lopes Lara stated on X that Kalshi Trading was not profitable in the sports business, and that sports accounted for "less than 6% of its market-making volume" in November.
Competitive advantages may gradually converge
Market making is not a high-profit business. When multiple companies compete to set prices in the same prediction market, the profitable spread naturally narrows. In other words, the more market makers there are in a prediction market, the less profit can be made from a single bet.
However, while prediction markets with affiliated market makers might want to limit the number of market makers, in practice, the situation is far more complex. A lack of institutional capital can lead to insufficient overall market liquidity, directly impacting user experience unless affiliated market makers invest significant capital (and assume corresponding risks) to fill the gap.
This means that betting companies will inevitably be competing with financial institutions for order flow from retail bettors.
Ultimately, as Wall Street firms hire individuals with professional sports backgrounds (and vice versa), their competitive advantages may gradually converge. But at least for now, betting companies entering the prediction market are confident in their chances of winning.
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