FanDuel’s move into prediction markets is official, as Flutter Entertainment, the sports betting operator’s parent company, and CME Group have announced the launch of the FanDuel Predicts app.
Sports event contracts will be offered on the stand-alone app in states where sports betting is not yet legal, according the press release. Sports markets will not be accessible on tribal lands in those states.
The news follows DraftKings, FanDuel’s primary competitor in the regulated sports betting space, announcing just last week that it is set to open a prediction markets platform that will include sports.
FanDuel and CME Group, one of the world’s largest derivatives exchanges, agreed to a partnership back in August. While sports was conspicuously absent from the announcement, it’s never been a secret that sports, specifically in states where sports betting is not legal, is a large part of what they’re after.
Months before the CME Group agreement, Flutter highlighted BetFair, the world’s largest sports betting exchange, as an asset that positioned the company well for a shift into prediction markets.
In addition to sports, typical prediction markets offerings will be available on the app – crypto and commodities’ prices, financial indexes, and key economic indicators.
Navigating Regulatory Waters: FanDuel, DraftKings Not Welcome in Nevada
For FanDuel and DraftKings, entering prediction markets comes with regulatory risk.
Multiple states have warned their sports betting licensees that they face serious repercussions if they do, including potential revocation of their licenses, contending prediction markets operate as illegal sportsbooks.
In fact, Nevada is now off the table for FanDuel and DraftKings.
FanDuel and CME Group have maintained that the regulatory environment has to be right for them to offer sports event contracts. The launch, though, does seem to skip a step outlined by CME Group CEO Terry Duffy on his company’s Q3 earnings call last month.
“As long as the U.S. government is not going to object to the self-certification of [sports event contracts] and consider these swaps and not gaming, it doesn’t matter what my opinion or anybody else’s,” Duffy said.
“That’s the government’s opinion, and we will proceed accordingly. That is yet to be decided.”
The partners are ostensibly still treading carefully.
From the press release:
“Subject to appropriate regulatory filings, the app will provide access to sports event contracts across baseball, basketball, football, and hockey. In states where online sports betting is not yet legal, customers “who are not on tribal lands will be able to trade event contracts on the outcome of sporting events. As new states legalize online sports betting, FanDuel will cease offering sports event contracts in those states.”
A Smart and Rational Move
Prediction markets put the highly coveted but once untouchable states in play for sportsbooks, and there’s a belief among some industry insiders that regulated states won’t kick out their top sports betting tax revenue producers. Arizona, Pennsylvania, Illinois, New York, and Ohio have made such threats, in addition to Nevada.
In a paper titled, “Calling the Bluff: FanDuel’s Break-Even Analysis for Sports Prediction Markets Entry,” Adam Robinson, an American Bettor’s Voice board member and prediction markets trader, wrote, “These states cannot afford to follow through on their threats.”
“The emergence of sports prediction markets creates massive risk for FanDuel,” Robinson continues. “If they stand down on entering sports prediction markets, they risk missing what may be the biggest shift in the industry since the repeal of PASPA. On the other hand, entering these markets could jeopardize their state-regulated business model.”
On Tuesday, the day before the FanDuel/CME announcement, Robinson told DeFi Rate, “If I’m [DraftKings CEO] Jason Robins, I’m making a rational decision. I’m gonna say the following: ‘Let me go look at states where I’m not gonna monetize for years, if ever. I can put a prediction market business in play there to monetize those states.’
“I view prediction markets for FanDuel and DraftKings as a call option on the future of the industry,” he said. “They have to be in these markets. It’s an existential risk if they’re not, but they don’t have to go all in. They’re going in where there’s no hope of legality any time in a reasonable timeframe for them.”
