FanDuel Exploring New Prediction Market Platform with CME Group Partnership

Prediction markets are gaining traction in the US, and now even top sportsbook brands like FanDuel are exploring avenues through which they can launch their own exchanges. FanDuel, owned by Flutter Entertainment, is planning to enter the prediction market scene in a joint venture with CME Group, a Chicago-based financial derivatives exchange.

It has the potential to shake the entire industry, as the plan would be to give FanDuel users access to market exchanges. With an estimated 17 million users in the US, this planned move is bound to cause massive ripples in both the prediction market and US sports betting industries.

What Are Prediction Markets

Prediction markets go by several names, including event-based contracts, contract trading, and prediction betting. The basic principle is that these are effectively contracts on Yes/No markets, which focus on very specific events. For instance, will the Broncos make the NFL playoffs, to markets such as will Bitcoin close above $110,000 today. You can buy contracts for or against the posed questions – Yes or No – and then when the market closes, if you predicted right, you will get your stake back and a return.

But you are not betting against the house here. With prediction markets, you are betting against your peers. However, it is not a betting exchange, or peer to peer betting software. Because in those, you are setting the odds prices and looking for potential buyors to back the other side.

How Event Contracts Work

With prediction markets, the percentages (and corresponding “betting odds“) are set by market demand. When more people buy Yes, the price goes down and the No prices go up. The total price of both Yes and No shares have to equal $1. So if you buy $50 worth of Yes votes at 55% (which is $0.55), you are buying 27.5 contracts. Some prediction markets also allow buyers to sell back their predictions. In sportsbook terms, it is the equivalent of cashing out your bet.

And as for what you can bet on, prediction markets leave little to the imagination. In last year’s Super Bowl, there were prediction markets based around which song the headline performer Kendrick Lamar would perform. And even markets relating to guest appearances and other miscellaneous events. The US presidential elections can also yield pretty high activity in prediction markets, but then you can also get scores of crypto predictions. So, really, prediction markets cover just about everything.

Partnership Between CME Group and Flutter Entertainment

By partnering with CME Group, FanDuel is gaining resources from one of the world’s biggest designated contract markets (DCMs), and tremendous clearing capacities. It won’t have to build these from scratch, or try to persuade users to trust in lesser known brands. CME Group was founded in 1848, and the company owns 27% of the S&P Dow Jones Indices. Plus, it is the world’s largest operator of financial derivatives exchanges. Marketing will not be difficult at all.

But also it means FanDuel can set up shop pretty swiftly, without having to go through the 1.5 to 2 year process of gaining permissions. Because these DCMs must be licensed by the Commodity and Futures Trading Commission, to operate legally in the US. Just like sportsbooks need to obtain US regulatory permissions and licenses.

Greater Revenue and Added State Availability

The prediction market scene is not as extensive as the sports betting one. In terms of operators, that is. The big players in the US include Kalshi, Polymarket (a crypto oriented prediction market), and Sporttrade. There are also companies like Crypto.com, ProphetX and Robinhood who are launching products of their own. But if a brand with the marketing power, and credentials, of FanDuel enters the pool, it would be a game changer.

There are many reasons why sportsbooks like FanDuel, and its largest competitor, DraftKings, are interested in expanding their products. Prediction markets do not fall into the same regulatory bracket as sports betting. Nor are they considered DFS, casino games, or skill based gambling ventures. They are regulated by the CFTC, and are federally legal throughout the US. This means, more states for FanDuel et al. to target.

Plus, the taxation could be more preferable on prediction markets than sports betting platforms. Illinois just recently increased the sports betting tax. FanDuel may be looking at prediction markets as a cheaper, and possibly more profitable alternative.

Implications for Sports Betting in the US

Not everyone is thrilled by the idea of FanDuel sweeping prediction markets across the US. It does have similarities to sports betting, but, logistically speaking, it is worlds apart. You can open contract markets, buy into existing ones, and buy as many contracts as you like.

Some have “cash out” options. There are markets for events that will conclude at the end of the next NBA season, but also those that relate to games that are just a few days away. Delving further, you will even find markets that are on events occurring today.

From how many Tweets will Elon Musk post this week to which song will top the Spotify Streams at the end of today?

But, that’s as far as it goes. There are no parlay betting opportunities, fixed odds bets, and you won’t necessarily always find the props you are after. Of course, the prediction markets live right now, such as Kalshi or Polymarket, are not sports-oriented.

What the FanDuel Prediction Market Could Look Like

While it would be perfectly reasonable for FanDuel to dip into it extensive resources to create a “sports heavy” prediction market, we don’t expect that to happen soon. The CFTC regulates what can be offered in event contracts, and sports-related events are contentious.

CME Group announced the partnership on its site, and only went as far as to talk about markets relating to:

• S&P 500
• Nasdaq-100
• prices of oil and gas, gold
• cryptocurrencies
• key economic indicators (GDP and CPI)

And it concluded with “further details of additional offerings to be determined in the coming months”. The fact that this service would extend to FanDuel customers would be a large boost for America’s gigantic sports brand. If it is successful, this may be the start of a new era of sports betting. Where fintech, finance and gambling all merge into one platform. It may not be to everyone’s liking, and will never replace traditional sports betting entirely. But the hype around this new platform is undeniable, and we will follow the space closely as new details surface.