Traditional bookmakers bet on predicting the market with the intention of “downsizing” Wall Street traders
Author: Sportico
Compiled by Azuma
Original title: Traditional gaming giants predict the future of the market and want to reduce the level to attack Wall Street
As the prediction market explodes, two groups are watching — they are from Wall Street and Morton Street (where the gaming company Fanatics is headquartered), on one side are professional financial trading companies, and on the other, traditional gaming service providers, both believe they have what it takes to become top predators.
The betting company will end up making the market
Three traditional sports betting services — DraftKings, Fanatics, and FanDuel — have all entered the forecasting market to address the threat this emerging business has posed to their main business. After experiencing a cooling in investor sentiment, these companies are catching up and seeing their rich experience in the gaming industry as a potential competitive advantage.
DraftKings, Fanatics, and FanDuel have all begun or intend to provide “odds” in their prediction market apps through associated market makers. This is similar to their business in traditional sports betting, but the main difference is that in the prediction market, they need to compete with third parties who can also place orders.
According to Sportico's communication with relevant company executives and industry analysts, there is currently no consensus that betting companies can obtain higher returns than professional financial trading companies by going directly to the market, but bookmakers are confident in the profit potential of the market making business.
Peter Jackson, CEO of FanDuel's parent company Flutter Entertainment, said during the November third-quarter earnings call: “The core competency required by market makers is the ability to accurately price complex and interrelated results. This is exactly what our core business does every day.”
Fanatics already has an active affiliate market maker called Morton St. Market Maker LLC — the name derives from its parent company's location on Morton Street, New York City's office street, from where it is possible to walk to some of its Wall Street rivals. Morton St. Market Maker will also provide odds for trading contracts on Crypto.com, which is the underlying prediction market platform integrated by Fanatics.
Meanwhile, both DraftKings and FanDuel have hinted at the existence of an associated market making team that will conduct counter market transactions with their clients, but it is currently unclear whether DraftKings or FanDuel have officially established the relevant entities.
To ensure that all users can quickly enter and exit positions at close to fair prices, market makers usually need to provide liquidity on both sides of the “YES/NO” during a specific period of time, and their profit comes from the small difference between the “buy now” and “sell now” offers. For example, if a user buys a contract won by Metropolitan New York for $0.50, and the market maker previously obtained the contract for $0.47 through a price limit order, the market maker can earn $0.03.
The Wolf of Wall Street Reverse Siege
On the other side of the bookmaker is a professional trading agency from Wall Street.
Although Wall Street companies such as Susquehanna International Group are experienced in financial derivatives trading, some industry insiders interviewed by Sportico said that Wall Street is indeed inferior to traditional bookmakers in setting odds for sporting events.
Alfonso Straffon, who has worked in market making services in both Wall Street junk bonds and sports betting, said, “I would like to remind Wall Street companies not to take advantage of them. Sports betting is an ecosystem that has been around for a long time.”
Sporting events present more complex risk management challenges for market makers, especially during a game, where any progression — such as an injury, weather change, or coach decisions — can drastically change the true value of a bet. “Multiple orders” bring additional risk, and an occasional mistake can result in huge losses. Once the exchange supports leveraged trading, this risk will be further amplified.
Advanced data models and the ability to access information before the public — these are the strengths of traditional bookmakers — and are critical to reducing risk.
However, this does not mean that bookmakers can reliably win in predicting the market. Another sports betting company founder tends to believe that with deeper capital and experience in adapting to different financial markets, Wall Street will eventually reap higher returns.
Wall Street companies that lack long-term sports experience, such as Susquehanna and Jump Trading, are competing to recruit marketmakers who specialize in sports. Predictive markets such as Crypto.com and Polymarket have also released relevant recruitment information for their related trading departments in recent months; Robinhood's Rothera also mentioned an active associated market maker (the source says it may be Susquehanna) in the rulebook; as reported by Bloomberg this week, Jump Trading is investing in Kalshi and Polymarket at the same time.
Sportico previously reported on details about Kalshi Trading (Kalshi's associated market-making agency), which is also trying to make up for its lack of experience in sports — Kalshi Co-founder Luana Lopes Lara once said on X that Kalshi Trading is not profitable in the sports business, and sports in November only accounted for “less than 6% of its market volume.”
Competitive advantage or gradual convergence
Market making is not a highly profitable business. Multiple companies compete for pricing in the same prediction market, which naturally reduces profitable spreads. In other words, the more market makers in the forecast market, the less profit you can earn on a single bet.
However, although forecasting markets with associated market makers may want to limit the number of market makers, in actual operation, the situation is far from that simple. Lack of institutional capital support may result in insufficient overall market liquidity. Unless related market makers invest huge amounts of capital (and take corresponding risks) to cover the gap, it will directly affect the user experience.
This means that bookmakers will inevitably play the same scene with financial institutions to compete for order flows from retail bettors.
Eventually, as Wall Street agencies hire people with professional sports backgrounds (and vice versa), their competitive advantages may gradually converge. But at least so far, bookmakers entering the prediction market are confident in their chances.
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