This article comes from: Sportico

Translation｜Odaily Star Daily ( @OdailyChina ); Translator｜Azuma ( @azuma_eth )

With the explosion of prediction markets, two groups are eyeing the situation — one from Wall Street and the other from Morton Street (the headquarters of the betting company Fanatics). One side consists of professional financial trading firms, while the other consists of traditional betting service providers, with both believing they have the ability to become top predators.

Betting Companies Enter the Market

Three traditional sports betting service providers — DraftKings, Fanatics, and FanDuel — have all entered the prediction market to counter the threat posed by this emerging business to their core operations. After experiencing a cooling of investor sentiment, these companies are accelerating their efforts and view their substantial experience in the betting industry as a potential competitive advantage.

DraftKings, Fanatics, and FanDuel have all started 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 main difference is that in prediction markets, they need to compete with third parties who can also place orders.

According to discussions between Sportico and executives and industry analysts from related companies, there is currently no consensus that betting companies can achieve higher returns than professional financial trading firms by directly entering the market, but betting companies are confident in the profit potential of market-making.

Peter Jackson, CEO of FanDuel's parent company Flutter Entertainment, stated in the third-quarter earnings call in November: "The core capability required of market makers is the ability to accurately price complex and interconnected outcomes. This is exactly what our core business does every day."

Fanatics has an active affiliated market maker named Morton St. Market Maker LLC — the name comes from the street in New York City where its parent company is located, within walking distance of some Wall Street competitors. Morton St. Market Maker offers odds for buy and sell contracts on Crypto.com, which is also the underlying prediction market platform integrated by Fanatics.

Meanwhile, both DraftKings and FanDuel hinted at having an affiliated market-making team that would engage in counter-trading with their clients, but it is currently unclear whether DraftKings or FanDuel has officially established the relevant entities.

To ensure all users can enter and exit positions quickly at prices close to fair value, market makers generally need to provide liquidity on both "YES / NO" sides during specific time periods, with their profit coming from the small price difference between "buy now" and "sell now" quotes. For example, if a user buys a contract for the New York Mets to win at $0.50, while the market maker previously acquired that contract through a limit order at $0.47, the market maker could earn $0.03.

Wall Street's Counter Surrounding

On the other side of the betting companies are professional trading firms from Wall Street.

While firms like Susquehanna International Group are experienced in market-making for financial derivatives, some industry insiders interviewed by Sportico indicate that Wall Street is indeed not as proficient as traditional betting companies in setting odds for sports events.

Alfonso Straffon, who has engaged in market-making services in both Wall Street junk bonds and sports betting, stated, "I would remind those Wall Street firms not to underestimate the competition; sports betting is an ecosystem that has existed for a long time."

Sports events bring more complex risk management challenges for market makers, especially during the games, where any developments — such as injuries, weather changes, or coaching decisions — can drastically alter the true value of bets. "Parlay betting" brings additional risks, where a single mistake can lead to substantial losses. Once exchanges support leveraged trading, this risk will be amplified further.

Advanced data models and the ability to obtain information ahead of the public — these are the advantages of traditional betting companies — and they are crucial for reducing risk.

However, this does not mean that betting companies can secure a guaranteed victory in the prediction market. Another sports betting company founder tends to believe that with deeper capital and the experience of adapting to different financial markets, Wall Street will ultimately achieve higher returns.

Wall Street firms like Susquehanna and Jump Trading, lacking long-term sports experience, are vying to recruit market makers specializing in sports. Prediction markets like Crypto.com and Polymarket have also recently published related recruitment information for their affiliated trading departments; Rothera, under Robinhood, also mentioned an active affiliated market maker in its rules handbook (sources suggest it could be Susquehanna); according to Bloomberg reports this week, Jump Trading is investing simultaneously in both Kalshi and Polymarket.

Sportico previously reported on the details of Kalshi Trading (the affiliated market maker of Kalshi), which is also working to compensate for its lack of experience in sports — Kalshi co-founder Luana Lopes Lara stated on X that Kalshi Trading has not turned a profit 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. Multiple companies competing on price in the same prediction market naturally compress the profitable spread. In other words, the more market makers there are in a prediction market, the less profit can be earned from each single bet.

However, although prediction markets that have affiliated market makers may wish to limit the number of market makers, the reality is far from simple. Without institutional capital support, the overall market liquidity may suffer, and unless affiliated market makers invest massive capital (and take on corresponding risks) to fill the gaps, user experience will be directly affected.

This means that betting companies will inevitably compete with financial institutions in the same market, vying for order flow from retail bettors.

Ultimately, as Wall Street institutions hire talents with professional sports backgrounds (and vice versa), the competitive advantages of both sides may gradually converge. But at least for now, the betting companies entering the prediction market are very confident in their chances of success.

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