Partnership with CME will see the launch of financial event contracts later this year.
During analyst chat last week, Flutter CEO hinted at the regulatory tightrope.
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Making a move
Laying the groundwork: FanDuel and derivatives marketplace CME have announced what the pair called a “groundbreaking alliance” that will see FanDuel launch event contracts on a number of financial markets including leading index benchmarks, the price of commodities, cryptocurrencies and economic indicators.
The offering is expected to launch later in the year and FanDuel said further details of additional offerings would be determined “in the coming months.”
When asked whether this might include sports events markets or political markets, a spokesperson offered no further comment.
Heating up: The announcement follows hot on the heels of the news this week that Kalshi and its partner Robinhood would be greatly expanding their sports-based events offerings ahead of the new football season.
Meanwhile, SBC Americas reported this week that DraftKings had once again registered a prediction markets application with the National Futures Association.
It has been joined in the application process by PrizePicks and Underdog.
The mechanics: FanDuel said the “innovative partnership” would build on the derivatives expertise of the Chicago Mercantile Exchange in providing regulated, transparent markets. CME is a designated contract maker and is regarded as the leading and most diverse derivatives marketplace globally.
I'm liquid smooth, come touch me too: As part of the partnership, CME and FanDuel will form a new joint venture, under which they will operate a non-clearing futures commission merchant (FCM) that will facilitate access to these event-based contracts through FanDuel.
Pending CFTC regulatory review, event contracts will be listed on and subject to the rules of CME Group exchanges and available through all participating FCMs.
Citizens said the deal would work much the same way as Kalshi’s arrangement with Robinhood, whereby funds deposited with FanDuel would be sent to CME as the clearing house.
“That said, we assume FanDuel traders will look to get in on the volume/liquidity as a market maker, while other large market makers could be involved in the process, like a Jane Street or SIG, we assume,” the team added.
Yes, Sir, I can boogie: FanDuel said that together the partners would develop fully-funded, event-based contracts with defined risk.
It added that customers will be able to express their views multiple times a day on a wide range of markets with simple ‘yes’ or ‘no’ positions for as little as $1.
The great unlock: Amy Howe, CEO of FanDuel, said partnering with CME would “unlock” the company’s ability to bring more new and engaging products to its customer base.
"We believe there is potentially a wide audience for trading event-based markets and we want to provide a platform that allows our customers to engage in this activity,” she added.
Terry Duffy, CEO at CME, said individual investors were “increasingly sophisticated and continually pursuing new financial opportunities.”
Tightrope walker: The limited nature of the product offering being spoken about by FanDuel is in line with what Peter Jackson, CEOn at parent company Flutter, said was the “complexity” of the company’s regulatory dilemmas when it comes to prediction markets
Speaking during a post-earnings fireside chat with Moffat Nathanson last week, he reiterated that the technical barriers for the company to enter the space “not complicated” given it runs the Betfair betting exchange.
“The complexity here is managing regulatory relationships and stakeholders,” he added.
“We're just gonna be very thoughtful about how we make sure that nothing that would happen in the prediction markets could upset that.”
Puts+takes: Truist said that while it was notable that sports events were not mentioned, the news would set FanDuel up to “turn on that switch at some point should they choose.” Flutter, and by extension Draftkings, moving into prediction markets “seems enticing.”
“Still, regulated operators should tread carefully not to upset state gaming regulators and partners in their core business today,” the team added.
“Federal views on prediction could also vary in the future with a different administration in Washington.”
Feet to the flames: Citizens added that the announcement “only turns up the heat for tribes and parties opposed to sports betting, as Flutter is putting its stake in the ground on its position toward the markets.”
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Earnings extra
Better Collective
Noise from Brazil: The gaming affiliate behemoth reveals the extent of its previous exposure to the pre-regulated Brazilian market, and the extent to which the post-regulation landscape has worked against it as revenues and EBITDA tumble.
See today’s Earnings Extra edition to be sent later this morning. (PRO subscribers only).
Puts+takes
The debutants: Spanish and LatAm casino to online gaming operator Cirsa, which achieved its Madrid IPO in July, and Swedish-based iCasino supplier Hacksaw Gaming, which itself floated on the Nasdaq Stockholm in June, have both received debut Buy ratings from the analysts.
See yesterday’s Earnings Extra edition.
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