Traditional gambling giants enter the prediction market, aiming to strike a blow to Wall Street through dimensionality reduction

This article is from Sportico

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

As prediction markets explode, two groups are watching closely — they come from Wall Street and Morton Street (home to the headquarters of betting company Fanatics), one being professional financial trading firms, the other traditional betting service providers, both believing they have the potential to become top predators.

Bookmakers Enter Market Making

Three traditional sports betting service providers — DraftKings, Fanatics, and FanDuel — have all entered prediction markets to counter the threat these emerging formats pose to their core businesses. After investor sentiment cooled, these companies are accelerating their efforts and view their extensive experience in the betting industry as a potential competitive advantage.

DraftKings, Fanatics, and FanDuel have all begun or are considering providing “odds” through affiliated market makers in their prediction market applications. This is similar to their operations in traditional sports betting, but the main difference is — in prediction markets, they need to compete with third parties who can also place orders.

According to exchanges with Sportico, company executives, and industry analysts, there is currently no consensus that direct market making by bookmakers can yield higher returns than professional financial trading firms, but bookmakers are confident in the profit potential of market making.

FanDuel’s parent company Flutter Entertainment CEO Peter Jackson stated during the Q3 earnings call in November: “The core ability of a market maker is to accurately price complex and interrelated outcomes. That’s exactly what we do every day in our core business.”

Fanatics already has an active affiliated market maker called Morton St. Market Maker LLC — named after its parent company’s office street in New York City, Morton Street, which is within walking distance of some Wall Street competitors’ turf. Morton St. Market Maker provides 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 have hinted at the existence of affiliated market-making teams that trade against their clients, but it’s unclear whether DraftKings or FanDuel have officially established such entities.

To ensure all users can quickly enter and exit positions at prices close to fair value, market makers typically need to provide liquidity on both “YES / NO” sides during specific periods. Their profits come from the tiny spread between “immediate buy” and “immediate sell” quotes. For example, if a user buys a contract predicting the New York Mets’ victory at $0.50, and the market maker previously acquired that contract via a limit order at $0.47, the market maker can earn $0.03.

Wall Street’s Counterattack

On the other side of the bookmaker’s equation are professional trading firms from Wall Street.

Although firms like Susquehanna International Group have extensive experience in derivatives market making, some industry insiders who spoke with Sportico say that Wall Street is indeed less experienced than traditional bookmakers when it comes to setting odds for sports events.

Alfonso Straffon, who has worked in market making for junk bonds and sports betting on Wall Street, said: “I would advise those Wall Street firms not to underestimate this — sports betting is an ecosystem that’s been around for a long time.”

Sports events pose more complex risk management challenges for market makers, especially during ongoing matches, where any development — such as injuries, weather changes, or coaching decisions — can drastically alter the true value of bets. “Order splitting” adds additional risk, and a single mistake can lead to huge losses. Once exchanges support leveraged trading, these risks are further amplified.

Advanced data models and the ability to access information ahead of the public — these are the advantages traditional betting companies hold — and are crucial for risk mitigation.

However, this does not mean bookmakers will necessarily dominate prediction markets. Another founder of a sports betting company believes that, with deeper capital reserves and experience adapting to different financial markets, Wall Street will ultimately achieve higher returns.

Susquehanna, Jump Trading, and other Wall Street firms lacking long-term sports experience are actively recruiting sports-focused market makers. Crypto.com and Polymarket have recently posted related job openings for their affiliated trading departments; Rothera, a division of Robinhood, also mentions an active affiliated market maker (sources suggest it might be Susquehanna). Bloomberg reported this week that Jump Trading is investing in both Kalshi and Polymarket.

Sportico previously reported details about Kalshi Trading (Kalshi’s affiliated market maker), which is also working to bridge its sports experience gap — Kalshi co-founder Luana Lopes Lara previously stated on X that Kalshi Trading’s sports volume accounts for less than 6% of its market-making activity as of November.

Competitive Advantages or Converging Strategies

Market making is not a highly profitable business. When multiple companies compete on the same prediction market pricing, profit margins naturally shrink. In other words, the more market makers there are in a prediction market, the less profit can be earned per bet.

However, despite prediction markets with affiliated market makers potentially aiming to limit the number of market makers, the reality is far more complex. Without institutional capital support, overall market liquidity could suffer, unless affiliated market makers invest large amounts of capital (and assume corresponding risks) to fill the gap, which would directly impact user experience.

This means bookmakers will inevitably compete with financial institutions for order flow from retail bettors.

Ultimately, as Wall Street firms hire people with professional sports backgrounds (and vice versa), their competitive advantages may gradually converge. But at least for now, bookmakers entering prediction markets are confident in their chances of success.