The prediction market app targets sports bettors in states where online betting remains illegal, while offering trades based on financial benchmarks.
CME Group and FanDuel announced plans to launch a prediction markets platform in December, aimed at blurring the traditional boundaries between financial derivatives and sports betting.
The partnership brings together the 100-year-old Chicago derivatives exchange and North America’s largest online gambling operator to offer so-called event contracts starting at 1 cent per trade.
The deal raises questions about why a derivatives market that typically serves institutional investors and sophisticated traders would partner with a daily fantasy sports and betting-based company to launch FanDuel Predicts.
It functions as a standalone mobile app that provides contracts on sports results, stock indexes, commodity prices, and economic data.
Terry Duffy, CME Group Chairman and CEO, Source: CME
“New event contracts for benchmarks, economic indicators and sports will appeal to a new generation of potential participants who are not currently actively participating in these markets,” CME Chairman and CEO Terry Duffy said in a statement. “This release dramatically expands our distribution and reach, connecting us directly with FanDuel’s millions of U.S. registered users.”
The question first occurred to me in April: Are prediction markets still an investment, or have we already become a gamble? The industry has grown rapidly since then, but recent developments suggest it’s moving towards the latter.
This is especially evident when the largest market operator, Kalsi, selects a poker legend to help run its platform, and Robinhood introduces deals like “Will the US say aliens exist this year?” This type of bet is more like gambling than investing.
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In states where online sports betting remains illegal, FanDuel Predict users will be able to trade contracts for baseball, basketball, football and hockey games. The companies plan to discontinue offering sports contracts in these jurisdictions once online betting is legalized.
Customers will also be able to trade contracts tied to indicators such as the S&P 500, Nasdaq 100, oil and gas prices, gold, cryptocurrencies, GDP and consumer price data. Stakes range from just 1 cent to 99 cents.
Regulatory hurdles Cloud adoption planning
The venture operates in a gray area subject to federal oversight. In September, the Commodity Futures Trading Commission issued an advisory warning companies offering contracts for sporting events to prepare for potential market disruption from state-level challenges and ongoing litigation.
A group of U.S. senators sent a letter to the CFTC in September challenging the agency’s oversight of prediction markets, arguing that these platforms circumvent state gaming laws by offering yes-or-no contracts. Lawmakers accused event contract issuers of circumventing “numerous state laws, including licensing and background checks, minimum age requirements, federal anti-money laundering regulations, consumer protections, and more.”
The CFTC has not formally approved the sporting event contract or determined whether it violates the Commodity Exchange Act’s prohibition on “gaming” contracts. The agency noted in its recommendations that unresolved litigation “should be accounted for with appropriate contingency planning, disclosure, and risk management policies and procedures.”
Prediction market operator Calsi is embroiled in legal battles with both the CFTC and state regulators. At the request of the CFTC, Robinhood suspended the launch of event contracts in February, the day after the introduction.
Second attempt to enter the sports market
CME and FanDuel first announced their partnership in August, but details were not revealed until this week. CME has been operating event contracts since September 2022, aimed at individual investors and with a payout cap of $100 per contract. The FanDuel collaboration represents the exchange’s largest effort to reach mainstream consumers outside of traditional trading circles.
FanDuel has approximately 17 million customers and operates 25 retail locations in all 50 states. The company is owned by Flutter Entertainment, which trades on both the New York Stock Exchange and the London Stock Exchange.
FanDuel plans to extend its consumer protection programs, including deposit limits, spending alerts, and self-exclusion options, to the new app. Customers must complete a “Know Your Customer” verification process that requires date of birth, social security number, home address, banking information, and valid identification.
This app includes educational resources on how to buy and sell prediction markets and event contracts. You may set deposit limits that apply to all FanDuel products.
“We can’t wait to bring FanDuel’s proven approach to product innovation to this dynamic space,” said FanDuel CEO Amy Howe. “Our partnership with CME Group allows us to leverage their deep market expertise built over decades while delivering the seamless, accessible and reliable experience our customers expect.”
hot prediction market
And while FanDuel speaks confidently about KYC and education, end users are still receiving a product rooted in gambling, similar to the now-banned binary options that circulated in Europe several years ago.
Despite these uncertainties, including regulatory uncertainties, they are not preventing more companies from joining the accelerating trend. In November, crypto exchange Gemini announced plans to launch its own prediction market, and a week earlier, another digital asset platform, Crypto.com, made a similar move.
The platform is expected to launch in December, subject to appropriate regulatory filings. The companies did not disclose financial terms of the partnership.
