Why Is Derivatives Giant CME Partnering With Sports Bettors? Prediction Markets Boom Holds the Answer
CME Group and FanDuel have announced a partnership to launch 'FanDuel Predicts,' a prediction markets app set to debut in December. The platform will allow users to trade event contracts on sports, financial benchmarks, commodities, and economic indicators, targeting new participants outside traditional trading. However, the initiative faces regulatory scrutiny from the Commodity Futures Trading Commission (CFTC) and state-level challenges. With stakes ranging from one cent to 99 cents, the app aims to appeal to sports bettors in states where online betting is illegal while integrating educational resources and consumer protections. CME and FanDuel's collaboration reflects a broader trend of blurring lines between gambling and investing.
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Blurring the Lines Between Sports Betting and Financial Markets
The prediction markets app targets sports bettors in states where online wagering remains illegal while offering trades on financial benchmarks. CME Group and FanDuel announced plans to launch a prediction markets platform in December, aiming to blur the traditional boundaries between financial derivatives and sports betting. The partnership pairs the century-old Chicago derivatives exchange with North America's largest online gambling operator, offering so-called event contracts starting at one cent per trade.
FanDuel Predicts: Expanding to a New Generation
The new platform, FanDuel Predicts, will function as a standalone mobile app offering contracts on sports outcomes, stock indexes, commodity prices, and economic data. Terry Duffy, Chairman and CEO of CME Group, stated: "Our new event contracts on benchmarks, economic indicators, and now sports will appeal to a new generation of potential participants who are not active in these markets today." This initiative is expected to expand CME's distribution and reach, connecting with FanDuel's millions of registered U.S. users.
The Fine Line Between Investing and Gambling
The rise of prediction markets has raised questions about whether they fall under investing or have crossed into gambling. Some recent developments highlight this trend:
- Kalshi, a major prediction market operator, selected a poker legend to help run its platform.
- Robinhood recently introduced contracts asking questions like, “Will the United States say that aliens exist this year?”
These activities increasingly resemble gambling over traditional investing, challenging the industry's perception.
Trading Opportunities on Sports and Financial Benchmarks
In states where online sports betting remains illegal, users of FanDuel Predict will be able to trade contracts on sporting events such as baseball, basketball, football, and hockey. The companies plan to stop offering sports contracts in those jurisdictions once online betting becomes legal there.
Additional trading options include:
- Contracts tied to the S&P 500, Nasdaq-100, and global commodities like oil, gas, and gold.
- Cryptocurrencies and economic indicators like GDP and consumer price data.
Stakes range from as little as one cent to 99 cents, creating accessibility for a broad audience.
Regulatory Challenges and Oversight
The venture operates in a regulatory gray area that has drawn federal scrutiny. In September, the Commodity Futures Trading Commission (CFTC) issued an advisory, warning companies offering sports event contracts to prepare for potential disruptions:
- A group of U.S. senators challenged the CFTC oversight, arguing that prediction markets circumvent state gambling laws.
- Concerns include licensing, background checks, minimum age requirements, and federal anti-money laundering rules.
The CFTC has not yet approved these contracts nor determined whether they violate the Commodity Exchange Act's rules prohibiting contracts based on gaming.
FanDuel and CME's Efforts Toward Mainstream Consumers
FanDuel and CME first announced their partnership in August. Details of the collaboration emerged this week, illustrating CME's push beyond traditional trading into mainstream markets. FanDuel, with approximately 17 million customers across the U.S., plans to extend its consumer protection program, including:
- Deposit limits
- Spending alerts
- Self-exclusion options
Customers must complete a "Know Your Customer" (KYC) verification process, providing personal and financial information. Tutorials will also guide users on buying and selling contracts within the app, ensuring accessibility and education.
Accelerating Trend Despite Regulatory Uncertainty
Despite uncertainties in regulatory approvals, the prediction markets sector continues to grow rapidly. Recent developments include:
- In November, Gemini, a cryptocurrency exchange, announced plans to launch prediction markets.
- Earlier, Crypto.com, another digital-asset platform, made a similar announcement.
The platform is expected to launch in December, pending regulatory filings. Neither CME nor FanDuel has disclosed the financial terms of this partnership, highlighting the dynamic and competitive nature of this fast-evolving sector.