DraftKings CEO Jason Robins said the company continues to monitor prediction markets, but is keeping the strategy close to the vest for now.
Robins appeared last week at the Bank of America Gaming & Lodging Conference, where he was asked by the host about the prediction markets. The question stemmed from FanDuel’s announcement of a partnership with the Chicago Mercantile Exchange, while Underdog now has a relationship with Crypto.com, and Polymarket can operate in the U.S. under the auspices of the Commodity Futures Trading Commission after previously being denied. Prediction market operators are under fire from tribal casinos, gambling regulators, and others over fears they cut into investment and revenue, trigger job losses, and insufficiently protect players.
“The most important question is where is the space going to evolve,” Robins said. “Right now, a lot of cards are being turned over in real time and we’re getting a lot of information at the federal level that this is here to stay. The question is, what happens with states? Obviously, Polymarket doesn’t have to worry about revenue risk in states. As for us, we would view both the revenue opportunity and the place where we wouldn’t have as much risk, by largely focusing on places that don’t have online sports betting for anything that resembles sports.
Robins said that non-sports predictions are more widespread.
“We have to see where that goes. Why make an announcement before you have to do anything? We don’t have to announce what our plans are until we’re close to acting or ready to. But it doesn’t mean that internally, we aren’t preparing things. It’s not so much that we don’t think we should be an early mover. It’s that we have to make sure we have the right thing and be prepared to do it. When all that happens, we’ll announce it.”
Following the chat with Robins, Bank of America Securities gaming analyst Shaun Kelley said in a note to investors that it’s their sense that if DraftKings chose to enter the prediction markets, “they will focus on states that don’t have legalized online sports betting. Strategically, the broader exchange licensing process could create a pathway for other financially oriented products.”
The host asked Robins whether DraftKings could ignore the potential market that’s open to sports betting on a national level, including states where it currently isn’t legal, and how disruptive it would be.
“I think the TAM (total addressable market) opportunity is likely to be very significant in states that don’t have legal online sports betting and it will be fairly small in states that do have online sports betting,” Robins said. “In the UK, both products co-exist and constitute a single-digit percentage of the total revenue, an indication that when both products are available, customers overwhelmingly prefer traditional online sports betting. It’s going to be very difficult ever to have as a full-featured offering in a prediction market setup as you could in an online sportsbook.
“One of the chief reasons is risk management. When you’re putting up a market on an exchange, you have to be comfortable with liquidity, versus putting limits on (sharp bettors) and other people. That’s the only reason we can offer a variety of bets. If we offered all the different bets and weren’t able to do that, we’d get picked off and destroyed.”
Robins said when it comes to prediction markets, that will be a limiting factor for various bets and parlays. For a high-leg parlay, they have to collateralize the potential winnings every time. That makes it hard, even if they know they’re going to win the vast majority of the parlay bets.
“It’s virtually impossible under that type of regulatory framework to ever have to have something as rich as varied as you see in an online sportsbook,” Robins said. “There’s no doubt in a state that doesn’t have a legal online sportsbook available, people will want to do game lines and simpler stuff that’s available. Where there’s both, it will be challenging for that product to compete, but where you don’t have both, it will be very good.”
