Ambling with Grambling #31: Sizing Market Making & World Cup as PM Combos Surge

Research evidence excerpt

Ambling with Grambling #31: Sizing Market Making & World Cup as PM Combos Surge

UpdateMpast two months. The increased mix is notable as the NFL season tends to be a peak

for activity (even vs. the NBA Finals). Because these contracts tend to be more

tailored, obtaining liquidity from market makers (such as Susquehanna, Jane Street,

Jump Trading, etc. but also now FanDuel & DraftKings) can be equally important as

consumer interest.

So what are the implications of combos to the public OSB stocks? More

competitive encroachment, but also potential market making opportunity.

The increase in combos and overall volumes on prediction markets continues to

come at the same time handle growth for traditional sports books has been muted

(April/May for states that have reported +3%/-2%). Combos require more capital

from market makers due to collateral requirements (notional loss potential is

higher), which boosts volume compared to the equivalent sports bet. This may be

part of the reason we have not seen an equivalent surge in overall prediction market

share in deposits via debit / credit data we can track. Furthermore, the surge in

Combos in April (and corresponding increase in PM volumes) did not seem to drive a

step-function in OSB handle or NGR that month (DKNG/FLUT combined NGR for

states that have reported April up ~35% y/y, ~20% ex-MO). This all said, our

proprietary sports betting survey shows that parlays resonate with key sports

betting demographics suggesting combos should be similar (US Sports Betting: Bi-

Annual Sports Betting Survey: Still Early Innings) suggesting cannibalization could

accelerate.

As an offset, FLUT and DKNG have also been more aggressive pushing into

prediction markets, including via market making. Both companies have extensive