Let’s pretend you want to start a sports betting company. Competitors like FanDuel and DraftKings were given a head start when PASPA was repealed in 2018. They spend billions of dollars on advertising every year and essentially control the entire market today. Despite dozens of well-funded competitors popping up over the years, no other company has achieved 10% market share.
So what can you do? Well, one option is to focus on markets FanDuel and DraftKings neglect. With sports betting companies largely focused on acquiring customers for higher-margin products like sports gambling and iGaming (think: online casino games), companies like Underdog, PrizePicks, and Sleeper have built large businesses by offering innovative fantasy products. Fantasy sports don’t offer the upside of sports gambling or iGaming, but they can serve as a Trojan Horse. People get hooked on fantasy and then transition upstream.
Another option is to look for a regulatory advantage. That’s what prediction markets have done. Rather than competing on the same field, prediction markets have chosen to play an entirely different game. Since the derivatives market is regulated by the CFTC, not individual states, prediction markets offer markets that look and feel like sports betting without needing state-by-state approval.
That is a huge advantage. Roughly 100 million people live in California, Texas, and Florida. Prediction markets are available in those states, while sports betting is currently available to only about 50% of US residents. That increases the total addressable market for prediction markets by hundreds of millions of people.
However, regulatory advantages don’t work unless a loophole exists in the first place. So, if you wanted to take advantage of the current rules before a new administration came in and changed them, you would probably raise billions from venture capitalists and spend most of that money acquiring customers. You would then hire hundreds of people to serve those customers, donate to political parties, and ensure your marketing dollars were intertwined with everything from professional sports leagues and teams to media outlets like CNBC and CNN.
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