Deputy Editor
PrizePicks has a new majority owner as it looks set to enter the prediction market space after gaining Commodity Futures Trading Commission (CFTC) approval. The European lottery giant Allwyn now owns 62% of PrizePicks, in a move that might have as much to do with the new vertical as it does with PrizePicks’ traditional business, which is player-vs.-house daily fantasy sports (DFS).
The announcement from PrizePicks came at virtually the same time as a press release announcing that Allwyn, a multi-national lottery company, had paid $1.6 billion for the lion’s share of PrizePicks’ business. That purchase implied a $2.5 billion valuation for PrizePicks, a DFS company based in Atlanta and founded in 2015. Although Allwyn owns more than half of PrizePicks, it will take a hands-off approach, with CEO Mike Ybarra and the PrizePicks leadership team continuing to hold the reins.
PrizePicks’ new certification comes via the National Futures Association (NFA), a self-regulatory body established by the CFTC. As a licensed Futures Commission Merchant, PrizePicks now has the option to offer its users the ability to trade contracts issued by an existing market like Kalshi. An example of that arrangement is Robinhood, a conventional trading platform that teamed up with Kalshi.
No partnership with a prediction provider has been revealed just yet.
“The honor of being the first sports entertainment platform to receive an FCM registration from the NFA is a testament to our industry-leading compliance and consumer protection programs that both the NFA and CFTC demand,” PrizePicks CEO Mike Ybarra said.
PrizePicks’ Journey to Prediction Markets
PrizePicks was among a number of start-ups in the mid-2010s attempting to capitalize on the surging popularity of DFS.
Market leaders DraftKings and FanDuel pivoted most of their attention to sports betting following the landmark Supreme Court decision opening up the industry to all states that wished to legalize it.
That opened up some market share for companies like Underdog and PrizePicks, who elected not to follow the market leaders into traditional sports betting. Obtaining licenses forced the giants to take a conservative approach on compliance. Meanwhile, pure DFS companies, including PrizePicks, began edging into more legally dubious “fantasy” products, pitting the player against the site with “pick’em” style player proposition parlays. Rather than making straight bets on overs and unders, customers chose “more than” or “less than” a stat for between two and six players, which these sites claimed fit the definition of fantasy sports rather than sports betting.
The fact that these contests were against the house, rather than peer-to-peer, put them in a gray area and led to pushback, much like what sweepstakes sites are currently experiencing. However, players liked the fact that the payouts closely mirrored those offered by traditional sportsbook parlays.
Prediction markets offer another natural transition for these companies. They’re another avenue for offering betting-like products that aren’t sports betting, at least in a legal sense. Underdog has already entered the space, albeit only as a technology provider.
Of course, that could change at any moment. The legal battle is just getting started between prediction providers and states accusing them of offering unlicensed sports betting. For now, though, the federal regulatory agencies are giving these companies free rein, seemingly firing off approvals as fast as they receive applications.
Allwyn Seizing Opportunity in Sports Predictions?
Until that landscape changes, it’s clear both why Allwyn would be looking to buy in and why it’s paying such a hefty price. PrizePicks calls itself the largest DFS operator in the U.S. With a recognized, trusted brand, and a Wild West-like regulatory situation, PrizePicks could soon become a leader in the sports prediction space. Here too, rivals like FanDuel and DraftKings would like to get into the space, but have to tread carefully because many state regulators are against it, and they don’t want to risk their licenses.
Kalshi, one of the leading prediction markets in the U.S., and Polymarket, a world-wide provider on the cusp of re-entering the states, both received recent valuations in the billions. Volume at Kalshi on NFL Sundays has almost entirely revolved around football.
Allwyn’s presser included a quote from CEO Robert Chvatal that specifically mentions the word predictions, although it was framed in a way that could equally refer to the core pick’em product.
“PrizePicks has created an intuitive platform that simplifies the process of making skilled predictions,” he said. “I look forward to partnering with Mike and the PrizePicks team to support the growth of the business.”
With the NFL season in full swing, the opportunity for companies to generate revenue in sports predictions is peaking. Allwyn will hope the regulatory light remains green in order to justify this mammoth investment.
Image credit: Anna/Flickr (license)
