CME and FanDuel Launch New Event Contracts With Sports Twist in December

FanDuel and CME Group (NASDAQ: CME) announced today that their previously announced relationship in prediction markets is developing and will launch as FanDuel Predicts next month.

Instead of being a component of the regular FanDuel sports betting platform, FanDuel Predicts will operate as a stand-alone mobile application.  The announcement's main feature is that the new app would provide contracts for sporting events in states where it is now illegal to wager on sports.  Only customers who are not on tribal lands will be able to use that offering.

"As new states legalize online sports betting, FanDuel will cease offering sports event contracts in those states,” according to a statement issued by the companies.

This suggests that Missouri will no longer be on the list of states where FanDuel Predicts will provide sports derivatives after online sports betting launches there in December.

FanDuel Says It May Be a Successful Strategy to Reach Large States

Online or retail sports betting is currently legal in 40 states and Washington, DC, with Missouri joining the party next month. However, the major players of Texas and California are not on that list.  Similarly, the Seminole Tribe controls a stranglehold on the sports betting business in Florida, the third-largest state.

Prediction markets are governed at the federal level, giving businesses like Kalshi access to the areas that sportsbook operators desire but have not yet entered, while FanDuel and its competitors have been barred from those jurisdictions.  This government law may have been a major factor in the August announcement of FanDuel's partnership with CME.

FanDuel Predicts may be the company's ticket into Georgia and the "big three" states, but it may also lead to legal difficulties, especially in California and Florida, where tribal nations limit the growth of gambling.  However, Kalshi recently achieved a legal victory in California when a judge in the Northern California District Court dismissed a lawsuit brought by three tribes against the prediction markets behemoth on the grounds that its assertion that sports betting is permissible in all 50 states violates the Lanham Act.

Although there aren't as many tribal casinos in Texas, the state's anti-gaming policies may be detrimental to prediction markets.  But up until now, the second-biggest state has avoided legal disputes with event contract companies.

FanDuel Forecasts More Than Just Sports

The exchange operator's proficiency in financial derivatives, which enables FanDuel Predicts to provide much more than sports event contracts, is a key component of the CME/FanDuel partnership. This point was emphasized in August and reaffirmed today.

“In addition to sports, event contracts will be offered on benchmarks such as the S&P 500 and Nasdaq-100, prices of oil and gas, gold, cryptocurrencies, and key economic indicators such as GDP and Consumer Price Index (CPI),” according to the press release.

Sports and politics currently account for the majority of traffic on the top prediction markets, but many younger bettors and prediction market users are also investors, suggesting that derivatives related to cryptocurrencies and indexes may become popular.