Sports is driving the majority of prediction markets growth, says Piper Sandler's Moley

Contessa Brewer (Correspondent) 00:00.000

Let's go now to Patrick Molyneux, who's the senior research analyst at Piper Sandler, the author of the note on which that data is based. Patrick, good to see you.

Contessa Brewer (Correspondent) 00:11.920

What is fueling the spectacular growth that we're seeing? And it's not just Robin Hood and Cal-Shi and Polymarket. It's also new entrants as well.

Patrick Moley (Senior Research Analyst) 00:23.640

Yeah, so I think right now I would bucket prediction markets into two separate buckets, if you will. So you have sports contracts and you have non-sports contracts. Sports is driving the majority of growth right now. If you look at a platform like Cal Shi, it's driving about 80%

Patrick Moley (Senior Research Analyst) 00:37.560

of volumes in any given week. And a big reason for that is that prediction markets are regulated at the federal level by the CFDC. So unlike if you're a retail user in a state where sports betting or sports books is not yet available, you're able to access a similar product

Patrick Moley (Senior Research Analyst) 00:54.720

through prediction markets. So I think there's no doubt that some of the pent-up demand in those states for um the sports contracts has been driving a lot of the growth. And then if you look at the non-sports contracts, things like weather events, economic indicators, we're

Patrick Moley (Senior Research Analyst) 01:06.800

seeing strong growth there, almost 50 250% annualized volume growth. We think that's pretty much driven by just a number of retailers, retail platforms beginning to offer event contracts. Just overall awareness of the space is growing quite quite rapidly and we think that will

Patrick Moley (Senior Research Analyst) 01:25.000

continue in the coming year. I know

Contessa Brewer (Correspondent) 01:26.320

you don't cover the gambling companies, but I do. So you've got DraftKings and FanDuel, which is owned by Flutter, jumping into the fray. Fanatics as well has jumped into to the predictions market. Much to the chagrin, by the way, some of their peers in the gambling industry. In

Contessa Brewer (Correspondent) 01:43.320

fact, they've been kicked out of the Gambling Trade Association. Do you think there is such a thing as too many players in this prediction market space?

Patrick Moley (Senior Research Analyst) 01:54.880

I think it depends on on the types of contracts that you're looking at. The the sportsbooks it seems are framing this as it's a way for them to enter states where they've been unable to enter in years past. But I think going forward, offering some form of prediction markets is

Patrick Moley (Senior Research Analyst) 02:10.160

going to be key to retail platforms if they want to attract this kind of newer wave of retail trader. I think it'll follow a similar dynamic to what we saw on crypto. You saw a lot of retail brokers off the start that were very hesitant about crypto. Didn't know if they wanted

Patrick Moley (Senior Research Analyst) 02:26.840

to offer it. Since then, they've embraced it and now they're offering it along alongside cash equity and derivative trading. So I think you're going to see a similar dynamic play out in the retail space. And I think you'll see the number of platforms that are offering these

Patrick Moley (Senior Research Analyst) 02:38.080

types of contracts grow in the coming years pretty significantly.

Contessa Brewer (Correspondent) 02:40.840

Patrick, you said in your most recent note this week that you're particularly excited about the growth on the sports side of this equation that that it's up, what was it ever more than 1,000% over month over month and year over year? Yeah. It's incredible. Okay. But that is

Contessa Brewer (Correspondent) 02:57.040

still a a question that is being battled out at the federal level in the courts. The states are fighting tooth and nail. Tribes are saying it violates their sovereign right to offer gambling. Can prediction markets continue this trajectory of growth if sports are not a factor?

Patrick Moley (Senior Research Analyst) 03:14.720

Yeah, there's obviously a number of legal battles that are ongoing at the state level. I'm not a lawyer. I'm not going to speculate around what could potentially happen there if it was to go in the state's favor. I think it would no doubt impact the growth of prediction markets.

Patrick Moley (Senior Research Analyst) 03:30.040

markets in the trajectory right now, just given that it's such a large part of the market, but um you know you look at a platform like Polymarket, it's one of the most downloaded apps in the US uh even before they rolled out trading to US customers. So, what does that tell us?

Patrick Moley (Senior Research Analyst) 03:44.520

It tells us that retail traders are using it to act as an information source. They want to get information Yeah on the odds of any specific event occurring and I think it goes well beyond sports.