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Read Full BioUnderdog Sports has announced that it will start offloading risk by trading on popular prediction markets, including Kalshi, Crypto.com, and others.
An Underdog spokesperson commented, “It’s a real tool for us that didn’t exist before, where we can hedge against volatility, particularly during major events that are drawing huge amounts of sports fan interest.”
“We are going to be offloading risk where appropriate across our sports betting and fantasy offerings by utilizing prediction markets like Kalshi, Crypto.com, and others.”
The sportsbook and DFS operator recently signed a deal with Crypto.com and has launched markets that combine its DFS offerings with Crypto.com’s prediction market moneylines. This allows the company to essentially offer sports betting in states that have not yet legalized it, including Texas and California.
Kalshi Will Not Give Underdog Preferential Treatment
Kalshi denied any formal agreement between the companies to allow Underdog special status to trade on its platform. A Kalshi spokesperson told InGame, “This is not a formal partnership.” Asked whether Underdog would receive any preferential trading terms or rates on the platform, the spokesperson said it would not.
“Underdog will be just another institutional client of Kalshi and participate in the markets like any other trader,” the spokesperson said. “We are having ongoing discussions with similarly situated institutions across the sporting world, many of whom have displayed interest in our prediction markets for this reason. Underdog will be a standard market participant taking directional positions.”
Kalshi has not officially partnered with any sportsbooks, but was reportedly in talks with FanDuel before the company made a deal with CME. While Kalshi said it will not give Underdog any privileged status, Sara Slane, the head of corporate development, said it is a sign of the company’s continued expansion.
Slane stated, “Underdog using our contracts to hedge risk — which is only possible due to the efficient, two-sided pricing of Kalshi’s exchange model — is the utility of prediction markets on display.”
Prediction Markets Can Help Sportsbooks Hedge Bets
Other sportsbooks may already be hedging their bets on prediction market platforms or considering doing so in the near future. Unfavorable sporting results can cause profits to drastically decrease for betting companies.
DraftKings reported that the Buffalo Bills‘ comeback win over the Baltimore Ravens in NFL Week 1 was the worst result in the company’s history. If it had offloaded some of the risk on Kalshi or another prediction market platform, the damage could have been limited.
The problem would be the limited liquidity available on markets. Sportsbooks aim to offset lopsided markets caused by bettors backing the favorites to win. Users on Kalshi would also likely be heavily backing these same favorites, so there would be far more liquidity available on the other side.
Therefore, it would be unlikely that sportsbooks could offload their risk at the same prices they offer users on their platforms. Sportsbooks could lower their odds to be more competitive with those at prediction markets, but this would encourage more users to wager on those platforms as well.
It represents another dilemma for sports betting sites regarding how to handle the growth of prediction markets. More than most other operators, Underdog seems determined to embrace the opportunity presented by the legal loophole the platforms have carved out.
The company was named the third-best startup in the US last week, and CEO Jeremy Levine said it aims to take advantage of new opportunities in the gambling industry. Levine stated, “This year, with all the incredible disruption the industry has faced, has been more proof of concept, as we have the ability to create innovative offerings with speed and scale to take advantage of opportunity.”
Sportsbooks Remain Cautious About Entering Prediction Market Space
Other sports betting companies have been more cautious in their approach to prediction markets. Commenting on the possibility of CME offering sports markets, a FanDuel spokesperson said last week, “As we work with CME Group to develop our offering, we are continuing to prioritize active conversations with a variety of stakeholders including state regulators and have made no decisions as we maintain an open dialogue in an evolving legal and regulatory landscape.”
Several states have warned licensed betting companies about offering their own prediction markets or collaborating with them. Nevada warned its licensees last week, following gambling regulators in Arizona, Ohio, and Michigan.
DraftKings has been rumored to be considering a move into the space and was reportedly in talks with Railbird, but there have been no official announcements yet. BetMGM, meanwhile, ruled out entering the space in its earnings call last week.
However, BetMGM and other sportsbooks may still be looking at using the platforms to offload risk in the same way as Underdog.
