INDUSTRY INSIDER: MARK MCGUINNESS
Prediction sharks need minnows A
Prediction markets are booming. Yet beneath the volume sits the same flaw that shadowed the UK betting-exchange boom two decades ago. A model built for sharks cannot survive without minnows, and right now the minnows are not showing up, according to our Industry Insider, Mark McGuinness.
s a former CMO of a well-known betting exchange, I will say the quiet part first. Prediction markets are not a new category. They are the exchange model in a new suit, relisted for a US audience and a crypto-native decade. The order book, the market maker, the ability to trade a position in and out, the promise that nobody limits you for winning: I have seen all of it before. I have also seen the flaw the growth curve hides.
That flaw is player sustainability. The numbers today are extraordinary. US prediction markets are turning over around 13 billion dollars a month, with Kalshi holding roughly nine in every ten of those dollars. Sport has become the engine. It looks like a market that has found its moment. It looked that way for the exchanges too.
THE EXCHANGE LESSON Betfair changed British betting because it removed the bookmaker and let customers
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trade against one another. It was brilliant, and it carried a structural bias from day one. An exchange rewards skill. The people who thrive are ex-bookmakers, quants, day- traders, syndicates and market makers, the professionals who price faster and think in expected value. That is the design, not a defect in it.
But a market of professionals trading against professionals is a closed loop. It needs an external source of energy, and that source is the recreational player: the fan who backs a team, enjoys the experience and, over time, loses at a rate they can absorb. The exchange calls this liquidity. Ecology calls it food. Betfair understood the tension so well that it eventually placed a premium charge on its most successful accounts, taxing the very sharks its own model had created, because unchecked they emptied the pool.
THE APEX PREDATOR PROBLEM Here the biology from last month’s column
returns, less gently. Every ecosystem is a pyramid, a broad base of prey supporting a narrow tip of predators. Remove the base and the tip starves. There is no version of a reef, a savannah or an order book in which the hunters outnumber the hunted and the system survives. Balance is the whole game. Prediction markets have built a superb habitat for predators. The open book, the live price, the freedom to arbitrage across venues, the transparent data that lets a sharp trader model everything: all of it is catnip for the sophisticated. The question is who else is actually in the water.
WHERE IS THE FOOD?
In August, DraftKings chief executive Jason Robins told shareholders that only about 1 per cent of customers overlap between the DraftKings sportsbook and the largest prediction market in sportsbook states. He went further. By his estimate, 80 to 90 per cent of prediction-market volume in those
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