Clear and present danger: Even as a new report from ARK Invest positioned sports as being irrelevant to the long-term story of prediction markets as financial institutional play, the debut edition of EKG’s new market monitor suggested the current sports-led offerings hit 11% of sportsbook handle in March.

Adding noughts: The ARK Invest report made much of the potential for prediction markets to become embedded within the financial world and made claim to a TAM of between $1trn and $5trn, but the authors labeled sport-events markets as a sideshow.

• Instead, they argued that the early surge in Kalshi sports volumes should be read as a regulatory arbitrage.

Gateway drug: But what sports-events markets have done, the ARK team suggested, is open the door to other forms of prediction market offerings, with the largest opportunities coming in financial, economic and political contracts.

• These will offer retail investors a “novel way to gain direct exposure to a broad spectrum of real-world outcomes,” they wrote.
• “That opportunity could scale to a size rivaling the derivatives and futures markets.”

Gang of four: In comparison, EKG’s new prediction markets monitor attempted a bottom-up assessment of the current state of affairs and cames up with some striking new figures.

• Using a proprietary handle-analog, EKG said the total in March hit $2bn or equivalent to 11% of the total OSB handle figure for the month.
• It went on to say that, by this metric, Kalshi is now the fourth-biggest operator, behind only FanDuel, DraftKings and Fanatics.
• Moreover, EKG forecasts that the US sports-events category will hit a handle-analog figure of ~$34bn this year.

Eating for two: Importantly, both reports concluded that a majority of prediction markets custom currently comes from non-OSB states. Indeed, EKG noted that in mature OSB markets, Kalshi’s share of the combined PM-OSB handle sits at just 2%.

• They suggested this is a provisional ceiling on cannibalization.
• Similarly, ARK suggested sports-based events are “not necessarily” disrupting or displacing OSB.

Scramble stations: Where the reports coincided is over the speed with which companies involved in the space – either on the sports side or on the financial side – are intent on going about the infrastructure build in quick time.

• EKG noted the initial phase of prediction markets in the US has “crystallized the value of market-making.”
• They pointed to the significance of the Rothera JV between Susquehanna and Robinhood.
• Just this week, Robinhood CEO Vlad Tenev talked up the project, saying it gave the company “end-to-end control of the customer experience, including product selection and pricing.”
• “It’s no surprise then that operators across the sector are scrambling to build their own capabilities,” added EKG.

ARK also said the emergence of market makers is central to their argument for institutional adoption.

• “Like traditional financial markets, prediction markets rely on institutional participation to quote odds, absorb flow, and otherwise maintain liquid markets,” stated the report.
• “Professional market makers will be essential to scaling these markets, especially for complex or multi-leg contracts.”

Seeing the bigger picture: Meanwhile, ARK said prediction markets will allow financial traders to take positions on binary outcomes tied directly to underlying events. This will effectively “unbundle risk and provide direct exposure to specific catalysts or signals.”

• “Moreover, event contracts are easier and more intuitive tools for retail investors than complex derivative contracts that appeal to highly sophisticated investors,” the report added.

This only works if we all row together: ARK said that as real-world outcomes become tradable through event contracts, they believe prediction markets are positioned for widespread adoption.

• But their scaling will “require the liquidity that ensures market prices reflect accurately the collective wisdom of participants.”
• “High liquidity produces a strong signal, while lower liquidity amplifies the noise emitted from uninformed or marginal traders, thereby reducing the precision.”