DraftKings has submitted a new application to join the National Futures Association (NFA) — a key early step toward entering the world of prediction markets — while Underdog and PrizePicks have submitted applications of their own.
The association is a body for the U.S. derivatives industry rather than an official regulator, but all members must follow certain rules, such as acting “in general, to protect the public interest.” This can help a business gain approval to become a Designated Contract Market (DCM) registered with the Commodity Futures Trading Commission (CFTC) and launch event contracts on topics including sports.
However, membership is not a requirement for involvement in prediction markets. For example, Kalshi does not belong to the NFA.
An entity called Gus III Holdings applied for NFA membership on June 24. The registration lists DraftKings’ address and phone number, and executives including CEO Jason Robins and CFO Alan Ellingson are listed as principals of Gus III.
DraftKings previously submitted an application under the name Gus II Holdings. This filing was withdrawn in April.
Gus III applied to become a “swap firm” and an “introducing broker.” A swap firm would operate its own exchange as a DCM, similar to Kalshi.
An introducing broker acts as an intermediary between retail traders and clearing firms “but does not accept money or other assets from customers to support these orders” itself, according to the NFA. In the world of futures, introducing brokers typically serve specific industries and act as a “concierge service.” There are no introducing brokers registered in prediction markets, which would make DraftKings the first.
The company has been coy about its plans for the prediction market space. During its second-quarter results announcement, DraftKings said it was “actively exploring” the space. In the company’s earnings call, Robins said DraftKings is in “monitor mode” with regard to prediction markets.
A DraftKings spokesperson told InGame the company had nothing else to share on the application besides the comments in the results announcement and earnings call.
DraftKings has also reportedly shown interest in buying its way into the prediction markets space. In July, it was reported that the company was in talks to buy Railbird, which already has CFTC approval as a DCM.
Underdog, PrizePicks use Robinhood model
Alongside DraftKings, two of the biggest names in daily fantasy sports have pending NFA applications. PrizePicks put in an application under the name Performance Predictions II on May 28, while Underdog did so under the name UDM LLC on April 3. Similar to DraftKings, the addresses, phone numbers, and listed principals of Performance Predictions II and UDM tie them to PrizePicks and Underdog. Both applied to be a swap firm as well as a Futures Commission Merchant (FCM).
FCMs offer users access to an existing exchange run by a DCM. This is the model used by Robinhood, providing its users with access to Kalshi’s markets. Being an NFA member is required of merchants in order to partner with CFTC-registered DCMs, even if those DCMs are not themselves members of the association.
FCM status can be lucrative. Robinhood processed $1 billion worth of prediction market trades during the second quarter of the year, meaning it made about $10 million with very little associated overhead. Its prediction market revenue could grow further after launching football event contracts Tuesday.
