Fanatics is entering the prediction market space via a deal with Crypto.com after buying its way into registered status with the National Futures Association (NFA).
Fanatics founder Michael Rubin revealed in an interview with CNBC Thursday that the company would launch Fanatics Predicts with Crypto.com “in the next few weeks.”
Other Crypto.com partners such as Underdog have been “tech providers” to the exchange with no formal Commodity Futures Trading Commission (CFTC) status. However, Fanatics may not be taking the same approach, as the company has purchased all or part of a company that is already registered with the NFA as an introducing broker (IB). That company – Wall Street-based Paragon Global Markets – has rebranded under the Fanatics name.
Rubin did not reveal whether Fanatics would officially use its status as an introducing broker in its partnership with Crypto.com, as opposed to being a tech provider like Underdog, or another designation like futures commission merchant. A spokesperson declined to comment on whether Fanatics would use its newfound IB status.
However, the Paragon deal gives Fanatics the ability to operate under official registration, carrying more regulatory certainty, rather than the tech provider role that has no official registration process via the NFA or CFTC.
Fanatics owns 10 percent or more of broker
NFA filings show that Fanatics owns at least a 10% stake in Paragon Global Markets, which has been approved by the body as an introducing broker since 2014. An introducing broker is able to offer contracts made by a designated contract market (DCM) such as Kalshi or Crypto.com.
The only companies listed as owning a 10% stake in Paragon are Fanatics and Morton Street Trading, which is the vehicle set up by Fanatics for its own NFA application that was revealed in August.
In other words, the only entities listed as holding a 10% or greater stake in Paragon are controlled by Fanatics, suggesting Fanatics’ stake could be a majority or the whole company.
Rubin is also listed as the “indirect owner” of 10% or more of Paragon. Bloomberg estimates that Rubin owns a third of Fanatics, meaning that if he “indirectly” owns at least 10% of Paragon via his Fanatics stake, Fanatics must own at least 30% of Paragon for Rubin’s indirect ownership to cross the 10% threshold.
Paragon’s two founders, Stephen Grady and William Sexton, are still listed as principals of the company but do not hold a 10% or greater stake. Company filings in the U.K. showed that as recently as last year, Grady and Sexton combined to hold at least 50% of the company.
Sexton is already approved as an individual NFA member. NFA rules require that at least one company principal is a member of the body.
Paragon’s NFA page also says it is doing business as Fanatics Markets IB. As a result, a company with the Fanatics brand name and owned — either in part or entirely — by Fanatics is already registered as an introducing broker that can partner with exchanges.
Paragon’s website says it allows traders to buy and sell traditional commodity futures and foreign currency. The company does not appear to have any existing event contract-related operations, but as a registered introducing broker it can facilitate the purchase and sale of these, too.
Paragon deal gets around slow NFA approvals
Fanatics appears to be the first company to buy a path toward NFA-registered status.
Companies looking to get involved with U.S.-regulated prediction markets have acquired DCMs in the past. Polymarket acquired QCEX in July, while DraftKings bought Railbird in October. However, DCM applications typically take more than two years for approval. Historically, the process for NFA applications has been much shorter.
The NFA’s FAQ page says applications “may take six weeks or longer.” For most companies getting into prediction markets, though, the NFA process appears to have taken much longer. PrizePicks is the only company coming from the world of sports betting or daily fantasy to have received NFA approval. Other applications, such as ones from DraftKings and Underdog, have been listed as “pending” for several months.
The NFA is an industry body, rather than an arm of the federal government like the CFTC, and should not have been directly affected by the government shutdown.
Daily fantasy operator Sleeper even sued the CFTC in September, arguing that the regulator had stepped in to hold up an application that the NFA was ready to approve. At this point, no other operators have accused the CFTC of the same.
IBs can’t hold funds but not a huge barrier
If Fanatics uses its newfound introducing broker status for its predictions platform, it would be able to take orders from customers, but it technically would not be allowed to hold customer funds.
However, the launch of Underdog’s prediction market offering — also through a partnership with Crypto.com but as a “technical service provider,” with no official CFTC status — shows that the inability to hold customer funds is not necessarily a barrier to offering a prediction market product.
Officially, Underdog does not hold customer funds for prediction markets, but the funds are withdrawn from a user’s Underdog account and deposited with Crypto.com right as a user makes a trade. Writing in his Fifty Cent Dollars newsletter, former Kalshi employee Adhi Rajaprabhakaran described Underdog’s movement of funds as “invisible to the end-user.”
Fanatics Markets should also be able to apply to change its registration to become a futures commission merchant (FCM) — the status currently held by Robinhood, which is partnered with Kalshi and delivers roughly half of its volume — with a more streamlined application than if it were to apply as a previously unregistered entity. FCMs are allowed to hold customer funds directly.
“If an individual is already registered or listed as a principal, it is possible to obtain registration in a new category as soon as the application is filed,” an FAQ section on the NFA website says.
Betr, Splash, Galactic also seeking NFA status
A number of other businesses involved in sports betting, daily fantasy, or similar lines of business have also applied for NFA status.
Jake Paul-founded Betr applied for introducing broker status under the name Betr Predictions in October. In September, founder and CEO Joey Levy told InGame that the company was exploring options in the prediction markets space.
“We’re incredibly ambitious and we want to accomplish more,” Levy said. “Prediction markets may, could, definitely be a part of that. We’re evaluating our options, but also just remaining very focused on our existing products and some of the other products that we’ve committed to launching.”
Fantasy app Splash applied under the name Splash Market LLC in August, also seeking introducing broker status.
The company behind a new Time Magazine-branded prediction market, as well as Sports Illustrated-branded SI Predicts, is also seeking NFA status. Axios reported Thursday that Time is launching prediction markets via a business called Galactic Markets, which had previously launched the SI Predicts platform. A company named Predictor, which is owned by Galactic Markets, applied for NFA status as an introducing broker earlier this month.
SI Predict launched in June but “paused temporarily” on July 29, without a relaunch date announced.
As NFA-registered FCMs, Galactic, Betr and, Splash would have to partner with DCMs. It is not clear which DCMs they may partner with at this point.
Fanatics follows DraftKings, FanDuel
Fanatics’ entry into the world of prediction markets follows such moves from DraftKings and FanDuel, which have said they will offer sports event contracts.
DraftKings and FanDuel left the industry body American Gaming Association (AGA) this week due to the operators’ involvement in prediction markets. Fanatics is still listed as an AGA member.
