This is imperfect. No other way to really say it, other than … this is imperfect. Also, we’re going to talk about cows in a few minutes. We’ll also be joined by a Dartmouth economics professor. There’s a lot going on here.
Anyway, it’s basically this: This past weekend, prediction markets did $7.49 billion in notional volume across sports and combo trades, per Aldrin Research. This is the most ever for a two-day period, which obviously has most to do with college and professional football. For (our first) comparison, this blew away the weekend numbers from the previous week, which came in at $6.13 billion.
Will the volume go up again this weekend? Well, who knows, but that’s certainly the direction in which it’s trending.
So what does this mean?
For starters, let’s define “notional volume.” It is — per Investopedia — the “total value of the underlying asset in a derivative contract,” which means, for our purposes, it counts both sides of a prediction market trade.
And now, there was more notional volume traded in sports and combo contracts over the weekend than in a typical day of … live cattle trading.
Told you there would be cows.
Tough to compare
“It’s roughly apples to apples, it’s just that we’re kind of counting both the long side and the short side with the prediction market,” said Eric Zitzewitz, an economics professor at Dartmouth College. “So with the prediction market we’re counting both sides of the trade, both the long side and the short side. With cattle futures we’re only counting the long side.”
Plus, there’s an actual cow hanging in the balance, which is something you don’t have to concern yourself with when adding Bryce Young passing yardage overs to your combo.
A typical day of live cattle futures — at least a typical day last week — yielded about $5.7 billion in live cattle trades. This is per CME Group, and here’s a rundown of other estimated daily notional turnover last week: $89 billion in gold, $97 billion in WTI crude oil, $16 billion in Henry Hub natural gas, $16 billion in silver, $5.6 billion in CME Bitcoin futures, and $8.9 billion in corn. These estimates cover all expirations of each standard futures contract. Each expiration’s volume was multiplied by its settlement price and contract size, then added up and averaged across the four trading days. CME supplies the underlying data; the dollar estimates are my calculations.
“Sounds about right,” Zitzewitz told me.
Again: imperfect.
But also notable in that, according to the USDA, more than 69 million cattle are sold each year in America, and we’ve been buying and selling cattle in futures markets since 1964.
And one weekend of football in prediction markets trumps an average day of cow trades.
That’s … something.
“I had not realized the prediction markets were even in the neighborhood of gold or oil or cattle,” Zitzewitz said.
But again: imperfect.
Apples to cows
Prediction market notional volume is not sportsbook handle, which you don’t need me to tell you. It’s also not the amount traders put at risk. Nor is it revenue. And notional volume is not a precise measure of the dollars changing hands in cattle, gold, oil, or any other futures market.
On prediction markets, a contract that ultimately pays $1 is $1 in notional volume, even if a trader only paid 2 cents for it. Plus, these contracts can be traded multiple times before they settle. Furthermore — and this bears repeating — there is zero chance of ending up with a cow after you complete a prediction market trade.
So: not apples to apples. Maybe not even apples to cows.
But the point remains.
Football — as expected — has created a situation where prediction markets are producing numbers big enough to sit in the same conversation as the daily turnover of long-established CME markets.
That does not mean prediction markets are bigger than cattle futures.
But it does mean trading football contracts has gotten very big, very quickly. And if it keeps trending this way, comparisons that sounded absurd a year or so ago are going to become increasingly difficult to dismiss.
Moo.
