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DraftKings wants a bigger role in sports prediction markets, but CEO Jason Robins says the category needs stronger customer trust before it can become a healthy long-term business.
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DraftKings sees a large prediction market opportunity, but Robins used the company first-quarter earnings call to warn that the early market may already have a problem.
According to Robins, third-party data suggests prediction market customers are losing money faster than they would on a state-regulated online sportsbook. For DraftKings, that creates both a business issue and a customer protection issue, especially as the Boston-based operator prepares to invest heavily in the sector.
The concern centers on who sits on the other side of trades. Prediction markets often get framed as peer-to-peer products, but Robins said that description can hide the real setup for many users.
“I think part of it is that predictions operators, some of them anyway, are sort of irresponsibly saying that this is not the same as a product like ours, where you have people playing against each other on prediction markets, when the reality is that most of the money is being put up, most liquidity is being put up, by professional market-makers, institutions, things like that,” Robins said Friday during DraftKings’ first-quarter earnings call.
“So, I think some people don’t necessarily understand that, and as that becomes more apparent, I think you’ll start to see that moderate,” Robins added.
DraftKings has seen a similar problem before. Robins pointed to daily fantasy sports, where recreational players often faced experts. That experience, he said, taught DraftKings how important it is to protect the player pool and keep casual users from leaving too quickly.
Federally regulated prediction market operators did not go through the same daily fantasy sports learning curve. DraftKings now wants to use that history as it builds its exchange product.
“You’ve got to make sure you protect the ecosystem as best as you can, obviously, within the rules and regulations,” Robins said. “Doing things to make sure that you’re building a healthy ecosystem was critical to us building out a sustainable daily fantasy sports product. And right now, I don’t see that necessarily happening with some of our predictions competitors. But as time goes on, hopefully we’ll set the standard there, and it’ll be something that really becomes an important part of managing the ecosystem.”
The comments came after DraftKings posted better-than-expected results for the quarter ended March 31. They also landed as the company prepares to put another $200 million to $300 million into prediction market expansion.
For DraftKings, the pitch is not only about entering a fast-growing adjacent category. Robins wants the company to build in a way that can “strengthen customer trust” rather than drain new users before the product matures.