Many people in the gambling industry had likely never heard of prediction markets, Designated Contract Markets (DCMs) or Futures Commission Merchants (FCMs) until recently. But, with DCMs like Kalshi expanding sports offerings and FanDuel emerging as the first of what might become a wave of sportsbooks looking to enter the game, times are changing.
FanDuel’s partnership with “the world’s leading derivatives marketplace” CME Group will allow the U.S. market-leading sportsbook to use CME Group’s existing DCM infrastructure as a shortcut to offering trading on event contracts. CME Group is comprised of four DCMs licensed by the Commodity and Futures Trading Commission (CFTC), including the eponymous Chicago Mercantile Exchange (CME).
While Kalshi is a DCM, serving as a direct-to-consumer exchange, the new FanDuel JV will operate as an FCM and offer FanDuel users access to event-based contracts through a separate FanDuel/CME platform, rather than its existing sportsbook app. CME Group is licensed as both a DCM operator and a Derivatives Clearing Organization (DCO) and it runs its own clearinghouse through which trading is handled and settled, and money is moved.
Not a direct competitor to Kalshi; perhaps still a future partner?
Dan Davis, a partner at Katten Muchin Rosenman LLP and the co-chair of the firm’s Financial Markets and Regulation Practice Group, told SBC Americas that FCMs are in essence the intermediary broker-dealers of the events contract setup. Typically, FCMs can offer event contracts, but don’t set the markets. High-profile examples of existing FCMs include Robinhood, which now offers a range of sports markets powered by Kalshi.
So, FanDuel’s new venture will not be a direct competitor to Kalshi.
“A simple way to explain it is that a DCM is the exchange where the trading takes place, while the FCM is the intermediary between the exchange and the customer,” added Davis. “FanDuel would be an FCM, meaning it can introduce the trades and get the trading going on the DCM that runs the exchange where the actual trades take place.”
Davis, who is a former General Counsel at the CFTC, noted that while DCMs like Kalshi can and sometimes do offer a DTC model, they can also partner with multiple FCMs in a “hub-and-spoke system.” He added that working with an FCM can provide a lot of benefits for a DCM, such as KYC and other protections.
So, in theory, the FanDuel/CME Group joint venture could partner with other DCMs like Kalshi, Crypto.com or Polymarket down the line. Flutter’s General Counsel Erica Okerberg told the Nevada Gaming Control Board last week that Kalshi was one of “lots of different people” that Flutter spoke to in assessing the prediction markets opportunity, and she did not rule out a future partnership.
FanDuel getting in the express lane
FanDuel and CME Group are targeting the final quarter of 2025 to launch their joint-venture FCM. For comparison, Davis told SBC Americas that a typical start-to-finish registration of a new DCM with the CFTC typically takes between 18 months and two years. Suffice it to say that FanDuel is getting into the building several floors above street level.
The new platform will still need CFTC approval first, and both DCMs and FCMs have to meet stringent (but different) sets of core principles. Davis noted that as a regulated sportsbook, FanDuel is already subject to a range of rules and regulations.
“There is some tailoring they will have to do, but the guts are probably already in there,” he suggested.
FanDuel has stated that it will focus on financial and economic markets at first, likely a move intended to test the water without causing too many disruptive ripples with regulators.
But Okerberg confirmed to the NGCB that the company intends to at least explore offering sports contracts.
Other sportsbooks keeping options open with NFA filings
FanDuel may be the first-moving sportsbook into the prediction markets game, but others are taking steps, as SBC Americas discovered that DraftKings, Fanatics, Underdog and PrizePicks have filed to register new entities with the National Futures Association (NFA). That is a very early step for a number of different means of participating in these types of financial markets.
While FanDuel will use CME Group as a comparatively easy route to offering event contracts on a shorter timeline and without the heaviest lift of setting up an exchange from scratch, the other gaming operators are likely applying with the NFA to keep their long-term options open, given that there is a lengthy process from application to licensure.
