Q&A: The Path To Institutional Capital For Prediction Markets
The following is a Q&A with the co-founder of SportsCapital, Aaron Riccio.
Dustin: What do you see as the big picture for prediction markets and their place in the world?
Aaron: You can go ahead and trade on the election. You can trade on culture. You’ll really be able to trade on anything in prediction markets, including sports. I’ll focus there because that’s what I know best.
In the last few months, we have just seen this incredible amount of momentum. And, obviously, as someone who runs a sports data company, that's really exciting.
In any marketplace business, there’s a common cold start problem. You need to hack one side first before you can have a functional marketplace. So, with financial exchanges, you have to drive retail investment activity, more consumer demand.
That’s one of the things that's so exciting about sports, is that there's inevitable consumer interest. People love sports content, especially live. That's why ESPN pays the leagues exorbitant broadcasting rights fees and why Sportradar pays for official data rights.
Kalshi’s entire strategy to date has been B2C focused, though. Meaning, they’ve driven retail investment activity from everyday consumers betting (or trading) on their platform. But the focus going forward, from my understanding, is partnering B2B with brokerages.
That, at the end of the day, it's not too different from Uber hiring their own drivers to fill up one side of the marketplace. It's them hacking distribution. So people like us who are consumers who want to buy into Apple, we go to our brokerage accounts and transact through them. Soon, we’ll be able to do the same thing with politics or sporting events.
Whether that be sports, elections, culture, whatever. Right now we’re seeing retail investment activity in prediction markets quickly gaining traction primarily through direct-to-consumer apps, but there’s still a lack of regulatory clarity, which prevents most brokerages from getting involved.
When we do get clarity, though, what will follow? The other side of the marketplace is institutional capital. Financial firms here right in New York who are market makers, who are hedge funds, who are investing billions at scale. And so now you have a functional marketplace that can be one of the largest exchanges in the world.
Dustin: So for a sports fan, I don't think Kalshi is the greatest product. It's a fine trading product, but, if you're a casual person coming in to look at sports, I think it's a little rough as an experience. Do you think that even matters?
Aaron: So many sportsbooks have tried over the last, I don't know, four or five years, to simplify the user interface. One could argue that Kalshi and Polymarket cracked that code with their pricing and charting. But, the lack of investment into the app as of late itself likely speaks to the fact that their focus might be elsewhere and the app is an interim solution before going the B2B route. Then the user experience doesn't matter because users will be somewhere else, maybe on Robinhood or DraftKings. You don't buy stocks directly through Nasdaq or NYSE apps.
Dustin: So where do you see opportunity right now in prediction markets?
Aaron: I'm trying to scream from the rooftop that sports data companies are going to be some of the largest beneficiaries of prediction markets. Because all of a sudden, you now have hedge funds and financial institutions trading. You have service providers that create market research and analysis. You have media networks that produce live content and coverage. You have more brokerages and exchanges.
They all rely on financial data from companies like Bloomberg, Pitchbook, and Preqin.
We look at this and see thousands of investment firms relying on financial data providers. If they start participating in sports event markets, what are they going to rely on? Sports data.
And that won’t only be good for us. It’ll be good for all sports data companies.
Dustin: Tell me a little bit about what you see as the opportunity for you.
Aaron: We operate in this risk management function right now where we help sportsbooks and odds providers with suspending, repricing, and reopening markets. It's been working out pretty well. But, I'm really excited about the other side of it too. One side is about margin expansion and limiting liabilities. The other side of it is about actually generating returns.
That's why the institutional route is so interesting for us. Sports prediction markets are still so early and there’s not enough liquidity, which prevents most firms from participating. But there’s plenty of volatility and market inefficiency. So, if you're a hedge fund and trying to generate returns, sports provides a great opportunity, especially in the early stages.
Dustin: Why do you think Kalshi/prediction markets are such an intriguing product?
Aaron: The ability to trade in real time is really engaging. Take the Super Bowl. The game started and people are trading very actively, like, way more than they were pre-game. They’re ingesting content, watching the event, and trading swings in the market as plays happen. Sports is special because it has such a high turnover of events every day, which creates a lot of opportunities for live trading, similar to the draw of micro markets or in-play betting.
About SportsCapital
SportsCapital provides real-time event detection for sportsbooks, odds providers, and institutions. Our technology transforms breaking news and reporting into a structured data feed for real-time trading and risk management. We are bringing open-source intelligence (OSINT) to the sports betting industry.