Before the start of this year’s FIFA World Cup, only three players had ever scored ten goals in a single tournament, and none had done so since 1970. French forward Kylian Mbappé made history by becoming the fourth player to achieve this feat, finishing the tournament with ten goals and earning his second Golden Boot. Argentine star Lionel Messi scored eight goals, while Spain ultimately claimed the championship trophy. Despite the expansion of the tournament, well-known names continued to dominate the scoring charts.
In sports betting, recreational wagers are often concentrated on these familiar names and favored outcomes. When these bets are successful, the accumulative liability can be significant. This trend was evident in late 2024, when a series of favorite-friendly outcomes in NFL games led to an estimated loss of $438 million in gross gaming revenue for Flutter, the parent company of FanDuel.
Parlays, or multi-leg bets, amplify this concentration. As previously mentioned, bettors are attracted to parlays because a small stake can yield substantial payouts. Bookmakers also favor them since bundling several bets together can obscure the margin.
Parlays have become the top product for sportsbooks, as they align recreational interest with appealing economic returns. In states like Illinois, New Jersey, and Colorado, parlays accounted for approximately 27% of all money wagered but generated about 56% of sportsbook revenue, according to reports.
Sportsbook operators have to manage various costs, such as licenses, taxes, compliance, and market-access fees. This cost structure tends to favor high-margin, price-insensitive bets, and parlays fit this profile perfectly.
For years, the parlay product seemed untouchable, but that changed on September 29, 2025, when Kalshi introduced a new offering called Combos. The following day, shares of DraftKings dropped by 12%, while Flutter fell by 10%, despite the new product having limited initial trading. This innovation introduced a dynamic in which independent market makers compete for each order, effectively taking the opposite positions from customers.
Prediction markets have recently gained traction in states like California and Texas, which are significant markets where online sports betting remains illegal. The future of this access faces challenges at the state level, and it's uncertain whether sports-related prediction markets can survive such regulatory hurdles, though the demand for them is evident.
Bank of America estimates that Kalshi handled around $125 million in trading volume for each World Cup match. On a quieter Sunday without a major event, it still processed about $945 million in volume, demonstrating the strength of its platform. This volume encompasses both sides of every contract, providing notional figures rather than representing actual sportsbook revenue.
During the World Cup, the number of daily combo creators on Kalshi surged from about 100,000 at the tournament's start to nearly 400,000 by July 6, showcasing the product's growth potential. In the upcoming NFL season, Kalshi is projected to handle approximately $8 billion in risk across its markets.
The mechanics of pricing on prediction markets differ from traditional sportsbooks. In sportsbooks, the operator sets the prices and manages the risk. In contrast, on exchanges like Kalshi, customers build their own combos and request quotes from competing market makers. The market maker then takes the other side of the bet, posting collateral equivalent to their maximum potential loss until the bet is settled.
For instance, a customer could request a bet on England to win, Harry Kane to score, and over 2.5 total goals in a match. While this feels similar to a traditional accumulator, the behind-the-scenes process resembles an auction for risk.
Prediction contracts are increasingly appearing in fintech, cryptocurrency, and fantasy sports applications. This distribution is expanding the reach of prediction markets, but each combo still requires accurate pricing from market makers.
Market makers face limits on the business they can accept based on their capital. With a parlay priced at 17/1, a $1 customer stake locks up $17 in collateral until the bet resolves, which can tie up capital for varying durations. The efficiency of capital turnover, therefore, is critical for profitability.
Competition among market makers is fierce; setting a price too low may lead to loss of business, while pricing too high risks being undercut by sharper bets. A sportsbook can dictate its own parlay margin, but a market maker’s earnings depend on what survives in a competitive environment.
The correlation between outcomes complicates pricing. For example, if France wins decisively, it increases the likelihood that Mbappé scored and that over 2.5 goals were scored. This interdependence necessitates real-time modeling to assess how different outcomes affect each other across thousands of possible combinations.
Market makers often bet against the same favorite teams, thus a single outcome can influence numerous related combos instantaneously. Their challenge lies in pricing across the entire distribution rather than considering each bet in isolation.
Financial market makers typically provide capital and execution capabilities but may lack the specialized sports analytics required. Professional betting syndicates have honed their skills in pricing sports and understanding risk correlation over many years. With appropriate capital, these professionals are well-positioned to tap into the value offered by prediction market combos.
To capitalize on this opportunity, Waterhouse VC is collaborating with a top professional betting syndicate that has the expertise to navigate complex wagering risks and proprietary sports models. This partnership aims to merge capital resources with specialized pricing knowledge, ensuring a balanced approach that optimally utilizes the market’s potential. With every quote needing full collateralization, a larger capital base allows for more quoting capacity and heightened efficiency across more markets.
