Before the FIFA World Cup this year, only three players had ever scored ten goals in a single tournament, with the last occurrence back in 1970. However, French player Kylian Mbappé achieved this milestone, finishing with ten goals and earning his second Golden Boot. Argentian star Lionel Messi contributed eight goals, while Spain ultimately secured the tournament trophy. Despite the expansion of the tournament, it was the well-known names that once again took center stage.
In the world of sports betting, recreational money tends to gravitate towards popular names and favored outcomes. When these outcomes align, the liabilities for sportsbooks can increase significantly. For instance, a streak of favorite-friendly results in the NFL toward the end of 2024 resulted in Flutter, the parent company of FanDuel, experiencing an estimated loss of $438 million in gross gaming revenue.
Parlay bets amplify such concentration, as punters prefer them due to the potential for substantial payouts from small stakes. For bookmakers, aggregating multiple bets into a single price obscures the margin, making it appealing to offer.
Parlays transitioned into the leading product for sportsbooks, effectively meeting recreational demand while providing favorable economics. They accounted for approximately 27% of the total wagers in places like Illinois, New Jersey, and Colorado, but generated 56% of sportsbook revenue, as reported by The Wall Street Journal.
Sportsbook operators face various costs including licenses, taxes, and compliance expenses. This cost structure favors high-margin bets, and parlays fit perfectly into that category.
For years, parlays seemed untouchable until September 29, 2025, when Kalshi introduced a new product called Combos. The following day saw DraftKings' stock plummet by 12% and Flutter’s by 10%, despite Combos having only minimal trading activity. This development introduced competition into an area known for high margins, where independent market makers vie for customer orders and assume the opposite side of bets.
Prediction markets are now available to customers in places like California and Texas, two major states where online sports betting remains illegal. The permanence of this access is uncertain, as is the future of sports-related prediction markets given potential state challenges. However, the demand for these markets is clear.
Bank of America estimates that Kalshi processed around $125 million for each World Cup match. Even on a recent Sunday without a significant fixture, Kalshi still managed a turnover of about $945 million (according to Ticker Tracker). It's important to note that exchange volume counts both sides of every contract at their face value, indicating these figures are not the same as sportsbook revenue or handle.
During the World Cup on Kalshi, the risk associated with same-game parlays saw a notable increase. At the tournament's start, Kalshi had about 100,000 daily combo creators, a number that soared to nearly 400,000 by July 6, reflecting a significant rise over the week.
The NFL remains central to predicting market trends, having catalyzed substantial volume changes last season. Looking ahead, estimates suggest that Kalshi will shoulder around $8 billion in maker risk for the opening week of the 2026 season.
In sportsbooks, operators set prices and manage risks while deciding whether to accept bets. Conversely, in an exchange model, customers create combos and submit requests for quotes. Competing market makers respond with pricing, and the best offer is accepted. Once an order is accepted, the market maker takes the opposite position, pledging collateral until the bet is settled.
Take an example where a customer bets on England to win, Kane to score, and over 2.5 goals. To the customer, it appears as an accumulator; behind the scenes, it becomes a competitive auction.
Prediction contracts have begun appearing in fintech, cryptocurrency, and fantasy applications, making them accessible to a broader retail audience. Yet, each combo still needs accurate pricing, with exchanges providing the distribution while market makers offer the capital and pricing.
The capital available dictates how much risk a maker can accept. For instance, with a parlay priced at 17/1, every $1 of customer stake requires $17 of collateral until the bet concludes. This means that while same-day combos can release capital quickly, outright bets can tie up that collateral for extended periods. Consequently, returns are influenced not only by pricing strategies but also by the efficiency of capital turnover.
Competition plays a crucial role in this market. Offering too appealing a price results in orders going to competitors, while quotes that are too generous may be targeted by savvy bettors. A sportsbook sets its own margin for parlay bets, while a maker on an exchange profits only from the orders that survive competing offers.
Understanding the correlations between outcomes remains a complex challenge. The results within a match can be interconnected; for example, if France wins decisively, it increases the likelihood that Mbappé scored and that the total goals surpassed 2.5. Market makers must gauge how the probabilities of each outcome impact one another across thousands of combinations in real-time. Simply aligning with sportsbook prices isn’t sufficient, as these already carry the bookmaker's margin and business decisions.
Market makers often short the same public favorites, leading to the resolution of many related combinations with a single result. Thus, the focus shifts from evaluating individual legs in isolation to considering the overall distribution.
The opportunities in prediction markets are significant. Financial market makers are typically equipped with capital, execution infrastructures, and latency management but often lack specialized sports pricing models. By contrast, professional betting syndicates have honed their skills in sports pricing, correlation modeling, and risk management over many years. With appropriate funding, they are better positioned than generic trading firms to harness value in prediction market combinations.
Waterhouse VC is collaborating with a leading professional betting syndicate to explore these opportunities. This syndicate leverages its extensive experience in complex risk pricing and employs proprietary sports models alongside exchange-specific trading infrastructures. Insufficient capital risks leaving pricing expertise unutilized, while a lack of pricing knowledge can stifle the scalability of dedicated capital.
In prediction markets, all quotes must be fully collateralized, meaning that greater capital availability enhances quoting capacity and allows for the application of specialized pricing across more markets and in larger volumes.
