In the world of sports prediction markets, Bernard Marantelli offers a straightforward comparison: "Kalshi is a sportsbook that’s just not allowed to have an in-house risk team." He founded White Swan Data, a key player that specializes in market creation on these exchanges. The defining element here is the risk management function. Traditional sportsbooks employ traders to price bets and manage their risk. In contrast, exchanges provide an API that allows various firms to compete in quoting prices and offering liquidity.
Marantelli elaborates, "Here’s an API. Bernard and 88 other people can market-make all these request-for-quotes (RFQs)." This framework allows for various specialties. For instance, some traders may focus exclusively on esports, while others might handle diverse betting options, including same-game parlays. Ultimately, it operates as a sportsbook.
From the customers' perspective, the institutional mechanisms powering the market often remain hidden. Although retail users may appear to trade against each other, the substantial depth necessary for a mass-market product depends heavily on professional firms that are committed to continuously providing quotes and substantial capital.
White Swan currently represents about 40% of trading activity on some secondary exchanges, focusing largely on the RFQ parlay market. Marantelli describes their strategy, stating, "Just better margins. I think it’s more defendable. It’s the area that fewer people can do well. So, I think it’s more defendable margin, more ability to get long-term contracts and beneficial positions."
While singles betting can be profitable, the complexity of parlay pricing demands market makers understand the correlations among various outcomes and adjust dynamically to user requests. This expertise is honed over years in the more competitive aspects of the existing sports betting landscape.
Marantelli identifies his firm and Susquehanna as significant players in the parlay market, alongside Jump Trading, Mojo, and DL Trading. Below them are smaller syndicates managing between $5 million and $10 million, as well as specialists focused on specific sports.
The trend of large UK and European betting groups rushing into US prediction markets is echoed by Enda Kendrick, the CEO of service provider Veltium. He estimates that over 100 smaller operations, from individual traders to teams, are keen to enter the regulated US market.
However, the presence of these professional counterparts can add complexity to the perception that prediction markets merely facilitate user-driven trades. Kendrick states, "Two ordinary customers are not going to place $10 million or $20 million behind the Philadelphia Eagles. Markets at that scale require institutions."
Marantelli cautions that the exchange format could lead customers to incur losses more quickly than they might with conventional sportsbooks. The flexibility of entering and exiting positions can lead users to gamble more of their bankroll than intended. For instance, a customer may opt to buy a team when the price is 55 or 56 cents, anticipating a rise to 58 or 59 cents. Should the price drop to 45 cents, the trader might hold onto their position instead of accepting their loss.
"People will lose money faster on exchanges for lots of reasons," Marantelli explains. "It inherently increases spend, volatility, lots of things. And you’re playing against a sharper audience than you’re playing against at the DraftKings sportsbook."
He compares this effect to sportsbook cash-out features that give customers perceived control over their bets, leading to greater spending. The primary difference, however, is that an exchange customer may be up against specialists who focus on identifying mispriced contracts.
Kendrick warns that the early growth phase of betting exchanges once relied on sufficient retail liquidity for market makers to profit. As that retail pool diminished, sharper firms increasingly found themselves pitted against each other. He likens this situation to a poker table where weaker players sustain the game; in their absence, stronger players are left to compete, shifting the balance of profitability.
The potential in the US market is considerable, with ongoing strong customer acquisition. Marantelli notes that Kalshi quintupled its clientele during the World Cup, and White Swan predicts NFL prediction markets could generate between $5 billion and $7 billion in liabilities in a single week. Yet, he recognizes that accelerated losses for customers could threaten the sustainability of the prediction market model in the long term.
"They lose quicker, dry up quicker, recruitment or re-recruitment," he cautions. "If the recruitment of players dries up, then what are you going to do? Definitely there can be components like that."
At present, growth offers a space for various market makers. Marantelli anticipates that margins will remain favorable during this phase before facing compression as competition heightens. Particularly in the complex RFQ and parlay markets, the resilience of margins may help mitigate this impact.
Ultimately, the evolving prediction market ecosystem resembles a specialized sportsbook trading room rather than a casual platform for public prediction exchange. Exchanges manage the platforms and customer base, while specialized firms handle pricing and risk management, fostering a more intricate environment. As Marantelli aptly puts it, "Let’s call a spade a spade."
