A $299 Million Sports Week: The Other Side

In the Prediction Frontier letter for this week, sports activities accounted for $299.3 million, constituting over half of Polymarket's on-chain trading from September 14 to 20. Esports contributed another $77.4 million to the trading. To facilitate this level of trading, market-making services are required. Flutter, FanDuel's parent company, anticipates about $50 million in market-making revenue this year by providing liquidity to combination markets across various prediction platforms.

Kalshi's record week highlights the significance of examining the underlying numbers behind such a lucrative business. According to DeFi Rate, $15.27 billion worth of contract volume was displayed, but only $3.53 billion when trades were valued at their execution prices. Prediction Frontier's weekly sports roundup examined Polymarket, focusing on the sizes, prices, and trading hours behind its sports volume.

The National Football League (NFL) participated in sports trading with trades totaling $59.7 million during the week. Its median trade was $12.18, but single tickets worth $5,000 or more accounted for 69% of the volume. The ten largest wallets made up 42% of the NFL's trading volume. Soccer experienced even more substantial trading, with $137.6 million in volume, but its median trade was $2.20, and tickets worth $5,000 or more contributed to 37% of its volume. Tennis and esports each had less than 30% of their volume coming from such large tickets.

The NFL's sports trades showcased a mix of small trades and a few significant ones. The two largest sports trades in the sample were sales of contracts the traders already owned. One wallet sold $4.85 million worth of Kansas City Chiefs contracts, while another sold $3.27 million worth of Real Betis contracts. Both trades were executed at 99.9¢, just short of the $1 each contract would be worth if it won.

These sellers received their money immediately, rather than waiting for settlement. The buyers, however, paid almost the full potential payout for a chance to earn the remaining 0.1¢ per contract, while taking on the risk that the contract would pay nothing.

Execution price plays a crucial role in understanding these trades. Across all soccer trades, 22% of the volume changed hands at 97¢ or above, or at 3¢ or below. These prices favored one outcome strongly. The shares were 27% for esports and 8% for MLB. Although these trades were not necessarily cash-outs, they occurred at prices that strongly favored a specific outcome.

The NFL's trading patterns shifted throughout the week, with 48% of its volume trading at extreme prices on Monday, including activity around the Chiefs sale, and only 5% on Sunday.

Different sports have distinct trading hours. Esports dominated trading for 52% of its volume before 10 a.m. US Eastern time, while MLB experienced 58% of its trading after 6 p.m. The NFL, on the other hand, peaked at 4 p.m. and again at 11 p.m. Sports trading does not adhere to a single schedule, with esports and MLB trading during off-peak hours and the NFL having its peak trade times during games.

A market maker covering multiple sports must be prepared to offer pricing at any given time, depending on the sport, order size, odds, and trading hours. The combination of small NFL tickets and large 99.9¢ exits demonstrates the complexity and opportunities in sports trading.