Article Published on: December 31, 2024, 03:24h.
Last Updated on: December 31, 2024, 03:24h.
Robinhood (NASDAQ: HOOD) has been advised by a research firm to consider focusing on event-style contracts instead of standard offerings if it decides to enter the sports wagering industry.
Eilers & Krejcik Gaming (EKG) highlighted the challenges faced by new entrants in the traditional sports wagering market, citing Penn Entertainment’s (NASDAQ: PENN) struggles with ESPN Bet as an example. The research firm pointed out that while ESPN Bet may increase its market share in 2025, it currently only holds 1.5% of the US sports wagering market’s gross gaming revenue (GGR) as of November’s end. This demonstrates the tough competition faced by newcomers against industry giants like DraftKings and FanDuel.
According to EKG, Robinhood should consider alternative strategies in the competitive sports betting market rather than following the traditional path, which can be both challenging and costly.
The research firm also noted that a large customer base does not guarantee success in sports betting, referencing Robinhood’s 24.2 million funded clients, with almost half being active on a monthly basis.
Robinhood’s Sports Betting Strategy
Robinhood CEO Vlad Tenev recently mentioned during the company’s investor day that they are exploring options to enter the sports wagering sector, although specific plans have not been outlined.
Previously, Robinhood introduced election betting for US customers approved for margin investing and Level 2 or 3 options trading. These “bets” were structured as event contracts, rather than traditional wagers, and received positive feedback from eligible clients.
If Robinhood decides to pursue sports wagering more seriously, market analysts predict they will focus on event contracts rather than traditional sports bets like sides and totals, aligning with US regulatory classifications of event contracts as derivatives.
Event contracts allow traders to speculate on specific outcomes and pay out based on the event’s result, diverging from standard sports betting formats.
Event Contracts – A Promising Direction for Robinhood
Regulatory advantages related to event contracts and the potential to reach a broader client base make event contracts an appealing option for Robinhood and other brokerage firms.
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EKG suggested that longer-term sports contracts, such as season win totals or player props, could serve as a strategic starting point for platforms like Kalshi and potentially Robinhood, given their alignment with CFTC rules on futures contracts.
Kalshi recently obtained permission to offer event contracts on US elections nationwide, unlike competitors limited to individual states. Crypto.com also announced plans to introduce sports event contracts, allowing bettors to use digital currencies for transactions, albeit with payouts in dollars.