Robinhood mentioned its prediction market exchange a total of 18 times during its earnings presentation on July 29 and referenced it another 10 times in an analyst call that followed. Robinhood is a co-owner of the platform, named Rothera, along with Susquehanna International Group and Miami International Holdings, following a purchase agreement finalized earlier this year.
Rothera garnered positive reviews from Robinhood after effectively ramping up its trading volume during the World Cup, experiencing minimal public issues shortly after its relaunch post-acquisition. At one point, Rothera surpassed Crypto.com’s exchange arm, previously recognized as Nadex/CDNA, ranking third in betting volume across all U.S. prediction market exchanges during the knockout phases of the World Cup.
Fewer than two months later, Robinhood has ventured into another appealing prediction market opportunity: the very exchange Rothera briefly outperformed in July.
By acquiring an equity interest in both Crypto.com and its new prediction market subsidiary, OG, Robinhood has established a connection to the underlying exchange, which has transitioned into an OG subsidiary as part of its corporate restructuring.
Under the leadership of CEO Vlad Tenev, Robinhood has positioned its investment in OG as an expansion of its product offerings rather than an attempt to undermine the exchange praised in its July discussions with investors. The company intends to continue directing a significant volume of bets through Rothera while also utilizing OG’s exchange as an alternative option.
“I see this as strictly additive,” expressed JB Mackenzie, Robinhood’s vice president and general manager of futures and prediction markets, in a video interview.
This agreement sheds light on the evolving landscape of the industry as the number of federally sanctioned prediction market exchanges continues to increase.
Understanding Robinhood’s Decision
Robinhood has not revealed the extent of its ownership in Crypto.com or OG, nor the percentage of prediction market bets it will handle for OG’s exchange.
OG was recently valued at $5 billion following an investment from Citadel Securities—this figure encompasses a prediction market app along with the underlying exchange. Meanwhile, Crypto.com, which retains a connection with the exchange post-spinoff, was valued at $15 billion.
Robinhood could have perceived OG as a rival in the prediction market sector and aimed to overshadow it. Rothera’s performance during the World Cup offered a compelling glimpse of its potential against OG in the future.
On the other hand, Robinhood may have simply routed some bets through OG’s exchange without taking an equity stake. The company has been doing this for over a year with Kalshi and ForecastEx. Before securing a 45% stake in Rothera, Robinhood exclusively handled bets for exchanges it didn’t own.
There are potential benefits associated with Robinhood’s decision to invest in OG.
Mackenzie noted that this partnership allows Robinhood to provide reduced fees to customers for wagers placed through OG’s exchange, compared to those routed to independent exchanges. This arrangement makes OG’s exchange similar to Rothera, at least in terms of customer experience.
While Robinhood doesn’t control OG’s exchange, its equity partnership encourages better communication between the companies, aiding logistical coordination, such as how bets are settled. Recently, Robinhood faced a setback when processing college football bets via Kalshi, as that third-party exchange inaccurately declared the Western Michigan at Michigan game a win for the visiting team before the referees adjusted the clock, allowing the Wolverines to secure a game-ending Hail Mary pass.
Although similar mistakes might still happen with an affiliated exchange, Robinhood gains additional reassurance working with Rothera and now OG’s exchange, thanks to ongoing communication between the companies.
“This gives you a bit more influence over their operations,” Mackenzie stated. “They’re more likely to consider your input when there’s a strategic partnership involved.”
OG’s exchange also features betting options that Rothera has opted not to partake in, including prop bets on player performances. Thus, if Robinhood facilitates bets on Buffalo Bills quarterback Josh Allen achieving at least 300 passing yards through OG’s exchange, it wouldn’t detract from Rothera since that type of wager isn’t offered there.
Prediction market exchanges that were initially designed for a specific purpose are also starting to diversify by adding more products, such as perpetual futures. As both OG’s exchange and Rothera refine their offerings, they could carve out complementary niches.
Crypto.com CEO Kris Marszalek addressed this type of collaborative relationship, stating that while both firms aspire to build comprehensive financial platforms, strengths vary. “They excel in certain areas,” he remarked to Sportico. “Our strengths lie elsewhere. Ultimately, this is highly complementary.”
A myriad of companies aims to become all-encompassing financial centers, including Coinbase, Webull, and Gemini. By joining forces, Robinhood, Crypto.com, and OG can better compete against other players in the market.
“And the teams enjoy working together,” Marszalek added, “which is a useful advantage.”
Concerns for Rothera and Its Partners?
While some exchanges benefit from trading flow from various brokers, Rothera is heavily dependent on Robinhood’s large user base to sustain its volume.
However, Robinhood’s assurances regarding the implications of the OG deal for Rothera are being taken at face value. An official from Rothera stated to Sportico that they don’t perceive any threat from Robinhood’s announcement regarding OG, reiterating Mackenzie’s stance that the move is meant to be supplementary and not to diminish Rothera’s volume.
Susquehanna, which possesses a 45% interest in Rothera and acts as a market maker for the platform, also indicated it is unfazed by Robinhood’s investment in another prediction market exchange.
“Robinhood collaborating with Crypto.com was anticipated and is not a concern, as it’s standard practice for financial clearinghouses to partner with multiple exchanges and has long been Robinhood’s approach,” stated David Pollard, head of strategic planning at Susquehanna, in a release. “We are thrilled to have collaborated with Robinhood to launch Rothera, which has seen success in its early operational months, as evidenced by its volume and market presence during the World Cup. We are confident in its long-term capacity to attract additional partners and lead as a premier prediction market exchange as it expands its offerings in the upcoming months.”
Susquehanna is actively involved with independent exchanges, including Kalshi, and was among the first institutional liquidity providers to support prediction markets.
Miami International Holdings retained a 10% share in Rothera after divesting its remaining stake to Robinhood and Susquehanna, but did not respond to an inquiry for comment.
Valuation Insights for OG
Valuations for prediction market firms are challenging to compare since some specialize solely in prediction markets, while others include exchange betting as a minor aspect of their offerings.
Currently, OG is close to operating primarily as a prediction market platform, but like others in the space, it plans to expand into other federally regulated products, such as perpetual futures.
OG’s valuation of $5 billion ranks it third among similar firms, trailing behind Kalshi (valued at $22 billion and supposedly seeking funding at a $40 billion valuation) and Polymarket ($20 billion pre-money), while outpacing Novig ($500 million).
Given that OG’s app is still in early stages, the valuation of the underlying exchange likely contributes significantly to its current worth. Despite considerable executive turnover at OG’s exchange, Marszalek characterized it as best-in-class, citing a series of B2B agreements as evidence of its standing.
In addition to Robinhood, OG’s exchange manages sports betting for FanDuel Predicts, expanding its connection as FanDuel’s engagement with CME Group appeared to weaken. It has collaborated with multiple traditional sportsbooks and daily fantasy companies entering prediction markets as they transition to their own platforms.
Marszalek noted that Underdog has quietly increased the number of bets routed through OG’s exchange, even though Underdog has been enhancing Aristotle Exchange, which it acquired this year.
Crypto.com compensates Underdog for the flow of orders. An Underdog representative expressed that Crypto.com is “a reliable partner and they offered us a very compelling deal.”
New Prospects Ahead?
While Marszalek refrained from specifically explaining why Underdog has shifted more of its betting executions back to OG’s exchange, he used the inquiry to predict a forthcoming industry trend.
Marszalek suggested that the tendency for companies to either purchase or establish their own prediction market exchanges—much like Underdog did—will subside as businesses realize that the benefits of complete infrastructural oversight are overshadowed by the technical hurdles involved.
Instead, he indicated that many organizations will revert to merely acting as brokers for the leading exchanges since “operating an exchange involves substantial work, and it’s necessary to aggregate a significant volume for it to be economically viable.”
“There’s a rush among all the players to claim, ‘Alright, I’m going to establish my own [full infrastructure],’” Marszalek remarked. “Ultimately, it just doesn’t prove to be economically feasible… So I anticipate that within the next 24 to 36 months, only a handful of venues will continue focusing on managing their own exchanges.”
Rothera, of course, will hope Marszalek’s prediction does not apply to it. It’s also worth noting that Marszalek’s perspective aligns with his own interests—if consolidation occurs among exchanges, OG’s exchange could see substantial benefits in terms of increased volume and potentially additional external investments.
Nevertheless, there’s no denying that the emerging landscape of prediction markets is likely to undergo rapid changes. With federal oversight of sports exchange betting only beginning in December 2024.
“I don’t think all the cards have been laid on the table just yet,” stated Marszalek.