To start off, how do your markets come about? Are they self-certified and, if so, what are the requirements for the creation of a given market?
Typically, you'll see two ways that prediction market companies create their markets. The first is they have their users create the market. Now, with user generated content, almost anybody can put forward a market and anybody can add liquidity to that market. The biggest platform today is obviously Polymarket. They're not allowed in the US, but that's how they operate – via this type of user generated model. Then, you have newer entrants like Kalshi, where there's more of a process in which you essentially wrap the markets around admin functionality, and you have a certain user type that is only allowed to create prediction markets.
At Galactic, the process is only admins with certain account qualifications can create prediction markets, not the users. We have built a compliance board with people who have good knowledge on the marketing side to think of what an interesting market in the first case would even be, as well as people who can provide legal and regulatory representation. The marketing side can then come up with these markets we think are really interesting. The lawyers can then say, ‘we think these are green, so you have no problems. These are amber, be careful, and these are red, don't do them at all.’ Then, compliance can kind of take a view to local territories to figure out which regulatory bodies we need to be thinking about or talking to. That's the way Galactic does it. The compliance board will review our proposed markets and then there's a single user who will take exactly what has been approved and put it onto the platform.
This is not just for market creation, but for market resolution as well, because this is where you'll see a lot of the issues crop up in the space. There have been various court cases or contentious arguments around these things. For example, if we create a market that says – did it rain in New York today? We'll check the official National Weather Service (NWS) website to take a look. But what if it drizzled in an area of New York? Does that count as having rained? If you haven't gone into that kind of level of granular detail, you don't necessarily know how to resolve, yes or no. Obviously everybody who voted no will be fighting all the arguments for why not, and everybody who said yes will be fighting on their side.
Both in the drafting of the resolution criteria and in the legal interpretation of the resolution criteria, you need to be very careful
Galactic, on both of those points, market creation and resolution, ensures that the compliance board gives the final sign off.
What can you tell us about your new partnership with Sports Illustrated on SI Predict? How will the market work? What kind of experience will it offer?
Yes, we're very excited about this one. Obviously, Sports Illustrated is an incredibly well-established brand in the US and globally – with about 80 million monthly active users on their website. A lot of people still think of the magazine, but they have a significant digital presence now as well. Sports Illustrated was bought by Authentic Brands Group (ABG) a few years ago and essentially the deal was done between us and Authentic Brands. It actually stemmed from my Co-Founder at Galactic, Stuart Stott, who has a media background – he had previously helped a bunch of companies to digitise, starting with the Daily Mail back in the day in the UK, helping them go from print to digital. He had the relationships at ABG and was able to build the trust and – long story short – we managed to get the deal done. It has been a little while since then as we’ve been taking our time to build the right strategy and get the regulatory compliance. That's how the partnership came about, and we’re excited to see where it goes.
If you look at the biggest market participant now, Polymarket, they've got less than 100,000 monthly active users, which for any web2 application would be really low but for a Web3 non-custodial application is incredible. They're generating at times multiple billions of dollars-worth of volumes per month in people trading their markets. However, Galactic is not growing organically like this. The strategy is, with publications like Sports Illustrated, in a world where generative AI can create content and optimise fake news sometimes better than real journalism, there is always a pull for new revenue streams and monetisation opportunities for media outlets.
We are offering publications a new revenue stream and a way to get at the truth better than other mechanisms. I mean, Polymarket was more accurate than the polls and more accurate than the betting markets when it came to the US election and predicted everything three months in advance. This is the kind of thing that technology can do and rather than growing organically. Our strategy is to be B2B, go to where the audience already is and white label the technology to publications who then have the ability to generate a new revenue stream.
What happens to this venture if the CFTC rules that sports events prediction markets are unlawful in the US? Can you give us your two cents on the legal contention around sports events prediction markets from an operator’s perspective?
It's very clear, at least from our legal counsel's perspective, that event outcomes are likely to be ruled as gambling
That's something that Galactic is not going to go after. The great thing about working with publications like Sports Illustrated is that you know what articles are hot. You know what people are reading, you know where the attention is, you know what's getting the buzz. And it's not really the event outcome that grabs the attention. It's typically everything that happens around it.
Of course, people are super excited when a team wins, but if you look at gross impressions over time, there is so much to be had in the rumour mill. Who's transferring where? Who's going to be in the starting lineup? Is Taylor Swift going to get booed at the Super Bowl? Things like this that pull in a wider audience is where we see the real opportunity. Staying in the rumour mill, staying in the area of gossip – that's where the eyeballs are and that's a category that's brand new. It’s also a category that is highly unlikely to fall into gambling.
To summarise, I think the CFTC will probably say event outcomes are gambling but that's not something that we are pursuing anyway. This is not just a future strategy, but something we’re implementing right now to remain compliant with CFTC. We will never do event outcomes at Galactic. I mean, if the CFTC surprises everyone and says go for it, then yes – but this seems highly unlikely. However, we don't think that's where the primary engagement will come from anyway.
Donald Trump Jr. is now a figure in the prediction market world – how does having the son of the President affect the legitimacy of the market? Does it guarantee an element of political support, or would you say it is separate?
From the perspective of an average person on the street looking at it, having the president's family involved in an industry seems to suggest that Trump doesn't think his son will be going to jail for being involved, so there should be some degree of legitimacy around it. Ultimately, it's so hard to tell at the moment with the US because it's so politically volatile and the macroeconomic climate is very unpredictable. For now, we see the US is becoming much more web-free and blockchain friendly.
The SEC is promising real guidelines rather than just litigating case by case and setting precedents. I got another business, Aventus, where we look at enterprise adoption of blockchain and from what we can see, even just talking to C-Level executives, the perceived level of risk of Web3 and Blockchain has reduced with Trump being so pro blockchain. I think the only thing we can say about that is at least the Trump family lawyers have said that Trump Jr is not going to jail for being involved with Kalshi. Whether it legitimises it more or not, I think many different people will have different opinions there.
There is a feeling within the tribal gaming community that prediction markets could end up unfairly usurping market share – what is your take on this?
Well, I remember when Bitcoin first came out, people were saying it would destroy the market shares that the likes of banks or Mastercard – or whomever else – had in the payments industry. In practice, that’s not been the case. It drives more new innovative business models. I think, as the regulatory landscape becomes more solid, we will start seeing whether prediction markets end up being a genuine new strand of the gambling industry, or at least the betting industry. Right now, we’re nobody knows if this will even happen. If it does, I think we'll see acquisitions and major partnerships, but I don't see a world where the big players get bumped out of the market – unless they fail to innovate.
It would seem operators like Flutter & DraftKings are considering entering the prediction market space. What kind of competition do you think they will present?
I see everybody who's pushing prediction markets as an ally in some sense – both in and outside of the gambling industry
In terms of competition, this is right at the beginning of the prediction market industry. We're all fighting for mainstream recognition of prediction markets first. What I mean is, the goal right now is get people to care about prediction markets and not worry about who is getting what piece of the pie. There's enough growth that we can all expand massively for at least a little while – then we can worry about competing with each other later.
