Fanatics, the global sports merchandising and gaming giant, is pivoting heavily into the financial derivatives space. The company announced its acquisition of key financial infrastructure from global brokerage BGC Group to launch its own prediction market exchange. Specifically, Fanatics will acquire Water Street Labs, LLC (a designated contract market registered with the Commodity Futures Trading Commission) and CX Clearinghouse L.P. (a derivatives clearing organization) from BGC. This strategic acquisition enables Fanatics to launch its own regulated prediction market exchange under its subsidiary, Fanatics Markets.
Regulatory Arbitrage: The Value of DCM and DCO Licenses
A Designated Contract Market (DCM) and a Derivatives Clearing Organization (DCO) are critical regulatory hurdles for any company looking to host asset trading. By purchasing these pre-approved assets from BGC Group, Fanatics bypasses years of regulatory red tape with the Commodity Futures Trading Commission (CFTC). Water Street Labs provides the exchange license, while CX Clearinghouse L.P. offers the clearing infrastructure necessary to clear and settle derivatives transactions. This significantly reduces counterparty risk for traders and satisfies federal oversight requirements.
Expansion of Fanatics Markets
Prediction markets allow retail and institutional investors to trade contracts based on the outcome of future events. Fanatics Markets, which debuted in 2025, focuses on sports outcomes, including game winners, player milestones, and tournament champions. By acquiring BGC’s assets, the platform can expand its offerings beyond traditional sports books. Currently, the gaming platform operates in 23 U.S. states, including highly populated regions like California, Texas, and Florida. This acquisition provides the regulatory runway to offer futures-like contracts on sports occurrences to a broader market.
The Legal Battle Over Event Contracts
The prediction market sector has grown rapidly but faces severe pushback. Startups like Kalshi have repeatedly clashed with state and federal regulators over the legality of event contracts, particularly sports-related derivatives. Critics of the asset class argue that these platforms resemble sports betting or illegal gambling operations rather than hedging instruments. By acquiring institutional-grade clearing and contract markets, Fanatics aims to establish a legitimate, CFTC-compliant framework. Matt King, CEO of Fanatics Betting and Gaming, highlighted that combining BGC’s institutional foundation with Fanatics’ consumer database creates a unique opportunity to scale retail and institutional prediction trading.
Frequently Asked Questions
What is a prediction market exchange?
A prediction market exchange is a financial platform where users trade contracts based on the outcomes of future events. The value of the contract reflects the market’s consensus probability of the event occurring, functioning similarly to binary options.
Why did Fanatics buy Water Street Labs and CX Clearinghouse?
Fanatics acquired these entities from BGC Group to secure CFTC-registered licenses. This allows them to operate a legally compliant derivatives exchange and clearing house, bypassing the lengthy process of applying for new regulatory approvals.
Where will this prediction market platform be available?
Fanatics’ gaming and betting services are already accessible in 23 U.S. states, including California, Texas, and Florida. The acquisition of these financial assets will support the expansion of their prediction market services across these jurisdictions.
