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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I have another piece

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Speaker 1: of information that can't be used on the podcast.

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Speaker 2: We'll say it in front of the microphone.

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Speaker 1: There's a dead possible in my backyard, and I'm trying

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Speaker 1: to pretend that I haven't noticed that that I.

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Speaker 2: Have to Matt. That gets worse by the hour.

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Speaker 1: I know.

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Speaker 2: The thing is, wait, we can't put this in the

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Speaker 2: pod well.

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Speaker 1: Because then my wife would hear it?

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Speaker 2: Now, did she listen? Sometimes that's cute.

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Speaker 1: So one day I noticed the dead scroll in my yard,

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Speaker 1: and I and then like, I forgot about and I

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Speaker 1: came back the next day and I was gone, there's

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Speaker 1: like a fairy number of birds of prey in my yeah.

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Speaker 1: And I was like, ah, good job birds of prey.

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Speaker 2: So he's just hoping one of them gets the job done.

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Speaker 1: But this problem is now past this expission day.

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Speaker 2: Birds of prey, you most only mean vultures, because I

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Speaker 2: don't think like a hawk would eat.

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Speaker 1: Okay, there's loads of vultures in my neighborhood, right, but no,

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Speaker 1: we see bald eagles a fair amount, and the bald

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Speaker 1: eagle famously a scavenger.

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Speaker 2: You know, I feel like I did know that actually,

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Speaker 2: but I have.

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Speaker 1: It's like Ben Franklin's whole thing, like he wanted the

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Speaker 1: national bird of America to be the turkey because the

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Speaker 1: turkey is a noble bird in the bald eagle as

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Speaker 1: a scavenger.

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Speaker 2: It kind of reminds me of when my cat vomits

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Speaker 2: in my apartment and I pretend not to notice it

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Speaker 2: until my husband does and then he cleans it up.

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Speaker 1: Hello, and welcome to the Money Stuff Podcast. You're a

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Speaker 1: weekly podcast where we talk about stuff relate it to money.

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Speaker 1: I'm Matt Levine and I write the Money Stuff column

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Speaker 1: for Bloomberg Opinion.

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Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and

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Speaker 2: an anchor for Bloomberg Television.

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Speaker 1: Speaking of dead thing, ah, the.

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Speaker 2: Death of a multi strat.

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Speaker 1: Yeah, so yeah, there's a big story this week about

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Speaker 1: Edward Eisler's multi strategy hedge fund, which is called something like.

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Speaker 2: Strategy edge fund some only along those lines.

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Speaker 1: Is winding down because it's hard out there for a

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Speaker 1: multi strategy hedge fund that is not one of the

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Speaker 1: big four multi strategy edge funds.

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Speaker 2: Yeah, this is a great scoop from Bloomberg. I did

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Speaker 2: enjoy also the post mortem written by Sarah Butcher over

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Speaker 2: at E Financial Careers, which spoke to a bunch of

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Speaker 2: people who had worked there or were familiar with it,

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Speaker 2: And I don't know, you add the two articles together,

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Speaker 2: it seems like a lot of this just comes down

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Speaker 2: to costs. Also, returns weren't great.

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Speaker 1: Yeah, the hedgehod market has gotten so much more efficient

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Speaker 1: in like my time, it used to be that if

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Speaker 1: you wanted to start a hedgehund, you start a hedge fund,

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Speaker 1: and you got capital based on your track record, but

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Speaker 1: also your ability to appeal to LP's and what was

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Speaker 1: in style and what institutional investors are looking for. And

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Speaker 1: now increasingly the hedge fund business is dominated by these

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Speaker 1: big multi strategy funds like Millennium and set It All

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Speaker 1: and zero point seventy two. And if you are a

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Speaker 1: person who wants to run money, you probably end up

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Speaker 1: guiding to work for those guys rather than going off

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Speaker 1: on your own. And to run money for those guys,

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Speaker 1: you don't have to be good or telps, you don't

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Speaker 1: have to be necessarily in style. You're just doing a

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Speaker 1: job at a big firm. And so as the market

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Speaker 1: gets more efficient, like the people who are good at

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Speaker 1: those firms get handed huge piles of capital the trade,

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Speaker 1: and it's just harder and harder to work outside of

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Speaker 1: those institutions. In particular, it seems really hard to run

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Speaker 1: a multi strategy fund.

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Speaker 2: Yeah, I feel like just the story of Eisler in

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Speaker 2: general is a sign of the times in two different ways,

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Speaker 2: because it didn't start as a multi strategy. It started

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Speaker 2: as just a single manager fund. Then it pivoted to

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Speaker 2: become a multi strat in like twenty twenty one, and

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Speaker 2: now it's winding down because it's not Millennium or Citadel

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Speaker 2: to simplify it.

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Speaker 1: Right, when are my reader is about to be like,

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Speaker 1: his mistake was pivoting to being a multi strategy fund.

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Speaker 1: Like when you're a single manager fund, you have his

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Speaker 1: own skill, which is what allowed him to launch a

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Speaker 1: hedge fund, and you have much more ability to evaluate

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Speaker 1: the people you're hiring because you're kind of hiring them

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Speaker 1: to assist you in making calls that you have a

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Speaker 1: good understanding of, rather than hiring them to stand up

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Speaker 1: an entirely new business under your umbrella. My headline about

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Speaker 1: this was something like hedge funds have to be big,

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Speaker 1: and that's not really true right, there's still a market

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Speaker 1: niche for like people running single manager specialized hedge funds.

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Speaker 1: But it's probably true that multi strategy hedge funds have

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Speaker 1: to be big, right, So if you're going to pivot

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Speaker 1: from being a single manager fund to being a platform

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Speaker 1: for a lot of portfolio managers, you have to be

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Speaker 1: a big platform because otherwise they'll go to somewhere that

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Speaker 1: can give them more capital and more money. I don't

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Speaker 1: know why he pivoted, right, And clearly like there is

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Speaker 1: some pressure to pivot. Even if you run a single

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Speaker 1: manager or fund that has like a good track record

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Speaker 1: and is really good at its specialty, you're still going

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Speaker 1: to feel kind of like squeezed by the big multi

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Speaker 1: strategy funds that have more resources and are like an

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Speaker 1: easier check for big allocators to write. It's harder to

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Speaker 1: compete with them, and so you might think, well, the

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Speaker 1: best way to compete with them is to be a

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Speaker 1: multi manager fund myself. But that's a big bet. You

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Speaker 1: have to become a giant multi strategy fund, yeah, to

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Speaker 1: really compete.

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Speaker 2: Instead of getting even better at your thing, Yeah, you

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Speaker 2: spread out across all the things.

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Speaker 1: Almost like by the way, all the people who run

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Speaker 1: the big multi strategy funds like did kind of start

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Speaker 1: as you know, hedgehund managers and then they became managers

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Speaker 1: of hedgehome managers. Right, So there's a path, right, It's

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Speaker 1: just it's likely how many people can follow it anymore.

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Speaker 2: Yeah, I don't know if I would pivot my hedge

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Speaker 2: funds that I run to become a multi manager fund

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Speaker 2: in this day and age. I do want to talk

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Speaker 2: about fees because that's a recurring theme here, is that

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Speaker 2: the pass through expenses at Isler were really high and

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Speaker 2: they were trying to bring them down and are passed

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Speaker 2: through fees unique to the multi strategy dynamic.

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Speaker 1: Yeah, the modern multi strategy funds are somewhere between a

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Speaker 1: hedge fund and a fund of funds. They're kind of

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Speaker 1: like their business is to hire portfolio managers, allocate capital

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Speaker 1: to them, and sort of pay them like hedge fund managers,

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Speaker 1: and then collect fees from the ultimate investors. And so yeah,

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Speaker 1: the past three fees are traditionally a hallmark of modern

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Speaker 1: pod shops because they go to pass through fee is

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Speaker 1: I mean, it's like paying for rent and Bloomberg terminals

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Speaker 1: and stuff, But really what it is is paying performance

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Speaker 1: fees to the individual portfolio managers regardless of the performance

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Speaker 1: of the overall fund. Right, So like when you're hiring

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Speaker 1: portfolio managers, you can pay them incentive compensation on their

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Speaker 1: own performance. And I think in the current market you

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Speaker 1: pay them like accelerated performance compensation on their own performance.

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Speaker 1: So you pay them like a bigger chunk if the

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Speaker 1: going rate is they get twenty percent of their profits,

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Speaker 1: like you might pay them thirty percent for their first year,

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Speaker 1: so that they like have an incentive to join you,

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Speaker 1: because it's like a really hot market for hedge fund talent.

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Speaker 1: And if you're doing that and you run a big fund,

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Speaker 1: you have some economies of scale and you have some offsetting,

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Speaker 1: Like you have the ability to like aggregate a lot

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Speaker 1: of good portfolio managers into something with like high and

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Speaker 1: uncorrelated returns. But you have a big expense base, and

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Speaker 1: if you are a smaller fund, it is harder to

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Speaker 1: spread that expense base over a lot of winning bets.

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Speaker 2: Well, you think about some of the figures that Nishan

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Speaker 2: Kumar wrote about. So the firm charge clients two hundred

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Speaker 2: and forty four million dollars in pass through fees in

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Speaker 2: twenty twenty three, it was about two hundred million in

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Speaker 2: twenty twenty two. They had a restructuring earlier this year,

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Speaker 2: and we're trying to bring their pass through fees down

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Speaker 2: to twenty twenty two levels. But then you pair that

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Speaker 2: with the Sara Butcher article and there are some snarky

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Speaker 2: quotes from people who used to work there about how

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Speaker 2: a lot of their real risk takers had left, like

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Speaker 2: their hotshot, and they just had this is a direct quote.

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Speaker 2: They had far too many junior people who didn't know

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Speaker 2: how to take risks. So it seems like their costs

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Speaker 2: were really high for at least what's being described in

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Speaker 2: this article is subper talent.

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Speaker 1: Well, this is just the efficiency of the market. Like

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Speaker 1: this is what Kapi Palaoligo said to us on the

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Speaker 1: podcast that the funds that he works at are sieves

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Speaker 1: for talent, right like you have. The big funds are

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Speaker 1: pretty good at identifying talent, pretty good at firing people

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Speaker 1: they don't think are talented, and so they end up

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Speaker 1: with a lot of the good portfolio managers. And if

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Speaker 1: you're a good portfolio manager at a multi strategy fund,

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Speaker 1: your name's not on the door. You're kind of doing it.

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Speaker 1: For the money, right, Like, if someone is like, we'll

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Speaker 1: allocate you more money and give you more of your

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Speaker 1: performance as a fee, then you know you end up

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Speaker 1: at the bigger places they can allocate you more money.

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Speaker 1: And if the bigger places are really good at identifying talent,

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Speaker 1: that's how the talent stive works, and that makes it

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Speaker 1: really hard for someone who runs a smaller place to

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Speaker 1: keep the best talent.

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Speaker 2: There was something in the article about how a lot

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Speaker 2: of the meeting rooms after this letter went out were

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Speaker 2: filled with people calling headhunters, et cetera. Apparently some insiders

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Speaker 2: know that Issler's more mediocre portfolio managers will now simply

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Speaker 2: fan out across the industry and dilute returns elsewhere. It's just.

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Speaker 1: I don't know why that would be true. I mean, well,

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Speaker 1: I don't know. I wish the best to all mediocre

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Speaker 1: portfolio managers. But it's the talent sive, right. No one's like, oh,

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Speaker 1: let's scoop up the mediocre portfolio was right, They're trying

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Speaker 1: to find the people who have good returns.

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Speaker 2: A lot of these Eisler employees were calling headhunters at

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Speaker 2: the start of the week. They could have been calling

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Speaker 2: actually their new agent.

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Speaker 1: Okay, so there's this most of your journal story about

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Speaker 1: this guy, Ryan wallshoe Is, I think, has styled themselves

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Speaker 1: as the first talent agent for hedgphund managers or portfolio managers.

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Speaker 2: I've certainly never heard of one before.

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Speaker 1: Haven't you, though, Because you've heard of recruiters.

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Speaker 2: I've heard of recruiters. I've heard.

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Speaker 1: Are they different?

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Speaker 2: They're a little bit different in terms of who's paying.

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Speaker 1: Yeah, okay, I said it, Yeah, all right.

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Speaker 2: Do you think they're not different?

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Speaker 1: Do you think they're different?

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Speaker 2: I think they're a little bit different.

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Speaker 1: Yeah, they're a little bit different. You could call a

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Speaker 1: headhunter the headitor will one try to find your job

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Speaker 1: at a hedge fund, and two try to get you

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Speaker 1: the best possible compensation package because probably they get a

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Speaker 1: cut of it, you know.

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Speaker 2: True, now, but that cut isn't coming from your past, all.

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Speaker 1: Right, It's coming from the hedge fund, which is so

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Speaker 1: so right. Traditional headhunter is probably more aligned with the employer,

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Speaker 1: whereas an agent is more aligned with the employee.

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Speaker 2: They should be, there should be, But of.

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Speaker 1: Them are mostly interested in burgering.

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Speaker 2: A deal rather than like we're all trying to eat

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Speaker 2: you know.

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Speaker 1: Yeah, So I don't know. My friend is that like

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Speaker 1: a hedge found agent is not so different from a

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Speaker 1: hedge fund recruiter. It's a little different.

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Speaker 2: There's nuance, there's nuance.

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Speaker 1: And this guy is apparently the first edge fund agent

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Speaker 1: but possibly the first one to have a work of

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Speaker 1: art featuring Ari Gold, the agent from Entourage, on his walls.

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Speaker 2: Yeah, you know you.

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Speaker 1: Like watch Like you know, some number of people are

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Speaker 1: like watching Entourage, like, oh, I could be an agent

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Speaker 1: for hedge funds. I don't understand, but so this is

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Speaker 1: what I think about hedgephund agents, Like you think about

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Speaker 1: like agents classically. It's like sports actors, television anchors think

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Speaker 1: of this nature. It's it's like traditionally people whose day

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Speaker 1: job is not financial negotiation and like possibly somewhat unworldly, right,

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Speaker 1: Like you think about like a quarterback is not like

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Speaker 1: a business person. They're like, you know, they're throwing a football.

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Speaker 1: They're not like thinking about business all day. It's funny

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Speaker 1: to have an agent for like a hedge fund manager, who,

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Speaker 1: like I would think that if you're a portfolio manager

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Speaker 1: at a hedge fund, you actually do have a pretty

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Speaker 1: good sense of the market. For portfolio managers at hedge

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Speaker 1: ones in a way.

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Speaker 2: That's true.

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Speaker 1: You know, a novelist might not.

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Speaker 2: That's true.

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Speaker 1: It just sort of like as a matter of temperament

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Speaker 1: and personality, you'd pay attention to those things, and you'd

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Speaker 1: like be able to discuss the value of getting a

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Speaker 1: higher percentage of your profit sources and upfront. You know,

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Speaker 1: like you'd think about related topics all day and you'd

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Speaker 1: be keenly interested in this, So you would probably have

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Speaker 1: less new information. But as the guy points out, like

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Speaker 1: you do have a demanding day job, and so you

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Speaker 1: probably aren't closely tracking the market for portfolio managers, and

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Speaker 1: like the market is not super transparent, so like you're

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Speaker 1: relying on rumor and aneko to know what people are

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Speaker 1: getting paid elsewhere. And so if there's an agent who

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Speaker 1: collates all of that information is going to provide value

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Speaker 1: to you.

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Speaker 2: Also, the idea of someone negotiating on your behalf and like, so.

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Speaker 1: Again, yes, I agree, I would want someone to negotiate

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Speaker 1: it on my behalf. It's possible that a lot of

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Speaker 1: run portfolio managers are happy to negotiate. I don't know,

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Speaker 1: you're really good a stressed guy. You're like, yeah, I'll

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Speaker 1: curse at my boss.

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Speaker 2: Maybe you just want to sit in front of your

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Speaker 2: Bloomberg terminal or whatever and think your big thoughts.

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Speaker 1: No, I agree. I think there's a range of people,

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Speaker 1: and there certainly a lot of people who have killer

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Speaker 1: instinct as like electronic traders, but don't want to negotiate

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Speaker 1: with their boss for more money. Yeah, and so they

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Speaker 1: can hire an agent. Reading this article else I thought about, like,

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Speaker 1: you know who really should have agents?

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Speaker 2: Tell me.

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Speaker 1: AI researchers. They check all the boxes. First of all,

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Speaker 1: they get like an order of magnitude more than hedge

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Speaker 1: fund portfolio managers, which is crazy. Second, they are like

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Speaker 1: stereotypically kind of unworldly, and like they've been like articles

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Speaker 1: about like oh, like these twenty three year old AI

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Speaker 1: researchers are consulting with their friends really see what to

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Speaker 1: see whether they should take a two hundred and fifty

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Speaker 1: million dollars offer from Marketucker work. They should have an agent. Yeah,

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Speaker 1: I should be it. I mean I shouldn't be, because

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Speaker 1: I mean all aspects of that.

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Speaker 2: Job, you'd probably be slightly better than that twenty three

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Speaker 2: year old.

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Speaker 1: That's truly, that's right, because like, ultimately the job is

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Speaker 1: to like appeal to Mark zucker work that maybe he

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Speaker 1: likes the twenty three year old. That's right, like an agent.

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Speaker 2: It's not even like cold calling. Your only call is

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Speaker 2: to Mark Zuckerberg and trying to write.

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Speaker 1: It's it's just a degenerate market. It's not like it's

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Speaker 1: not like, oh, this is what all the rates are.

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Speaker 1: It's like that this is Mark.

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Speaker 2: It is funny that the Wall Street Journal article mentioned

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Speaker 2: that their business is dependent on the scale and proliferation

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Speaker 2: of multi manager head funds and could dry up if

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Speaker 2: funds suffer a run of poor performance or redemptions. And

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Speaker 2: of course we're talking about the death spiral of Isler,

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Speaker 2: and it's almost similar to the AI researcher. You know,

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Speaker 2: you're calling up Mark Zuckerberg, or you're calling up is

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Speaker 2: the Englander or Ken Griffin. It's a slightly bigger pool.

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Speaker 1: Obviously, it's an interesting question. Like this world that we

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Speaker 1: live in of these like mult these strategy pod shops

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Speaker 1: paying a lot of money and sort of dominating the

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Speaker 1: hedgeh on space is relatively new world, and right, it's

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Speaker 1: possible that it's a blip and all this will dry

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Speaker 1: up and something new will replace it. But it does

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Speaker 1: kind of feel like, this is the correct organizing model

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Speaker 1: for the hedgehund world, where you have like these big

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Speaker 1: institutions that can allocate a lot of capital to investors

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Speaker 1: and measure their skill really carefully and maximize the fees

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Speaker 1: they can charge their limited partners. It feels like it's

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Speaker 1: a sort of correct and efficient organization of the industry.

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Speaker 1: And in that correct and efficient world, like agents will thrive.

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Speaker 1: Right if like all these multimager funds blew up and

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Speaker 1: we went back to a world of like single manager

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Speaker 1: funds with the manager's name on the door, then you

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Speaker 1: wouldn't need an agent, right, Yeah, it could be a

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Speaker 1: different thing, Like you'd be these headshend managers would need

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Speaker 1: capital introduction, right, they'd need like to meet with LP's,

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Speaker 1: but they wouldn't need to get hired by big firms.

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Speaker 1: But I think the world we live in now where

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Speaker 1: the big firms hire the portfolio manager feels kind of robust.

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Speaker 1: It's not like just an accident that it's organized that way.

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Speaker 2: Yeah. No, it feels like it's a ripe space for

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Speaker 2: agents to be in. And I'm kind of surprised that

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Speaker 2: this is the first recruiters. Yeah, that's true. Well, it's

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Speaker 2: cool that you know, he struck out on his own

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Speaker 2: and stalled himself as an agent versus just another headhunter.

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Speaker 1: Yeah, I mean you see the appeal of a headhunter,

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Speaker 1: which is the headhunter cold calls you at your current

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Speaker 1: job and it's like, I'd like to get you a

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Speaker 1: new job where you get more money and I will

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Speaker 1: take zero percent of it. And this guy calls you,

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Speaker 1: he's like, I'll take a single digit percent of it.

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Speaker 2: Yeah. Well, apparently he's doing well. Yeah.

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Speaker 1: Well, the pitch if I will take a single digit

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Speaker 1: percent when the number is very large, is actually pretty appealing, right, Like,

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Speaker 1: I'll negotiat on your behalf. I'll work for you, not

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Speaker 1: for the hedge fund. Like, I don't know, that's an

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Speaker 1: appealing pitch if the numbers are large enough.

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Speaker 2: Yeah. Also single digit not bad.

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Speaker 1: Yeah.

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Speaker 2: So he founded this shop. According to LinkedIn and this

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Speaker 2: article a year ago October twenty twenty four, he's helped

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Speaker 2: twelve clients land jobs in deals worth a combined one

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Speaker 2: hundred and eighty million dollars since launching. So it's so

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Speaker 2: not the.

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Speaker 1: Top of the top end where like individual deals are

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Speaker 1: fifty or one hundred million dollars, but like pretty good.

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Speaker 1: Pretty good. It's like fifteen million average time, and.

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Speaker 2: Maybe those people will you know, their next jobs will

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Speaker 2: be bigger. Yeah, good, onya Ryan Walsh, I love football,

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Speaker 2: and so do folks on the prediction market that is Calcie.

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Speaker 1: I do love that CALSHI, which is simultaneously a sports

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Speaker 1: book and not a sports book. The advertising you need

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Speaker 1: to there simultaneously a sports book and not a sports book. Yeah,

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Speaker 1: they like advertise on Instagram like, you know, the only

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Speaker 1: legal sports gambling in all fifty states, and then they're like,

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Speaker 1: we don't do gambling. This has nothing to do with gambling.

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Speaker 2: Yeah.

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Speaker 1: The other thing that makes them unlike a sports book

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Speaker 1: is that they don't license like the NFL's trademarks. So like,

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Speaker 1: you can bet on the Super Bowl, but it's called

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Speaker 1: the Pro Football.

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Speaker 2: Championship Big Game. They can call the Big Game the.

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Speaker 1: Big Game is controversial. I think it's some point the

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Speaker 1: NFL tried to trademark. It's great. In any case, CALSHI

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Speaker 1: will allow you to bet on the pro football competitions.

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Speaker 1: And the latest news in CALSHI is that they are

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Speaker 1: now offering same game parlays. We talked about this on

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Speaker 1: the mailbag off so prediction markets come out of this

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Speaker 1: like high minded idea of like, we're going to have

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Speaker 1: these prediction markets that produce information about geopolitically important events. Right,

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Speaker 1: We're going to allow people to predict events. That's going

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Speaker 1: to provide more information for the market, and it's going

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Speaker 1: to be great, and it's going to allow people to

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Speaker 1: hedge the results of elections, right.

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Speaker 2: Yeah.

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Speaker 1: And it turns out that the demand for that is

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Speaker 1: you know, like every four years you want to bet

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Speaker 1: on a presidential election, but otherwise it's just not that hot.

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Speaker 2: The Olympics. Yeah, you care about track and field once

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Speaker 2: every four years and then you move on unless.

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Speaker 1: You're kidding Greyfeld, but all dresslage and track and field that.

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Speaker 2: You're at esoteric sports.

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Speaker 1: But it turns out that when you have a prediction market,

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Speaker 1: one thing people like to predict is sporting events, and

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Speaker 1: those happen all the time, and people are really addicted

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Speaker 1: gambler who put a lot of money into predicting sporting events.

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Speaker 1: And so if you can have your prediction market predict

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Speaker 1: suporting events, then that's a big business. And everybody thought

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Speaker 1: all of the time until this January that that would

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Speaker 1: be crazy. And then obviously you couldn't have sports gambling

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Speaker 1: in your prediction market, but now you can. So now

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Speaker 1: CALSI does. And we've talked about like the regulatory drama

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Speaker 1: where like the States all try to stop them from

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Speaker 1: doing this, but cal she has so far succeeded in

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Speaker 1: telling the States to buzz off. But anyway, so now

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Speaker 1: they're offering same game parlay as everyone who talks about

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Speaker 1: this sounds insane, right, So like Robinhood is like we're

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Speaker 1: democratizing access to emerging asset classes like sports predictions. But

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Speaker 1: it's like the emerging asset class here is same game parlays,

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Speaker 1: which is just like a product for gamblers, like no

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00:20:55,160 --> 00:20:58,679
Speaker 1: socially beneficial information is created by people betting on like

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Speaker 1: the joint odds of like a football team winning and

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Speaker 1: hitting the over and like someone scoring a touchdown. To

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Speaker 1: self certify these contracts to like allow CALCI to do this,

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Speaker 1: they don't have to get approval from the CFTC, but

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Speaker 1: they have to like file a form with the CFTC

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Speaker 1: being like we're doing this, and with the forum they

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Speaker 1: have to say what the purpose of it is, like

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Speaker 1: with the hedging or like price discovery, purpose of it

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Speaker 1: is They don't have to publish that, so they've confidentially

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Speaker 1: told the CFTC like, yeah, someone somewhere is hedging some

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Speaker 1: economic risk by betting same game parlay as in a

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Speaker 1: football game, but seems like a pretty marginal use.

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Speaker 2: There's like certain people in the world that I want

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Speaker 2: to sit down with and like give them truths hereum

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Speaker 2: and ask them specific questions. And one of those people

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Speaker 2: is probably Vlad ten Of, and I want him, under

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Speaker 2: truths herem to tell me, like, what do you truly

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Speaker 2: see in this prediction market that's different from just sports

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Speaker 2: gambling or the founders of CALCI. Those are questions that

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Speaker 2: I would like to I know, but we can't give

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Speaker 2: them truths here.

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Speaker 1: They'd be pretty honest about it.

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Speaker 2: But I want to know if they truly truly believe

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Speaker 2: that there is a real substantial difference between a prediction

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Speaker 2: market where you can offer single game parlays versus just

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Speaker 2: sports betting. Okay one, no, yeah, two, But I know

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Speaker 2: that you think that too.

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Speaker 1: I think then what people have historically said about this

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Speaker 1: is that there's a big difference between sports books and

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Speaker 1: prediction markets, and that difference is that a sports book

438
00:22:37,880 --> 00:22:39,920
Speaker 1: is on the other side of the bet from you, right,

439
00:22:39,960 --> 00:22:43,320
Speaker 1: and a prediction market is just a platform where people

440
00:22:43,359 --> 00:22:44,320
Speaker 1: can bet against each.

441
00:22:44,160 --> 00:22:45,600
Speaker 2: Other, faceless, emotionless.

442
00:22:45,720 --> 00:22:48,040
Speaker 1: No, it's not faceless, motionless. It's a peer to peer platform.

443
00:22:48,080 --> 00:22:50,720
Speaker 1: It's a place where I want to predict that the

444
00:22:50,760 --> 00:22:53,160
Speaker 1: Bills will win. You want to predict the Patriots will win.

445
00:22:53,400 --> 00:22:57,080
Speaker 1: We bet against each other. Kelshi brings us together. They

446
00:22:57,080 --> 00:22:59,199
Speaker 1: provide a platform for us to bet, but they're not

447
00:22:59,240 --> 00:23:02,040
Speaker 1: the bookmaker, not setting the odds. They're not taking the

448
00:23:02,040 --> 00:23:04,800
Speaker 1: other side of it. They don't want you to lose.

449
00:23:05,280 --> 00:23:09,040
Speaker 1: They don't care. They're just like intermediate between people on

450
00:23:09,040 --> 00:23:10,640
Speaker 1: one side people on the other side. They don't want

451
00:23:10,640 --> 00:23:13,200
Speaker 1: anyone to lose. They're not trying to trick anyone. They're

452
00:23:13,200 --> 00:23:16,960
Speaker 1: not trying to limit winning betters. They're just bringing people together.

453
00:23:17,000 --> 00:23:19,879
Speaker 1: Whereas a sports book is betting against you, so they

454
00:23:19,920 --> 00:23:21,879
Speaker 1: want you to lose. They want you to bet a

455
00:23:21,920 --> 00:23:24,880
Speaker 1: lot of money and lose, and if you bet and win,

456
00:23:25,240 --> 00:23:27,320
Speaker 1: they will limit you so that you can't win too

457
00:23:27,400 --> 00:23:29,200
Speaker 1: much money from them because they're taking the other side

458
00:23:29,200 --> 00:23:34,520
Speaker 1: of every bet. I've always found this distinction overstated because

459
00:23:34,560 --> 00:23:39,080
Speaker 1: like the way, for instance, robinhood works when you're traade

460
00:23:39,080 --> 00:23:43,120
Speaker 1: stocks is nominally like you can buy yourselves stocks, Robinhood

461
00:23:43,160 --> 00:23:44,600
Speaker 1: is not on the other side of you. But like

462
00:23:44,640 --> 00:23:47,240
Speaker 1: practically your orders are going to a market maker, right,

463
00:23:47,240 --> 00:23:50,199
Speaker 1: Like modern markets have market makers who are taking the

464
00:23:50,200 --> 00:23:53,800
Speaker 1: other side of you and they want, loosely speaking, to win.

465
00:23:55,240 --> 00:23:59,800
Speaker 1: And in prediction markets, it's a mixed bag. Like it

466
00:23:59,840 --> 00:24:04,240
Speaker 1: is clearly the case that like small dollar prediction markets

467
00:24:04,720 --> 00:24:08,240
Speaker 1: on like local elections, like Jane Street is not taking

468
00:24:08,280 --> 00:24:10,000
Speaker 1: the other side of your bet on that right, like

469
00:24:10,320 --> 00:24:12,320
Speaker 1: they're clearly they really are a peer to peer, right,

470
00:24:12,480 --> 00:24:14,520
Speaker 1: like some people are more professional than others, some people

471
00:24:14,600 --> 00:24:17,600
Speaker 1: have more capital than others, but like, ultimately their prediction

472
00:24:17,720 --> 00:24:20,040
Speaker 1: market is a is just a platform for people to

473
00:24:20,040 --> 00:24:23,800
Speaker 1: bet against each other with sports, It's not clear that's true, right,

474
00:24:23,840 --> 00:24:26,320
Speaker 1: Like you have like some of the big market makers,

475
00:24:26,320 --> 00:24:29,360
Speaker 1: Susqueahanna has a big sports betting business. Now the big

476
00:24:29,400 --> 00:24:32,320
Speaker 1: market makers will like support sportsbooks or trade on sportsbooks,

477
00:24:32,880 --> 00:24:36,400
Speaker 1: and like, it seems clear that some big market makers,

478
00:24:36,720 --> 00:24:39,159
Speaker 1: you know, if there's a big enough demand to trade

479
00:24:39,200 --> 00:24:42,399
Speaker 1: sports bets on prediction markets, they'll be on the other

480
00:24:42,440 --> 00:24:43,399
Speaker 1: side of the sports bets.

481
00:24:43,800 --> 00:24:43,960
Speaker 2: Right.

482
00:24:44,040 --> 00:24:45,640
Speaker 1: So again, there's a market you can take either side,

483
00:24:45,640 --> 00:24:47,880
Speaker 1: but like a market maker will sit in between and

484
00:24:48,359 --> 00:24:49,920
Speaker 1: try to take the winning side of the bet right.

485
00:24:49,960 --> 00:24:52,280
Speaker 1: And this is especially true with parlays because like the

486
00:24:52,280 --> 00:24:55,240
Speaker 1: way a parlay works is like there's no natural person

487
00:24:55,280 --> 00:24:57,679
Speaker 1: on the other side. Like if I pick, like, here

488
00:24:57,680 --> 00:24:59,320
Speaker 1: are the six things that I think will happen in

489
00:24:59,359 --> 00:25:02,679
Speaker 1: this football game, and if I hit all of them correct,

490
00:25:02,720 --> 00:25:04,560
Speaker 1: I win a lot of money, and if I miss

491
00:25:04,600 --> 00:25:07,560
Speaker 1: even one, I get nothing. Like no one, no person

492
00:25:07,920 --> 00:25:10,439
Speaker 1: is taking the other side of that, no individual retail

493
00:25:10,440 --> 00:25:13,040
Speaker 1: gambler is like I want to predict that one of

494
00:25:13,040 --> 00:25:14,879
Speaker 1: these six things will not come true, and if they

495
00:25:14,920 --> 00:25:16,679
Speaker 1: all come true, I'll pay a lot of money, and

496
00:25:16,720 --> 00:25:18,440
Speaker 1: if none come true, then I'll make a little money.

497
00:25:18,480 --> 00:25:21,080
Speaker 1: Like it's not a retail gambling bet. The person on

498
00:25:21,080 --> 00:25:23,119
Speaker 1: the other side of the parlay has to be a

499
00:25:23,160 --> 00:25:25,840
Speaker 1: market maker. And it's like not entirely clear exactly what

500
00:25:25,880 --> 00:25:28,280
Speaker 1: the mechanics are, but like it seems like the mechanics

501
00:25:28,320 --> 00:25:30,719
Speaker 1: are Like there's a market maker with a pricing model,

502
00:25:31,000 --> 00:25:34,680
Speaker 1: and like, if you pick up parlay, you can get

503
00:25:34,680 --> 00:25:36,439
Speaker 1: it sent to the market maker, who will fill it

504
00:25:36,480 --> 00:25:39,399
Speaker 1: for you at like a price that the market maker

505
00:25:39,440 --> 00:25:44,480
Speaker 1: sets and So that's different from everything else on Calshi. Right,

506
00:25:44,520 --> 00:25:47,439
Speaker 1: It's different from the story of like we're just a

507
00:25:47,480 --> 00:25:49,840
Speaker 1: neutral platform where people could try it. This is clearly

508
00:25:49,840 --> 00:25:52,160
Speaker 1: a story of like you are trading with a market maker.

509
00:25:52,200 --> 00:25:55,119
Speaker 1: It's not Calhi. Calshy isn't directly bidding against you, but

510
00:25:55,200 --> 00:25:58,000
Speaker 1: someone is directly betting against you. Who has partnered with

511
00:25:58,040 --> 00:26:01,280
Speaker 1: Calshi to provide this service? Yeah, or maybe it's more

512
00:26:01,280 --> 00:26:03,399
Speaker 1: than one somebody. Right, there were a bunch of market

513
00:26:03,400 --> 00:26:06,200
Speaker 1: makers who are providing the prices. But that's like pretty

514
00:26:06,240 --> 00:26:10,159
Speaker 1: different and like much much much, much much closer, not

515
00:26:10,200 --> 00:26:12,560
Speaker 1: only in the product, but in like the structure to

516
00:26:13,400 --> 00:26:14,400
Speaker 1: traditional sports betting.

517
00:26:14,520 --> 00:26:18,160
Speaker 2: So I see how obviously from the perspective of Calshi,

518
00:26:18,760 --> 00:26:21,800
Speaker 2: that is a really substantial and meaningful difference.

519
00:26:22,200 --> 00:26:24,280
Speaker 1: But I'm saying they're getting rid of that difference by

520
00:26:24,400 --> 00:26:25,240
Speaker 1: doing the parlays.

521
00:26:25,440 --> 00:26:27,439
Speaker 2: Well, I was going to say, like, if I'm an

522
00:26:27,480 --> 00:26:31,400
Speaker 2: investor or a better a trader on Calshi versus a

523
00:26:31,480 --> 00:26:35,919
Speaker 2: gambler on fan duel, like, is my experience any different?

524
00:26:37,080 --> 00:26:38,639
Speaker 1: Uh?

525
00:26:39,160 --> 00:26:39,679
Speaker 2: Probably not?

526
00:26:40,080 --> 00:26:42,640
Speaker 1: Well, it's different in various ways. The news this week

527
00:26:42,680 --> 00:26:45,080
Speaker 1: of Calshi offering parlay is like caused the big drop

528
00:26:45,119 --> 00:26:47,159
Speaker 1: in the stocks of the traditional sports books. Yeah, they

529
00:26:47,200 --> 00:26:49,919
Speaker 1: both went down like ten percent, like Vando and Flutter,

530
00:26:50,240 --> 00:26:53,119
Speaker 1: But Calshi is still like a teeny tiny fraction of

531
00:26:53,160 --> 00:26:55,680
Speaker 1: the size of them, because like they offer more bets

532
00:26:55,680 --> 00:26:58,119
Speaker 1: and a better user experience and everything. But like that's

533
00:26:58,680 --> 00:27:02,080
Speaker 1: that's converging. But is your experience different? Yeah, Like I mean,

534
00:27:02,080 --> 00:27:04,320
Speaker 1: like the buttons you push and like the sort of

535
00:27:04,840 --> 00:27:07,920
Speaker 1: layout of the thing is different. But like I don't

536
00:27:07,960 --> 00:27:10,040
Speaker 1: know how big a difference it is that they're a

537
00:27:10,080 --> 00:27:13,480
Speaker 1: platform and other places are sports books, because I do

538
00:27:13,520 --> 00:27:15,879
Speaker 1: think that like in either case you're kind of facing

539
00:27:16,320 --> 00:27:22,600
Speaker 1: ultimately some algorithmic price center, some professional who sets the

540
00:27:23,000 --> 00:27:27,160
Speaker 1: prices and tries to tries to set the market the prices,

541
00:27:27,160 --> 00:27:28,800
Speaker 1: so that like the market is just like any other

542
00:27:28,840 --> 00:27:32,959
Speaker 1: market maker. Like you want to have a relatively balanced book, right,

543
00:27:33,000 --> 00:27:35,560
Speaker 1: you don't want to be facing a huge risk of

544
00:27:35,760 --> 00:27:37,480
Speaker 1: you know, you don't want to betting all on one

545
00:27:37,520 --> 00:27:39,040
Speaker 1: side so that if you lose, you lose a lot

546
00:27:39,040 --> 00:27:42,000
Speaker 1: of money. But like you take some risk. You're not

547
00:27:42,000 --> 00:27:44,600
Speaker 1: looking for a perfectly balanced book, right, You're like looking

548
00:27:44,640 --> 00:27:47,199
Speaker 1: to have some bets where you think the odds are

549
00:27:47,200 --> 00:27:47,680
Speaker 1: in your paper.

550
00:27:47,960 --> 00:27:50,840
Speaker 2: Yeah, the fact that you did have those shares drop

551
00:27:51,480 --> 00:27:55,560
Speaker 2: meant that sell side analysts had to react to the news,

552
00:27:55,800 --> 00:27:59,000
Speaker 2: and there was an article by the Wall Street Journal

553
00:27:59,320 --> 00:28:02,760
Speaker 2: quoting this Benchmark analyst Mike Hickey, who made the same

554
00:28:02,800 --> 00:28:06,080
Speaker 2: point that this is small. Until its scales or becomes

555
00:28:06,119 --> 00:28:09,159
Speaker 2: more robust, it doesn't appear competitive, and it seems like

556
00:28:09,240 --> 00:28:13,080
Speaker 2: DraftKings and fan duels still have an edge. He also

557
00:28:13,119 --> 00:28:17,040
Speaker 2: mentioned that the strategy by Calshie to make themselves look

558
00:28:17,400 --> 00:28:19,919
Speaker 2: just like a sports book certainly comes with some risks,

559
00:28:20,480 --> 00:28:22,679
Speaker 2: which is interesting. I mean, you made the point that

560
00:28:23,240 --> 00:28:26,280
Speaker 2: there's all this legal drama, but then the calendar flipped

561
00:28:26,280 --> 00:28:28,720
Speaker 2: and it was January of this year and now you're

562
00:28:28,720 --> 00:28:29,879
Speaker 2: in Trump's America.

563
00:28:30,000 --> 00:28:31,480
Speaker 1: Yeah. I don't think they think it comes with that

564
00:28:31,600 --> 00:28:34,560
Speaker 1: much Rusk. Yeah, there's risk their court cases are still

565
00:28:34,600 --> 00:28:37,480
Speaker 1: on appeal, Like, there's still some risk that it will

566
00:28:37,520 --> 00:28:40,160
Speaker 1: turn out that they're subject to state gaming regulation and

567
00:28:40,160 --> 00:28:43,480
Speaker 1: then basically this kind of goes away. Yeah, like not entirely,

568
00:28:43,520 --> 00:28:46,240
Speaker 1: but it kind of goes away. But well, I think

569
00:28:46,280 --> 00:28:50,120
Speaker 1: they're very strongly betting on in Trump's CFTC, they can

570
00:28:50,160 --> 00:28:52,000
Speaker 1: do whatever they want and no one will stop them.

571
00:28:52,160 --> 00:28:56,960
Speaker 2: It's funny because DraftKings, the CEO apparently has specifically cited

572
00:28:57,000 --> 00:28:59,840
Speaker 2: Calshi's legal troubles as part of the reason why that

573
00:28:59,840 --> 00:29:03,080
Speaker 2: they they steered clear prediction markets. But I think they

574
00:29:03,080 --> 00:29:06,080
Speaker 2: should fight back. They should launch their own prediction markets

575
00:29:06,120 --> 00:29:08,520
Speaker 2: and go for it, or they should offer stock trading.

576
00:29:08,680 --> 00:29:12,560
Speaker 1: Why not offering stock trading is actually a separate set

577
00:29:12,600 --> 00:29:16,320
Speaker 1: of questions right where their prediction markets are are gambling.

578
00:29:16,680 --> 00:29:21,280
Speaker 1: I think if like Calshi ultimately ends up a really

579
00:29:21,280 --> 00:29:27,360
Speaker 1: big competitor to Fandel and DraftKings and the legal stuff

580
00:29:27,360 --> 00:29:29,520
Speaker 1: has all resolved in favor of like you can offer

581
00:29:29,560 --> 00:29:32,920
Speaker 1: whatever bets you want on a prediction market, then Calshi

582
00:29:32,960 --> 00:29:35,800
Speaker 1: has a huge advantage. They're legal in fifty states and

583
00:29:36,840 --> 00:29:38,360
Speaker 1: it's not free from that, but they seem to get

584
00:29:38,360 --> 00:29:41,120
Speaker 1: a better tax treatment and so there. Yeah, I think

585
00:29:41,200 --> 00:29:44,560
Speaker 1: Fandel and DraftKings flip into funding a prediction market, right.

586
00:29:44,960 --> 00:29:46,760
Speaker 1: I think it's hard, right they have to like register

587
00:29:46,800 --> 00:29:48,480
Speaker 1: at the CFTC, but it's like, yeah, there's a path

588
00:29:48,480 --> 00:29:48,959
Speaker 1: that's doing it.

589
00:29:49,040 --> 00:29:51,000
Speaker 2: Fandil did it and apparently sort.

590
00:29:50,760 --> 00:29:53,120
Speaker 1: Of then they partnered with CME for like, yeah.

591
00:29:53,120 --> 00:29:57,640
Speaker 2: Yeah, I've written go on.

592
00:29:57,840 --> 00:30:01,040
Speaker 1: This will be of interest. Yeah. Within the next two years,

593
00:30:01,080 --> 00:30:06,280
Speaker 1: we're going to see a football dot ETF You're right,

594
00:30:06,320 --> 00:30:13,600
Speaker 1: I commended here. Yeah, and that was the Money Stuff Podcast.

595
00:30:13,880 --> 00:30:15,960
Speaker 2: I'm Matt Levine and I'm Katie Greifeld.

596
00:30:16,200 --> 00:30:18,360
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597
00:30:18,360 --> 00:30:20,400
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598
00:30:20,160 --> 00:30:22,920
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599
00:30:23,000 --> 00:30:26,160
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600
00:30:26,880 --> 00:30:28,880
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601
00:30:28,920 --> 00:30:32,240
Speaker 1: email to Moneypod at Bloomberg dot net, ask us a

602
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Speaker 1: question and we might answer it on the air.

603
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604
00:30:37,160 --> 00:30:39,040
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605
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606
00:30:40,320 --> 00:30:43,360
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607
00:30:43,480 --> 00:30:46,560
Speaker 1: Moses Ondon and special thanks this week to cal Brooks.

608
00:30:46,880 --> 00:30:49,200
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609
00:30:49,600 --> 00:30:52,320
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610
00:30:52,280 --> 00:30:54,760
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611
00:30:55,120 --> 00:30:57,600
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612
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