JB Mackenzie discusses Robinhood’s new entertainment prediction markets, letting users engage with pop culture, award shows, and more through low-stakes bets.
00:00Prediction markets are rapidly evolving and expanding far beyond politics now into entertainment, technology, sports, as well as culture.
00:07With Robinhood rolling out a full prediction markets hub, users are now betting on everything from Oscar nominations to SpaceX launches.
00:15If you think of it, you can probably take advantage of it in the prediction markets.
00:19Join us now to talk all about it, J.B. McKenzie, Vice President and General Manager of Futures at Robinhood.
00:25J.B., welcome. It's nice to have you back.
00:27Hey, J.D., thanks for having me back.
00:30So let's start first and foremost with what is Robinhood's new prediction markets hub?
00:35What's it all about?
00:36And I'd have to imagine you're seeing a fair bit of user interest in entertainment-based event contracts.
00:44Absolutely.
00:44What we found is that our clients have been incredibly engaged in these markets.
00:48And what we wanted to do was build a very intuitive hub that allows them to access these markets very cleanly and easily.
00:55So whether they're interested in trading economic, sports, financial, or even cultural, we provide them that ability to access it.
01:04And we want to do it in a way that allows them to quickly find the contracts that they're looking at trading, get some information about them, and make some decisions.
01:10So really, our design, our focus on the hub is about making it customer-focused and really building it out so that they can access these markets when they want to.
01:18To the point of making it customer-focused, what has customer feedback looked like, both from your existing event contracts, and then ultimately, what are they telling you that they want more of?
01:29Well, from the existing contracts, what we just recently announced that in Q3, we had over 2.3 billion contracts traded, what was a record number for us.
01:41And then in October, we suppressed that number alone at 2.5 billion contracts.
01:46So the existing customers, what they found was these markets are basically fulfilling a need for them and that they wanted more.
01:53And as we were listening to the customers talk to us about what more meant, we started looking to expand it.
01:58And really, we went from around 300 different events to well over 1,000, and we started expanding into new areas.
02:04New areas included things such as pop culture, looking at items such as Grammys, looking at Oscars, as well as looking at different types of economic information,
02:15such as Fed decisions or overseas decisions, or even what's happening in states in a mayoral election that happened in New York just this past month.
02:24I think the last time you and I spoke, JP, it was right about the start of college football season.
02:29It was August, early September.
02:31That big surge you had in October, do you largely attribute that to kind of being the heart of the sports calendar between baseball, playoffs, NFL, college football, and beyond?
02:41I think it was actually a combination of not only sports, but also some really important economic information came out.
02:46Again, this has happened just before, if you think about it, the actual shutdown in the government.
02:51So a lot of the data points that were coming out there were things like the Fed decision, right?
02:56Will there be a 25 basis point cut and what was coming out beyond that?
02:59So what we really found was it was a combination of all those items.
03:02So while sports, I think, was definitely an accelerant in participation because it was the first time consumers got to see college football as well as professional football, as well as the playoffs for baseball,
03:13we also got to see a really nice bump in some key economic numbers that really had an impact on inflation and sort of where the direction the Fed was going to take.
03:21So I think those things together is what really pushed us into that record month.
03:24There's a big conversation happening right now about the accuracy of these prediction markets.
03:29There are so many examples to point to where I think the prediction, the event contract providers can say,
03:34we, our users, the marketplace that inherently we created here has a way of sort of predicting outcomes better than maybe,
03:42let's say, traditional political polls, if it's a more politics-based event contract.
03:46What does your early data these first few months really tell you about the accuracy of the prediction markets versus, let's say, more traditional futures?
03:55Well, I think what we're seeing is that you have a bit more participation, I would say, in the prediction markets than we are seeing in the traditional futures market, right?
04:03The traditional futures market has been growing and expanding.
04:06But again, you still have a lot of additional flow, like institutional flow, corporate flow, as well as retail.
04:13And I think the prediction markets is really retail-based and retail-focused.
04:17So what you see in there, J.D., is the real opinions of the investors.
04:22And what we seem to see is that it trends very much ahead of the pace of even polls, right?
04:28When you have to put your money where your opinion is, we're seeing that track very early in the decisions.
04:34We saw this in the mayoral as well as the two governors' races that occurred in New Jersey and Virginia,
04:41where we saw the outcome very early called versus what we heard from the polls and what we heard from the traditional news.
04:48So I think it's another independent input for us to look at as investors is where sort of the retail vision is,
04:56not just sort of the experts and the pundits, but also what does retail really consider here?
05:01And we're seeing it track at a faster pace.
05:03So it'll be interesting to see what happens longer term, but definitely early indications are these are adding a nice level of accuracy to be used in overall investments.
05:12J.B., I wonder how you and your team at Robinhood are approaching some of the more sensitive questions on event contract platforms.
05:18I personally have been very surprised at times to go on to some of the other competitors out there and say, wow, you're really – and I get that there's maybe an appetite for it, a marketplace for it,
05:29but you're really going to offer an event contract over a very sensitive geopolitical issue or some very sensitive personal issues with regarding the lives of celebrities.
05:38How do you approach knowing, on the one hand, you want to create products that your user base wants to engage with, financial products,
05:45but maybe it's a little bit of a slippery slope sometimes to some more questionable event contracts.
05:51What does that consideration look like for you?
05:54Well, for us, we have a committee and a team that looks at all the different products that we want to list, right?
05:59So any type of event contract.
06:01We look, first of all, is there liquidity?
06:03And is that liquidity available 24 hours a day, seven days a week like our markets are?
06:08But we also then look at sort of what is our client demand?
06:11And what we find is that we only offer those contracts that our clients are asking us for, right?
06:17We just don't put anything out there for the sake of putting out there.
06:20Now, look, we're not here to be sort of the moral compass of the overall industry.
06:25But what we do think is what do our clients want?
06:27And our clients are very vocal.
06:28And our clients tell us that they want to have very specific types of products such as, again, economic, financial ones, sports, as well as pop culture.
06:37I think your point is a good one.
06:38And I think really what we have to do is listen to what our customers want.
06:41We're not here to make headlines.
06:43We're here to provide product that our customers want to trade.
06:45So we take that very close to the heart.
06:47It's also why we don't offer every single event contract that's listed out there.
06:50Again, we're very careful in the decisions we make because I do think your point, that is a slippery slope.
06:56But we want to make sure we take a thoughtful process before we make a decision to list anything.
06:59On the entertainment event contract question, more specifically, what risks, what misconceptions do you think users should know a bit more about before trading in these particular type of contracts?
07:11Especially for users that I'd imagine, hey, they've been big fans of Robinhood for a long time.
07:17Maybe they're only getting into the event contract space for the first time.
07:21Well, I think for every investor, regardless of product, you should always take the time to understand how these contracts work.
07:28What do they mean?
07:29What's the process to which they resolve?
07:32And then I think beyond that is where does it sit in your overall financial portfolio and what's your purpose behind the trade?
07:38Again, I use the same exact conversation with clients.
07:41I was just in London meeting with a bunch of clients.
07:43And we talked about defining what it is is your financial risk and your overall threshold for it in your portfolio.
07:49So what does that mean?
07:50That means take the time to understand.
07:51So if you're interested in trading the Grammys, understand how that contract is designed, how does it build, and then what is your willingness of sort of a risk tolerance to put into there.
08:00And so I tell everyone to learn that.
08:02We have a lot of education out there in our Robinhood learn to really understand these contracts and then decide which ones make sense for you.
08:07So regardless of whether that is an entertainment contract, a sports contract, or a financial services contract, take that time.
08:14If you do that, that's an educated investor, and that investor will be here for a long time going forward.
08:20J.B. McKenzie is vice president and general manager of futures at Robinhood.
08:24Always grateful for your time.
08:25Congratulations on the new products you've rolled out for your users.
08:29And best of luck here for the rest of sports season, next year's midterms and beyond.
08:33And a lot of exciting things happening in entertainment as well.
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