Ep. 6 - Chris Got A Job!

[00:00:00] Speaker A: Okay. Predictive Programming, Episode 6. I'm going to lose count eventually. [00:00:05] Speaker B: We're just going to all predict for me is going to be it's just you and me and then sometimes we're bringing Adi back every now and then. [00:00:10] Speaker A: No, we had a guest today and I just didn't follow through this morning. But guest, guest next week. Guest till the end of time. And you got to drive today because I'm fried after a crazy, crazy weekend. But take the wheel. Jesus. [00:00:30] Speaker B: All right, all right. So wait. [00:00:32] Speaker A: No, you know what? I remember what I wanted to talk about because I heard that a lot of people don't like the way I dress on this podcast and think that I have been getting progressively more and more obnoxious with my outfits. [00:00:48] Speaker B: This is true. [00:00:48] Speaker A: And that the. The. The open flannel with the. The loon on the ball cap is some kind of, you know, wannabe blue collar valor stealing, pathetic Brooklyn dad thing. And all I have to say is wow. Great read. Spot on. Nailed it. You should try prediction markets if that's what you thought because your intuition is working. [00:01:15] Speaker B: Maybe there'll be a market on what. [00:01:17] Speaker A: You dress as next and we can insider trade it. All right, take over. What do you got for this week? [00:01:24] Speaker B: All right, we were having. [00:01:26] Speaker A: Any news for you? Any personal news? [00:01:27] Speaker B: There is some personal news. I've taken over as your job. Jacob had enough of your shit and thank goodness, put me in charge. I'm coming over. I'm excited. Excited to be here full time. [00:01:40] Speaker A: You're coming to work in novig? [00:01:42] Speaker B: Yep. Yeah, I know people are gonna have a lot of questions, so I figured I might as well just like nobody's. [00:01:48] Speaker A: Gonna have any questions. Nobody cares. [00:01:50] Speaker B: But go ahead. [00:01:50] Speaker A: Let's talk about pretend questions. [00:01:52] Speaker B: Address. So I was in talks with Kalshee, Polymarket and Novig and I took honestly. [00:02:02] Speaker A: Kalshi and Polymarket only for a while. [00:02:04] Speaker B: Yes. And I was going to Henrif for a lot of advice because I know you've done what I want to do and I want to do it. And I guess first I'll kind of back up as to why I made this decision. I kind of felt like I accomplished most of what I wanted betting wise. Not sounding like an absolute egotist maniac. I built enough that I could comfortably retire with what I have. And making more money is making a dollar is not as good as losing a dollar for me in my current state. And I can still run my betting operation pretty well, even taking on a job here or Paul Ericalshi and I can just Take a little bit, step back, hurt my median earn over the next few years but increase upside if I think what is going to happen to the prediction market space which is going to explode. We've already seen an explosion in the last couple months and I wanted to get ahead of it and jump on. That's why I, I wanted to take this position and I think I'm uniquely able to do this because not a lot of people bet the size I've bet and successfully as I bet for as long as I bet and have used exchanges and have the relationship with people like yourself that already know what's going on. So that's. I thought I could really help in a big way. So when I was in talks with Pauli and Kalshi they were attractive offers. But then I kind of thought what if I whatever want to hear and I asked, I said Henry, would you guys be interested in having me? Jacob was all over it. I respect him a lot. I know I couldn't get the same offer that I could get with Poly and Kelshin. I took a significant cut. But my attitude is the odds that novig 10 x's or 20 xs is significantly greater than than that of a Cal Sheet and a Polymarket. I think in a few years just. [00:04:11] Speaker A: Because they've already benchmarked at such high valuations. [00:04:14] Speaker B: Right, right, right. I would not be surprised if in a few years it's not a two horse race or if people think in the prediction market race, it's a three horse race and we're that third. And I know people are already saying like I said to sell. I was playing devil's advocate. That wasn't actually my full. I was saying I could make the argument and that that kind of situation. So I think the upside of Novig is just worth a ton. And I also get to work with one of my better friends and you every day. I'm not actually replacing you. We're gonna be working more. [00:04:52] Speaker A: I hope you replace a lot of what I do cause I'm tired dude, I need you. I think I'm a little spoiled. Cause when I would interview people I'd be like, cause I talk to you all day. I'd be like well everybody knows all this stuff. And then you're like actually not a lot of people get how all this work might actually need Chris. [00:05:12] Speaker B: Right. [00:05:13] Speaker A: So I'm glad we could make it work. Yeah, it's bad for this podcast because I thought we were going to get you on Couchy or Polly's team and then we'd be like, you know, bringing all that information and all those people. And I'm like, we don't need two people from the same company. So we might replace you with Tarik, which would be easy to achieve. I'll just ring him up and ask him. [00:05:35] Speaker B: But of course, of course. I think, look, when we started this podcast, we didn't want it to just be like a novig shill. I don't think we will do that. I'll try the best. Obviously we're gonna be a little biased, but we'll try our very best. [00:05:48] Speaker A: If we do that, people will make fun of us online. [00:05:50] Speaker B: Exactly. [00:05:51] Speaker A: And we have. We're such cowards. And we check our mentions so much that it'll make us act correctly. [00:05:57] Speaker B: Alright, pivoting off. Speaking of mentions. [00:05:59] Speaker A: Yeah. [00:06:00] Speaker B: We had a conversation in the. While we're having lunch about mention markets. We have vastly different viewpoints on this. So you're making the case that you're excited for mentioned markets and I think they're terrible. [00:06:12] Speaker A: Well, first of all, I like trading mentioned markets and I think they are the sort of thing where even if you don't necessarily think you're going to trade them, you start looking at prices and you say, oh, that's not right. Like, like it's very easy to tell yourself that you know better than what the market is on these things. Has been my just recreational experience looking at them. But what I specifically think is if mention markets on entertainment properties or political speeches or whatever can become huge and attract audiences that haven't bet on sports. Because betting on sports is the classic, of course, maybe, maybe trading crypto and especially altcoins would be the other like kind of behavior people are used to, that is getting them into prediction markets. The unique thing about mentioned markets, I was really saying is that you can do mention markets on major sports broadcasts, you can do Monday Night Football mention markets. And there are certain markets that price relatively similarly week after week, like you know, inch or whatever. These things that people kind of have recurring long term views that they're refining about what the fair value is. And in that regard they very, very closely resemble regular player props or other sports game props. So I think, I think mentioned markets are unique in that there is this one variant of them that right now looks very close to a sports market, very, very close, where it could be a literal market type that week after week after week recurs rather than being like super bespoke. And that makes it, that makes it easier to get into as a user. It makes it Easier to build infrastructure around as a first party market provider or third party data provider. And if from there you can monkey branch off into what are they gonna talk about on Love island tonight or whatever. If it's that similar to me, that seems like a path that has some positive feedback loops built into it inherently. Now, of course there are downsides. [00:08:42] Speaker B: Yeah. So this is what I was kind of worried about. This is all nice in theory and I know you live in fantasy land where everything works out. [00:08:50] Speaker A: I'm just talking about how it grows as a market. [00:08:53] Speaker B: Yeah, sure, sure. [00:08:54] Speaker A: But your concerns around integrity let me. [00:08:56] Speaker B: Bring back to reality for a second here. Okay. The problem that I see is, let's say this, everything goes on and you can actually get like what Joe Buck is going to say gets millions traded. Now we get to a point where Joe Buck can insider trade and make a few hundred thousand dollars and Joe Buck can just say all he has to do is say the word inch or not say the word inch the entire podcast. And that is like, how does that affect. It's not like if a quarterback intentionally throws it at pick six or intentionally does something like that would really affect the game integrity. This does not affect what he says on broadcast. [00:09:35] Speaker A: The integrity of what? Yeah, right. [00:09:36] Speaker B: There's nothing. So he might think, well, I'm not hurting anyone. I'm just making a few hundred thousand dollars. And I'm not saying Joe Buck may. [00:09:44] Speaker A: Be the wrong guy, but there are nobodies who call games. [00:09:47] Speaker B: Of course. And that's the problem that I would. And look, insider trading is always going to happen. There's no way you can stop it. But the way that everyone gets pinched in this and the way that this all blows up is if the CFTC says this is getting too ridiculous, the insider trading is getting obscene, we need to stop. And I could see if they had people insider trading mention markets which are so easy to do, then it could create a massive problem where like, you know, I know people talk about, oh, sports are rigged and like, and there has of course been college basketball and college football games thrown. [00:10:30] Speaker A: I'm sure NBA point shaving by referees. [00:10:33] Speaker B: Of course, like, look, as a trader, I'm sure you can, you can even see some flow and know, okay, this game's gonna get rigged at some point. I mean like, you probably have or not, you have an idea every once in a while. [00:10:43] Speaker A: Yeah. And usually there's a U.S. integrity. Yeah. [00:10:47] Speaker B: There's often a report later that is really hard to do because you need. There's a lot of moving Parts. It's really hard to do. But something like mention markets is easy and everyone talks about this stuff that's been caught before. But I'm just gonna say Joe Buck because it's really the only shout out Joe Buck color content. [00:11:10] Speaker A: It's actually better than somebody who you think is above it versus I don't know how much money Ian Eagle has. He might actually do it. [00:11:17] Speaker B: Right, Sorry. He's the only play by play guy that I who seems rich. And if he was smart about it, he could probably take 30, 40,000 and never get noticed and do it for a long time. And sometimes he would say and sometimes he wouldn't. So it would seem random and the flow would be a small percentage of it. Imagine if people started doing it smart, then you get into real problems because then eventually someone's gonna get greedy and. [00:11:49] Speaker A: Greedy probably already happening, right? [00:11:51] Speaker B: It might already be happening and then the whole thing get blown up and you see, holy crap, over the last two years he's made millions of dollars and then the whole thing gets thrown into question. The CFTC says this is ridiculous and they put a stop to it all. That's what my fear is. If you guaranteed me that wouldn't happen, then I would be happy. [00:12:08] Speaker A: And the exchanges shouldn't play with fire like this because they need, you know, you need to put out a good face on all this stuff. [00:12:16] Speaker B: I think I've made the argument before that like if I was the NFL just pay the refs like a million dollars per game. That salary is insignificant to how much they are. And now it becomes almost impossible to like manipulate a ref because what ref is going to make a million dollars a game and then take like $100,000 bribe to throw an extra refing the passer penalty or holding penalty on a key third down or something like that? Okay, now you're talking about massive salary. Now you can make that same argument with like a Joe Buck, but like to your point, some lesser announcers that maybe only are getting a few hundred thousand or a million dollars a year. [00:12:57] Speaker A: Yeah, well you see this happen like in super low level tennis tournaments, right, of course, where there's a game theory element to this where the reward of playing the game with integrity is always supposed to be so much larger than the possible reward of trading it. The one glaring exception is college sports where the vast majority of athletes don't get paid. But you somehow are supposed to enforce integrity, which I think is traditionally done through social forces and punishment based. But yeah, it can become a tricky problem. It certainly Is not a good idea to just kind of hand wave it away or say insider trading is a feature, not a bug. We're getting towards the truth faster. [00:13:45] Speaker B: That is terrible. [00:13:47] Speaker A: And even setting aside regulatory concerns, like, let's say you're completely offshore. You have no regulatory concerns whatsoever. I think we both would agree. We're like big time. These markets don't exist if insider trading is rampant. Right. The market makers do disappear. The idea that they're always collecting a spread and delta neutral and everything is insane. Anybody who tells you market makers are delta neutral and everything and are indifferent to inside information. [00:14:17] Speaker B: No idea. [00:14:18] Speaker A: Has never like seeded a market in their entire life. Like that's just not the reality at all. You get devastated by that kind of. [00:14:26] Speaker B: I think like if you asked me a few months ago, I would have thought like these market makers just print and have it so easy. But after like trying to do some of it myself, seeing it all and now I'm starting to see just even talks with you going over the system, I realize you do a lot of work. You spend a lot of time to, if you're lucky, make 2% and probably make less than a percent. And it's like you have to do all this work. And yes, if you do a good job, you make 1% on a big, big, big number. And that's a lot of money. But it's actually really hard to do that. And 1% is not a big ROI. We all know that SIG is a big market maker on Kalshi, probably the world right now in terms of sports. I bet if I put an over under in their ROI, even from the Robinhood flow, it's probably 1.3%. That would be my guess. [00:15:24] Speaker A: When you ask are you trying to max ROI or max volume, would you be willing? I said trading at 0% is basically as difficult as trading at 1.5%. Either way, you have to account for every single major vulnerability and then you're just tuning the parameters around regular flow. But the big vulnerabilities are all of your weak points. And that's where all the insider stuff is killer but, but secondary to like whether or not it dries up liquidity is the question of does it just kill the reputation of the product and does it bring the hammer of God down on you, which what, what I think needs to happen. And if I had a giant war chest, like if I had just raised a couple billion dollars, I would invest in a team to build the sport radar or similar product of prediction markets and specifically built around my Biggest new categories like a dedicated third party company that is providing all necessary data around mentioned markets, climate markets, whatever including like very clear end times and like past post targets. [00:16:57] Speaker B: Right. [00:16:57] Speaker A: Like any trade executed after this exact timestamp should be voided. Like stop with all this, you know, oh, even after they say it you can trade in the 99.1regime because maybe you misheard it. It's still, it's still an active market. Like come up with the source of truth that can tell you the parameters around safely allowing trading on this market and that can flag pass posts and the like and similar around integrity and be able to deliver. You know it is a CFTC requirement to have a team around market surveillance and integrity. It's a little nebulously defined. I certainly wouldn't want to like try and speak about what exactly the regulations say. And often the way these things work is you tell the regulators what you're going to do, they approve it and then if there's an issue they check if you're actually doing what you said you would do. But it's a little kind of self certify ish and a little bit of like the operators explaining back to the regulators like what a good faith effort looks like because every. Nobody's really an expert. Right. But I think there is a lot of money to be made just from business development in creating the standards. We don't have standards is the summary around this and there's enough money going around that somebody should be working on the building the standard product. If you're doing that, let me know. Especially if you need a small check. That's something I'd be interested in hearing about. So there's. You don't want the cart before the horse, right? Like that's a great idea for me, one of, one of my many great ideas. The space is exploding, right that we can't deliver that tomorrow. What do you do in the meantime? But even just signaling that you think that is important and steps everybody's going to take to get going in that direction I think might be better than the current state of affairs we have which is like isn't this fun? [00:19:16] Speaker B: And something I want to touch on is look, I've been critical before about exchanges and prediction markets basically just being sports books dressed up a little nicer and I still hold that belief. But what I would say the big difference here is and another thing that kind of I think I've changed my mind on in the last month or so is I thought okay, this is just like regulatory arbitrage and this might stop in like a year if like draftkings and fanduel have like enough of this. But I think a good argument that you can be made is why does a customer have to lose at 30% on parlays when they bet on FanDuel and DraftKings or 7% live with the 15 cent lines or 5% pre game with the 10 cent lines? There's a lot of money that those companies are making that those customers don't deserve to lose. I'm not saying these customers are going to win now on exchanges, they're just going to lose less. And I think that's the big pitch and the big argument that is going to allow in my opinion prediction markets and exchanges to make it and stay. With RFQs becoming a thing, you can have the same product except just better margins for everyone. Everyone's going to have to compete for liquidity. Sure, there's going to have internal market makers and it's going to have market makers and they're not your peers. But you're gonna lose a lot less because their peers are gonna try to steal your flow and you need to get a better price to get it, which means a better experience for the customer. And I think that's what happened. So I, I'm now beginning to truly believe, which is a big reason why I wanted to join, that we might see the end of a FanDuel and a DraftKings and not entirely the end, but the size of them might be capped. This might be the peak for them. I don't think DraftKings and FanDuel are gonna go away and in 10 years. But are they going to be $100 billion company which everyone thought they might be in 10 years? Probably not. [00:21:27] Speaker A: Yeah, I agree with you. And it's funny having built the product, that the pitch was something along the lines of spreads are going to approach zero. And then when you launch the product, what you actually see is a lot of sharp action against your market makers and then a lot of like arbitrage trading and front running the market. And you know, you're like super shrewd users who are leveraging it in, in the kind of ways that you have to really understand sports markets for me to explain. And, and then one day, six months in, I'm like, oh by the way, like all the primetime games that post are $0.03 wide. I guess we did deliver that too. Like I had totally forgotten that was even part of the pitch. It's here now. [00:22:15] Speaker B: One of the things that I really enjoyed Is this Super bowl on Novig. I can't bet on Novig anymore, which is probably the biggest negative about joining your company. But I was not gonna be able to bet on Kalashi or Polymarket if I joined them too. And I can still get, I still have my operation, I can still bet on other places. But last super bowl I got 100k down on the super bowl at like basically fair at a no vague price. It was trading minus 103 plus 102 or sometimes it was minus 104 plus 103 and I just like posted like basically 50k, got filled a half hour later posted another 50 and I'm like wow, this is incredible. I get to now get a sweat a giant fun game. I had a kind of a lean. Am I probably winning? No. But I can't be losing that bad. I mean how badly could I be losing? [00:23:09] Speaker A: And internally all we talk about right now is parlays because nobody has made the jump to doing this for parlays for a lot of reasons. Nobody's even like been able to verbalize why it's so much harder. And so that is the really fun journey. I know I keep coming back to it, but if you start seeing SGP markets have the same effect, it's going to be so cool. And that is the really exciting. [00:23:37] Speaker B: And I think that's, I think it's possible. Look, I, I doubt SGP pricing ever gets worse. Like right now if you pull up any, pull up a DraftKings or a FanDuel or any, anything like that and just do like a two leg SGP or two leg and do the couple combos of them and calculate the vig. You'll see the vig is like 20%. I mean it's, it's insanity. I'm not saying that drops to like 3% or 2% but that could drop to like single instead of the 20% it could drop to single digits because like do when they're, when it's when they have to compete against other market makers, they have to be more price like willing to accept worse prices. Better prices for the customer, worse for them because you're not gonna get that flow anymore. And that's the beauty of the exchange. If we have some more time, I do wanna also talk about what are some real use cases for prediction markets that aren't just quasi gambling. [00:24:42] Speaker A: Are you gonna build this stuff for us? Bing, bing, bing, bing. We have a bell here. We ring when somebody proposes an idea and you say that's great. You, you need to go build it now because it was your idea. It's called the Wagey Bell. Maybe ding you with the Wagey bell a few times. Maybe. Let's hear the ideas. [00:25:02] Speaker B: Some are already coming out. Obviously betting on the political markets, like betting on the Trump Kamala presidency is big. When I was at the family office, I remember the big boss coming in and saying, we need to build our matrix out. If Trump wins and the Republicans maintain control of the House. We need to do this for the portfolio. If Kamala wins in the. [00:25:26] Speaker A: These are political, correlated political parlays. [00:25:29] Speaker B: Basically. Yes. [00:25:30] Speaker A: With real financial value. [00:25:32] Speaker B: We had conversations about what would happen. [00:25:34] Speaker A: Yeah. [00:25:35] Speaker B: If he could have actually just made a 10 to 25 million dollars wager on these combos, he would have referred. [00:25:43] Speaker A: That how much vague would he pay on a correlated politics parlay for 25 million? [00:25:50] Speaker B: Probably no more than 1%. Yeah. So like, I mean that's, that's going to be the difficult thing is these guys like, look, the fees, the couch. [00:26:00] Speaker A: You'Re doing, you have to do it otc. You couldn't give somebody that much rfq. [00:26:04] Speaker B: Yeah. [00:26:04] Speaker A: Like I, I could call him up and, and say, you, you tell me what your model shows. I'm looking at my model and let's negotiate a price where we both agree you're paying about 1% and I'll give you 25 million. You know, if, like, if I'm in that position. [00:26:19] Speaker B: Yeah, yeah, yeah. [00:26:20] Speaker A: That I, I can't just get a request for 25 million on that and assume like, no, this is a good faith guy with like risk to hedge who's not trying to angle me here. [00:26:30] Speaker B: Right. And yeah, that's the thing. I think right now the problem it's set up is like, look, Kalshee's fees are pretty egregious for takers right now. And you're never going to get to a situation where like an actual finance guy, traditional, a tradfi guy actually comes here and wants to click you for 10 million and pay 3% or 5%. That's just never going to happen. And you have to get really, really competitive with the fees. But the thing is, if it was actually a liquid market and he could just trade straight up, hey, I think Trump's going to win. And I know this price is fair because it's been beat down by efficient market. The domers of the world that are actually building the price in this could. [00:27:12] Speaker A: Be not just this price too, but like also the back model. The model driving this price has been back tested. By previous elections and we all have kind of agreed that this is the black Scholes or whatever. [00:27:24] Speaker B: Exactly, exactly, exactly. So you could have politics for one EPS earnings per share. That's great because another thing people get frustrated is they do all this work, they get the EPS correct and then the CFO goes, well, we're actually gonna be guiding down. And then it's part like if I knew that a company beat their eps, I could buy the stock, but the stock doesn't go up 100% of the time. [00:27:55] Speaker A: The stock price is in many ways a derivative of this metric. [00:27:57] Speaker B: Exactly. [00:27:58] Speaker A: You might be a lead at this one metric. [00:27:59] Speaker B: Exactly. [00:28:00] Speaker A: Eating the variance on the actual stock price. [00:28:02] Speaker B: So I could totally see a universe. [00:28:05] Speaker A: Where like this is similar to like making or missing earnings. [00:28:07] Speaker B: Yes. [00:28:09] Speaker A: There are a lot of metrics like this. [00:28:10] Speaker B: Right. I could totally see a universe where like we have like this one hedge fund who believes that this earnings EPS is going to be $2.25 and another is going to be $2.35 and they buy at $2.30 and they each pay like a quarter percent fee to the exchange and they bet 50 million against each other. And it's like they've both done their work. They're hedging their own positions by that as well or they're even taking, you know, opposition on it. Everyone wins in that scenario. I could actually see that world happening other than like direct financial markets that just like are derivatives of something in politics. I'm not seeing a whole bunch of stuff like the mention markets, the Mr. Beast, how many times he says this is YouTube, the Spotify things, they're more just like gambling in a way or like, you know, like that's what it is. But the thing is I would make the argument that most of triad fi is actually just straight up gambling. And I know it's technically trading and I know this is all technically trading, but people treat them more like. And it's tradfi. It's actually accepted. But in like prediction market space it's. It's not which is, which is wrong. It should be all considered one and the same. But I don't think that's necessarily a bad thing. But the problem is you can't make the argument that these products should exist if there's no actual real use cases. And I think if we really want to see this last for years Sports has a real valid use case and all those things. The EPs, political markets, they all also have real use cases. [00:29:54] Speaker A: How long the real, you know, the use cases with Financial impact are in many ways simply a validator of the concept. Once cultural normalcy is established, then it's strictly about product. Yeah, absolutely. And then the world completely opens up and. And I think we're just beginning to scratch the surface of the integrations that are possible. And I think you're going to start seeing a lot more tickers embedded into products that you. You never would have expected. Like. Like TVPN having, like, polymarket. [00:30:38] Speaker B: Yeah, yeah, yeah. [00:30:39] Speaker A: Like, stuff like that is going to be really cool. And I. And I think, you know, you can lose sight of this, but like, venture capital does in some sense drive a lot of this, right? Like, they. They are the ones writing these checks and they are developing other consumer web and mobile products that they're saying in part, like, no, no, no, we know this is worth this much money because we are going to build this next generation of consumer products that presupposes prediction markets are huge and integrates with them in every possible way. And this is just the reality we're going to deliver. Not like, you know, masters level, but I think that's. You're seeing an entire thesis around the possibility of an economy that works that way. Which, if it fleshes out, it's as big as saying, no, you don't understand. There's going to be so many apps on this phone. It's all about, you know, this new ecosystem. Like, it sounds silly at first, but then all of a sudden there's a lot of really good product built around it, and you go, oh, okay, I see what was happening here. But one thing, one thing at a time. [00:32:01] Speaker B: I think that's it for. [00:32:02] Speaker A: That's it for this week. Good talking to you guys. See you next time.