“We’re keenly looking into that space. Nothing to announce just yet, but it’s so important to our customers and in culture that we’re excited about it,” Tenev said.
The CEO suggested that Robinhood’s entry might resemble its recent rollout of event contracts ahead of the 2024 presidential election, rather than the traditional sportsbook model.
Event contracts allow users to trade outcomes among themselves, instead of betting directly against the house.
Robinhood, founded in 2013, revolutionised retail investing with its commission-free trading platform and focus on younger, tech-savvy investors.
Best known for its role in the 2021 GameStop trading frenzy, the company has since expanded into cryptocurrencies, cash management, and retirement accounts.
Analysts weigh in
Analysts at JMP Securities expressed scepticism about Robinhood’s potential to establish itself in the competitive sports betting market, however.
The analysts said that in this space, it is “incredibly hard to start from scratch,” emphasising the significant investments in technology, licensing, and infrastructure required to build a sports betting product.
They pointed out that even established operators have struggled to secure meaningful market share in the US despite spending billions.
“The US sports betting market is projected to increase to $14bn in 2024E, presenting an attractive, growing market, but even investments from the established mid-scale online companies have ranged from hundreds of millions to billions of dollars, only to garner mid-single-digit market share,” JMP said.
The analysts added that Robinhood might achieve greater success by developing a betting exchange, which could help mitigate the “risks associated with traditional sports betting.”
M&A as “only real viable option”
Alternatively, the analysts noted that Robinhood would likely need to pursue mergers and acquisitions (M&A) to establish a foothold in the competitive market.“We believe the customer funds are the selling point if Robinhood is seriously considering an interest in US sports betting.
“That said, Robinhood would still need technology and product, the two most important aspects of a sports betting operation, and we believe it would need to look at M&A,” the firm noted.
The analysts likened the situation to Fanatics’ 2024 acquisition of PointsBet’s US arm, which allowed Fanatics to leverage its large database and existing technology to secure a foothold in the industry.
“M&A is the only real viable option,” JMP wrote, citing potential targets including Rush Street Interactive and Fanatics.
However, the firm acknowledged the regulatory complexities Robinhood would face, particularly the need to separate customer funds between investing and sports betting activities.
Tenev’s comments sparked a brief dip in the stocks of established sports betting companies like DraftKings and Flutter, though many recovered later in the trading day.
Challenges ahead
The analysts concluded that Robinhood’s path to success in sports betting would be steep, particularly given the dominance of industry leaders FanDuel and DraftKings, which command 75-80% of the US market.
“The hurdles Robinhood would need to overcome, even via M&A, would take time and capital,” the firm said, adding that innovation by existing players could further solidify their market positions.
“We are not writing off Robinhood as a legitimate threat, or any other company looking at entering the space, but we believe FanDuel and DraftKings products and technology will only improve as companies develop a differentiated strategy.
“Overall, we believe there is no outside threat to the top two companies at this time, and that any others attempting to gain meaningful market share will need to do so over time, through a strong brand, product, and loyalty,” the analysts added.
Robinhood has not yet provided a timeline for any potential sports betting initiatives.
