Loads of Vultures: Funds, Agents, Bets

Interactive Transcript

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spk_0 I have another piece of information that can't be used in the podcast.

spk_0 We'll say it in front of the microphone.

spk_0 There's a dead possum in my backyard and I'm trying to pretend that I haven't noticed

spk_0 that's the answer.

spk_0 Mad.

spk_0 Bad gets worse by the hour.

spk_0 I know.

spk_0 The thing is we can't put this in the pot.

spk_0 Well, because then my wife would hear it.

spk_0 Did she listen?

spk_0 Sometimes.

spk_0 That's cute.

spk_0 So one day I noticed that dad scrolling my yard and I was like, and then like I forgot

spk_0 about it and I came out the next night and I was gone.

spk_0 There's like a fair number of birds of prey in my vicinity and I was like, huh, good job,

spk_0 birds of prey.

spk_0 So here's just hope and one of them gets the job done.

spk_0 But what's possible is now past this expression, did you?

spk_0 But by birds of prey, you most only mean vultures because I don't think like a hawk

spk_0 would eat.

spk_0 Okay.

spk_0 There's loads of vultures in my neighborhood.

spk_0 Right.

spk_0 But now we see we see bald eagles a fair amount and the bald eagle famously a scavenger.

spk_0 You know, I feel like I did know that actually, but I had.

spk_0 It's like Ben Franklin's whole thing.

spk_0 Like he wanted the national bird of America to be the turkey because the turkey is a

spk_0 noble bird and the bald eagle is a scavenger.

spk_0 It kind of reminds me of when my cat vomits in my apartment and I pretend not to notice

spk_0 it until my husband does and then he cleans it up.

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spk_0 Speaking of dead things.

spk_0 The death of a multi strat.

spk_0 Yeah.

spk_0 So yeah, there's been so many this week about Edward Isler's multi strategy hedge fund,

spk_0 which is called something like.

spk_0 Isler, multi strategy hedge fund.

spk_0 So long, those signs is winding down because it's hard out there for a multi strategy

spk_0 hedge fund that is not one of the big four multi strategy hedge ones.

spk_0 Yeah, this is a great scoop from Bloomberg.

spk_0 I did enjoy also the post mortem written by Sarah Butcher over at E Financial Careers,

spk_0 which spoke to a bunch of people who had worked there or were familiar with it.

spk_0 And I don't know, you add the two articles together.

spk_0 It seems like a lot of this just comes down to costs.

spk_0 Also returns weren't great.

spk_0 Yeah, the hedge fund market has gotten so much more efficient in like my time.

spk_0 It used to be that if you want to start a hedge fund, you start a hedge fund.

spk_0 And you got capital based on your track record, but also your ability to appeal to LPs and what

spk_0 was in style and what institutional investors were looking for.

spk_0 And now increasingly the hedge fund business is dominated by these big multi strategy funds,

spk_0 like Millenium and Citadel and 0.72.

spk_0 And if you are a person who wants to run money, you probably end up going to work for those

spk_0 guys rather than going off on your own.

spk_0 And to run money for those guys, you don't have to be good at LPs, you don't have to be

spk_0 necessarily in style.

spk_0 You're just doing a job at a big firm.

spk_0 And so as the market gets more efficient, like the people who are good at those firms

spk_0 get handed huge piles of capital to trade.

spk_0 And it's just harder and harder to work outside of those institutions.

spk_0 Yeah.

spk_0 In particular, it seems really hard to run a multi strategy fund.

spk_0 Yeah.

spk_0 I feel like just the story of Iceland general is aside of the times in two different ways.

spk_0 Because it didn't start as a multi strategy.

spk_0 It started as just a single manager fund, then it pivoted to become a multi-strat in like 2021.

spk_0 And now it's winding down because it's not Millenium or Citadel to oversimplify it.

spk_0 Right.

spk_0 When I read his email to be like, his mistake was pivoting to being a wealthy strategy fund.

spk_0 Like when you're a single manager fund, you have his own skill, which is what allowed him

spk_0 to launch a hedge fund.

spk_0 And you have much more ability to evaluate the people you're hiring because you're kind

spk_0 of hiring them to assist you in making calls that you have a good understanding of rather

spk_0 than hiring them to stand up an entirely new business under your umbrella.

spk_0 My headline about this was something like hedge funds have to be big.

spk_0 That's not really true.

spk_0 There's still a market niche for like people running single manager, specialized hedge funds.

spk_0 But it's probably true that multi strategy hedge funds have to be big.

spk_0 Right.

spk_0 So if you're going to pivot from being a single manager fund to being a platform for a lot

spk_0 of portfolio managers, you have to be a big platform because otherwise they'll go to somewhere

spk_0 that can go to more capital and more money.

spk_0 I don't know why he pivoted.

spk_0

spk_0 And clearly like there is some pressure to pivot.

spk_0 Even if you run a single manager fund that has like a good track record and is really

spk_0 good at its specialty, you're still going to feel kind of like squeezed by the big multi strategy

spk_0 funds that have more resources and are like an easier check for big allocators to write.

spk_0 It's like harder to compete with them.

spk_0 And so you might think, well, the best way to compete with them is to be a multi manager fund

spk_0 myself. But that's the big bet.

spk_0 You have to become a giant multi strategy fund to really compete.

spk_0 Instead of getting even better at your thing, you spread out across all the things.

spk_0 Plus like by the way, all the people who run the big multi strategy funds like

spk_0 did kind of start as you know, hedge fund managers and then he came managers of hedge fund managers

spk_0 right. So there is a path right. It's just it's like where how many people can follow it anymore.

spk_0 Yeah, I don't know if I would pivot my hedge funds that I run to become a multi manager fund

spk_0 in this day and age. I do want to talk about fees because that's a recurring theme here is

spk_0 that the pass through expenses at Eisler were really high and they were trying to bring them down.

spk_0 And our pass through fees unique to the multi strategy dynamic.

spk_0 Yeah, the modern multi strategy funds are somewhere between hedge fund and a fund of funds.

spk_0 They're kind of like their business is to higher portfolio managers, allocate capital to them

spk_0 and sort of pay them like hedge fund managers and then collect fees from the ultimate investors.

spk_0 And so yeah, the pass through fees are traditionally a hallmark of modern punch ups because

spk_0 they go to pass through fees. I mean, it's like paying for rent and Bloomberg terminals and stuff.

spk_0 Really what it is is paying performance fees to the individual portfolio managers,

spk_0 regardless of the performance of the overall fund. So like when you're hiring portfolio managers,

spk_0 you can pay them incentive compensation on their own performance. And I think in the current

spk_0 market, you pay them like accelerated performance compensation on their own performance. So you pay

spk_0 them like a bigger chunk. If the going rate is they get 20% of their profits, like you might pay them

spk_0 30% for their first year so that they like have an incentive to join you because it's like a really

spk_0 hot market for hedge fund talent. And if you're doing that and you run a big fund, you have some

spk_0 economies of scale and you have some offsetting, like you have the ability to like aggregate a lot

spk_0 of good portfolio managers into something with like high and uncorrelated returns. But you have a

spk_0 big expense base. And if you are a smaller fund, it is harder to spread that expense base over a

spk_0 lot of winning bets. Well, you think about some of the figures that Nishanku Maro'd about. So

spk_0 the firm charge clients, $244 million in pass through fees in 2023. It was about 200 million in

spk_0 2022. They had a restructuring earlier this year and we're trying to bring their pass through fees

spk_0 down to 2022 levels. But then you pair that with the Sarah Butcher article and there are some snarky

spk_0 quotes from people who used to work there about how a lot of their real risk takers had left,

spk_0 like their hot shots. And they just had, this is a direct quote, they had far too many junior people

spk_0 who didn't know how to take risks. So it seems like their costs were really high for at least what's

spk_0 being described in this article is subpar talent. Well, this is just like the efficiency of the market.

spk_0 Like this is what Kappy Palaiola said to us on the podcast that the funds that he works at are

spk_0 SIVs for talent, right? Like you have the big funds are pretty good at identifying talent,

spk_0 pretty good at firing people they don't think are talented. And so they end up with a lot of the

spk_0 good portfolio managers and if you're a good portfolio manager at a multi strategy fund,

spk_0 your name's not on the door, you're kind of doing it for the money, right? Like if someone is like,

spk_0 we'll allocate you more money and give you more of your performance as a fee then you end up at

spk_0 the bigger places that can allocate you more money. And if the bigger places are really good at

spk_0 identifying talent, that's how the talent say works. And that makes it really hard for someone who

spk_0 runs a smaller place to keep the best talent. There was something in the article about how a lot of

spk_0 the meeting rooms after the slutter went out were filled with people calling headhunters, etc.

spk_0 Apparently some insiders know that Islanders more mediocre portfolio managers will now simply

spk_0 fan out across the industry and dilute returns elsewhere. That's just a skull. I don't know why that

spk_0 would be true. I mean, I don't know. I wish the best to all mediocre portfolio managers. But

spk_0 um, that's the talent set, right? Like, no one's like, ooh, let's scoop out the mediocre portfolio managers,

spk_0 right? They're trying to find the people who have good returns.

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spk_0 A lot of these Isler employees were calling headhunters at the start of the week. They could have

spk_0 been calling actually their new agent. Okay. So there's the most original story about this guy, Ryan

spk_0 Walshue, is I think has styled themselves as the first talent agent for headshot managers,

spk_0 or portfolio managers? I've certainly never heard of one before.

spk_0 Haven't you though, because you've heard of recruiters. I've heard of recruiters. I've heard

spk_0 of them. Are they different? They're a little bit different in terms of who's paying. Yeah, okay.

spk_0 I said it. Yeah. All right. Do you think they're not different? Do you think they're different?

spk_0 They're a little bit different. Yeah, they're a little bit different. You can call a headhunter.

spk_0 The headhunter will, one, try to find your job at a hedge fund, and two, try to get you the

spk_0 best possible compensation package, because probably they get a cut of it, you know? True.

spk_0 Now, but that cut isn't coming from your page. No, right. It's coming from the hedge fund,

spk_0 which is, so, so, right. A traditional headhunter is probably more aligned with the employer,

spk_0 whereas an agent is more aligned with the employee. They should be. They should be.

spk_0 But they're mostly interested in burpering a deal rather than, like, we're all trying to eat, you know?

spk_0 Yeah. So, I don't know. My friend is that like a hedge fund agent is not so different from

spk_0 a hedge fund recruiter, but it's a little different. There's nuance. There's nuance. And this guy

spk_0 is apparently the first hedge fund agent, but possibly the first one to have a work of art

spk_0 featuring Ari Gold, the agent from entourage on his walls. Yeah. You know, you like watch, like,

spk_0 you know, some number of people are like watching entourage, like, oh, I could be an agent for

spk_0 hedge funds. I don't understand, but so, this is what I think about hedge fund agents. Like,

spk_0 you think about like agents classically. It's like sports, actors, television,

spk_0 actors, things of those nature. It's like traditionally people whose day job is not

spk_0 financial negotiation. And they possibly somewhat unwirly, right? Like, you think about like,

spk_0 a quarterback is not like a business person. They're like, you know, they're throwing a football.

spk_0 They're not like, thinking about business all that. It's funny to have an agent for like a hedge

spk_0 fund manager who like, I would think that if you're a portfolio manager at a hedge fund,

spk_0 you actually do have a pretty good sense of the market for portfolio managers that has funds

spk_0 in a way that that's true. You know, a novelist might not. That's true.

spk_0 You just sort of like as a matter of temperament and personality. You pay attention to those things.

spk_0 And you'd like be able to discuss the value of getting a higher percentage of your profits versus

spk_0 an upfront, you know, like, you'd think about related topics all day. And you'd be keenly

spk_0 interested in this. So you'd probably have less need for an agent. But as the guy points out,

spk_0 like, you do have a demanding day job and so you probably aren't closely tracking the market for

spk_0 portfolio managers. And like, the market is not super transparent. So like you're relying on

spk_0 rumor and anecdotes to know what people are getting paid elsewhere. And so if there's an

spk_0 agent who collates all of that information, he's going to provide value to you.

spk_0 Also, the idea of someone that goes shading on your behalf and like, again, yes, I agree.

spk_0 I would want someone to negotiate it on my behalf. It's possible that a lot of hedge

spk_0 and portfolio managers are happy to negotiate. I don't know if you're going to get stressed

spk_0 guy. You're like, yeah, I'll, I'll curse at my boss. Maybe you just want to sit in front of

spk_0 your Bloomberg terminal or whatever and think your big thoughts. No, I agree. I think there's

spk_0 a range of people and they're certainly a lot of people who have killer instinct as like electronic

spk_0 traders, but don't want to negotiate with their boss for more money. Yeah. And so they can hire an

spk_0 agent reading this article else without about like, you know, really should have agents tell me

spk_0 AI researchers who like check all the boxes. First of all, they had paid like an order of magnitude

spk_0 more than hedge fund portfolio managers, which is crazy. Second, they are like stereotypically

spk_0 kind of unwirly and like, they've been like articles about like, oh, like these 23 year old AI

spk_0 researchers are yeah, consulting with their friends to see what they should take a $250

spk_0 million offer from market like a week. They should have an agent. Yeah. I should be it. I mean,

spk_0 I shouldn't be because I'm terrible at all aspects of that job. Yeah, but you'd probably be

spk_0 slightly better than that 23 year old. That's right. Because like ultimately the job is to like

spk_0 appeal to Mark Zuckerberg. That's true. He likes the 23 year old. That's true. It's not even like

spk_0 cold calling. Your only call is to Mark Zuckerberg and trying to write it's a degenerate market.

spk_0 It's not like, yeah, this is what all the rates are. It's like, no, this is Mark. It is funny

spk_0 that the Wall Street Journal article mentioned that their business is dependent on the scale and

spk_0 proliferation of multi manager hedge funds and could dry up if funds suffer a run of poor

spk_0 performance or redemption. And of course, we're talking about the death spiral of

spk_0 Eisler. And it's almost similar to the AI researcher. You know, you're calling up Mark Zuckerberg

spk_0 or you're calling up is he Englander or can Griffin? It's a slightly bigger poor. Obviously.

spk_0 It's an interesting question. Like this world that we live in of these like multi strategy

spk_0 pod jobs, paying a lot of money and sort of dominate in the hedge funds. It's relatively new world.

spk_0 And right, it's possible that it's a blip and all of this will dry up and something new over

spk_0 place it. But it does kind of feel like this is the correct organizing model for the hedge fund

spk_0 world where you have like these big institutions that can allocate a lot of capital to investors

spk_0 and measure their skill really carefully and maximize the fees they can charge their limited

spk_0 partners. It feels like it's a sort of correct and efficient organization of the hedge fund industry.

spk_0 And in that correct and efficient world, like agents will thrive. Right. If like all these multi

spk_0 manager funds blew up and we went back to a world of like single manager funds with the managers name

spk_0 on the door, then you wouldn't need an agent, right? Yeah. You'd be a different thing. Like you'd be

spk_0 these hedge fund managers would need capital introduction, right? They'd need like to meet with

spk_0 all P's, but they wouldn't need to get hired by big firms. But I think the world we live in now

spk_0 where the big firms hire the portfolio manager feels kind of robust. It's not like just an accident

spk_0 that it's organized that way. Yeah. No, it feels like it's a ripe space for agents to be in. And I'm

spk_0 kind of surprised that this is the first. Yeah, that's true. It's cool that he struck out on his

spk_0 own and styled himself as an agent versus just another headhunter. Yeah. I mean, you see the appeal

spk_0 of a headhunter, which is the headhunter cold calls you at your current job. It's like I'd like to

spk_0 get you a new job where you get more money. And I will take zero percent of it. And this guy calls

spk_0 you and I'll take a single digit percent of it. Yeah. Well, apparently he's doing well. Yeah,

spk_0 well, the pitch of I will take a single digit percent when the number is very large. It's

spk_0 actually pretty appealing, right? It's like on the go show on your behalf. I'll work for you,

spk_0 not for the hedge one. I think I don't know. That's an appealing pitch if the numbers are large enough.

spk_0 Yeah. Also single digit, not bad. Yeah. So he founded this shop according to LinkedIn and this

spk_0 article a year ago, October, 2024, he's helped 12 clients land jobs in deals worth a combined

spk_0 $180 million since launching. So it's not the top of the top end where like individual deals are

spk_0 $50 or $100 million, but they're pretty good. Pretty good. It's like 15 million average. And maybe

spk_0 those people will, you know, their next jobs will be bigger. Yeah. Yeah. Good on you. Ryan Walsh.

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spk_0 I

spk_0 I love football. And so do folks on the prediction market that is Calci.

spk_0 I do love the Calci, which is simultaneously a sports book and not a sports book.

spk_0 They advertise like you need to throw in a wink there. Simultaneously a sports book and not a

spk_0 sports book. Yeah, they like advertising Instagram like, you know, they only legal sports gambling in

spk_0 all 50 states. And then they're like, we don't do gambling. But this has nothing to do with gambling.

spk_0 Yeah. The other thing that makes them unlike a sports book is that they don't license like the

spk_0 NFL's trademarks. So like you can bet on the silver ball, but it's called the pro football

spk_0 championship. You can't call the big game. The game is controversial. I think it's a part the NFL

spk_0 tried to trademark. That's awesome. Yeah, that's great. And in any case, Calci will allow you to bet

spk_0 on the pro football competitions. And the latest news in Calci is that they are now offering

spk_0 same game parliaments. We talked about this on the Melvagov. So prediction markets come out of

spk_0 this like high-minded idea of like we're going to have these prediction markets that produce

spk_0 information about two politically important events, right? We're going to allow people to predict

spk_0 events that's going to provide more information for the market. And it's going to be great.

spk_0 It's going to allow people to hedge the results of elections, right? Yeah. And it turns out that

spk_0 the demand for that is, you know, like every four years, you want to bet on a presidential election.

spk_0 Otherwise, it's just not that hot. It's like the Olympics. Yeah. You care about track and field

spk_0 once every four years and then you move on. Unless you're kiddie-gryphal. But all dress-wise,

spk_0 and track and field that you're asked. Yeah, esoteric sports. But it turns out that when you have

spk_0 a prediction market, one thing people like to predict is sporting events. And those happen all

spk_0 the time. And people are really addicted gamblers who put a lot of money into predicting sporting

spk_0 events. Yeah. And so if you can have your prediction market predict sporting events,

spk_0 then that's a big business. And everybody thought all of the time until this January that

spk_0 that would be crazy. And then obviously you couldn't have sports gambling in your prediction

spk_0 market. But now you can. Yeah. So now CalShi does. And we've talked about like the regulatory drama

spk_0 where like the states all try to stop them from doing this. But CalShi has so far succeeded in

spk_0 time. The states have to buzz off. But anyways, in other rough and same game parlays,

spk_0 I really talk about this. Sounds insane, right? So like Robin Hood is like we're democratizing access

spk_0 to emerging asset classes like sports predictions. But it's like the emerging asset class here

spk_0 is same game parlays, which is just like a product for gamblers. Yeah. Like no socially beneficial

spk_0 information is created by people betting on like the joint odds of like a football team winning

spk_0 and having the over and like someone scoring a touchdown to self-certify these contracts to like

spk_0 allow CalShi to do this. They don't have to get approval from the CFTC, but they have to like

spk_0 file a form with the CFTC being like we're doing this. And with the form, they have to say what the

spk_0 purpose of it is like with the hedging or like price discovery purpose of it is. They don't have

spk_0 to publish that. So they've confidentially told the CFTC like yeah, someone somewhere is hedging

spk_0 some economic risk by betting same game parlays and a football game. But seems like a pretty marginal

spk_0 use. There's like certain people in the world that I want to sit down with and like give them

spk_0 truth serum and ask them specific questions. And one of those people is probably glad

spk_0 ten of and I want him under truth serum to tell me like what do you truly see in this prediction

spk_0 market that's different from just sports gambling or the founders of CalShi. Those are questions

spk_0 that I would like to ask. I know, but we can't give them truth serum. I think they're pretty

spk_0 truly believe that there is a real substantial difference between a prediction market where you

spk_0 can offer single game parlays versus just sports betting. Okay. One, no. Two, but I know that you

spk_0 think that too. I think that what people have historically said about this is that there's a big

spk_0 difference between sports books and prediction markets. And that difference is that a sports book

spk_0 is on the other side of the bat from you. Right. And a prediction market is just a platform where

spk_0 people can bet against each other. Faceless emotionless. No, it's not faceless motions. It's a peer-to-peer

spk_0 platform. It's a place where I want to predict that the bills will win. You want to predict the

spk_0 Patriots will win. We bet against each other. Go bills. CalShi brings us together. They

spk_0 parade a platform for us to bet, but they're not the bookmaker. They're not setting the odds.

spk_0 They're not taking the other side of it. They don't want you to lose. They don't care. They're just

spk_0 like intermediate between people on one side and people on the other side. They don't want anyone

spk_0 to lose. They're not trying to trick anyone. They're not trying to limit winning bettors. They're just

spk_0 bringing people together. Whereas a sports book is betting against you. So they want you to lose.

spk_0 They want you to bet a lot of money and lose. And if you bet and win, they will limit you so that

spk_0 you can't win too much money from them because they're taking the other side of everybody.

spk_0 I've always found this distinction overstated because the way, for instance, Robinhood works

spk_0 when you trade stocks is not only like you can buy yourself stocks. Robinhood is not on the other

spk_0 side of you, but practically your orders are going to a market maker. Modern markets have market

spk_0 makers who are taking the other side of you and they want loosely speaking to win. Right.

spk_0 And in prediction markets, it's a mixed bag. It is clearly the case that small dollar prediction

spk_0 markets and local elections. Jane Street is not taking the other side of your bet on that.

spk_0 They're clearly, they really are a peer to peer. Some people are more professional than others.

spk_0 Some people have more capital than others. But ultimately, their prediction market is just

spk_0 the platform for people to bet against each other. With sports, it's not clear that's true.

spk_0 You have some of the big market makers. So, it's called Hanaz, a big sports betting business now.

spk_0 The big market makers will support sportsbooks or trade on sportsbooks.

spk_0 It seems clear that some big market makers, if there's a big enough demand to trade sports bets

spk_0 on prediction markets, they'll be on the other side of the sports.

spk_0 Again, there's a market you can take either side, but a market maker will sit in between

spk_0 and try to take the winning side of the bet. This is especially true with parlays because the way

spk_0 a parlay works is there's no natural person on either side. If I pick here the six things that I

spk_0 think will happen in this football game, and if I hit all of them correct, I win a lot of money,

spk_0 and if I miss even one, I get nothing. No person is taking the other side of that. No individual

spk_0 retail gamblers. I want to predict that one of these six things will not come true, and if they

spk_0 all come true, I'll pay a lot of money. If none of them come true, then I'll make a little money.

spk_0 There's not a retail gambling bet. The person on the other side of the parlay has to be a market maker.

spk_0 It's not entirely clear exactly what the mechanics are, but it seems like the mechanics are

spk_0 there's a market maker with a pricing model. If you pick a parlay, you can get it sent to the

spk_0 market maker who will fill it for you at the market maker sets. That's different from

spk_0 everything else on Kelsey. It's different from the story of we're just a neutral platform,

spk_0 where people can trade. This is clearly a story of you are trading with a market maker. It's not

spk_0 Kelsey. Kelsey isn't directly bidding against you, but someone is directly betting against you,

spk_0 who is partnered with Kelsey to provide the service. Maybe he's more than one somebody.

spk_0 A bunch of market makers are providing the prices, but that's pretty different and much, much,

spk_0 much, much closer, not only in the product, but in the structure to traditional sports betting.

spk_0 I see how obviously from the perspective of Kelsey, that is a really substantial and

spk_0 meaningful difference. I'm saying they're getting rid of that difference

spk_0 by doing the parlays. It's going to say if I'm an investor or a better, a trader on

spk_0 Kelsey versus a gambler on Fandule, is my experience any different?

spk_0 Probably not. It's different in various ways. The news this week of Kelsey offering parlays,

spk_0 caused a big drop in the stocks of the traditional sports books. They both went down like 10%

spk_0 Fandule and Flutter. But Kelsey is still a teeny tiny fraction of the size of them,

spk_0 because they offer more bets and a better user experience and everything. That's converging.

spk_0 But is your experience different? Yeah. You do the buttons you push and the layout of the

spk_0 thing is different. I don't know how big a difference it is that they are a platform and other

spk_0 places are sports books. Because I do think that in either case, you're facing ultimately some

spk_0 algorithmic price center, some professional who sets the prices and tries to set the market,

spk_0 the prices so that the market is just like any other market maker. You won't have a relatively

spk_0 balanced book. You don't want to be facing a huge risk of betting all on one side so that if you

spk_0 lose, you lose a lot of money. But you take some risk. You're not looking for a perfectly balanced

spk_0 book. You're looking to have some bets where you think the odds are in your paper.

spk_0 Yeah. The fact that you did have those shares drop meant that sales side analysts had to

spk_0 react to the news. There was an article by the Wall Street Journal quoting this benchmark analyst,

spk_0 Mike Hickey, who made the same point that this is small until it scales where it becomes more

spk_0 robust. It doesn't appear competitive. It seems like Drop Kings and Fan Duel still have an edge.

spk_0 He also mentioned that the strategy by Cal State to make themselves look just like a sports book

spk_0 certainly comes with some risks, which is interesting. You made the point that there's all this legal

spk_0 drama, but then the calendar flipped and it was January of this year. Now you're in Trump's America.

spk_0 Yeah, I don't think they think it comes without my trust. There's risk. The court cases are still

spk_0 on appeal. There's still some risk that it will turn out that there's subject to state gaming

spk_0 regulation. Basically, this kind of goes away. Not entirely. This kind of goes away. But I think

spk_0 they're very strongly betting on in Trump's CFTC. They can do whatever they want to know and we'll stop

spk_0 them. It's funny because Drop Kings, the CEO apparently has specifically cited Cal State's legal

spk_0 troubles as part of the reason why they've steered clear prediction markets. But I think they should

spk_0 fight back. They should launch their own prediction markets and go for it or they should offer

spk_0 stock trading. Why not? Offering stock trading is actually a separate set of questions.

spk_0 Yeah, that's how they're prediction markets are gambling. I think if Cal State ultimately

spk_0 ends up a really big competitor to a Fan Duel and draft Kings and the legal stuff has

spk_0 always all resolved in favor of like you can offer whatever bets you want on a prediction market.

spk_0 Then Cal State has a huge advantage. They're legal in 50 states and it's not free from doubt.

spk_0 They seem to get a better tax treatment. And so there, yeah, I think Fan Duel and

spk_0 draft Kings flip into finding a prediction market. I think it's hard. You have to like

spk_0 register with the CFTC event. There's a path to doing it. Fan Duel did it, apparently.

spk_0 Sort of. They parted with the CME for like, yeah. I've written.

spk_0 Go on. And this will be a bit interesting. That within the next few years we're going to see a

spk_0 football that ETF. You're right. You're going to end it here. Yeah.

spk_0 And that was the Money Stuff Podcast. I'm Matt Levine. And I'm Katie Greifeld.

spk_0 You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com.

spk_0 And you can find me on Bloomberg TV every day on the close between 3 and 5 p.m. Eastern.

spk_0 We'd love to hear from you. You can send an email to moneypod at Bloomberg.net.

spk_0 Ask us a question and we might answer it on the air.

spk_0 You can also subscribe to our show wherever you're listening right now and leave us a review.

spk_0 It helps more people find the show. The Money Stuff Podcast is produced by Anna

spk_0 Mazerakas and Rose Zandam. And special thanks this week to Cal Brooks.

spk_0 Our theme music was composed by Blake Maples. Amy Keane is our executive producer.

spk_0 And Sage Valman is Bloomberg's head of podcasts.

spk_0 Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.

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Loads of Vultures: Funds, Agents, Bets

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