KKR To Buy Sports Investor Arctos; Robinhood's Prediction Markets

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1:28Racing is unique because there is absolutely no reason why we can't compete with the guys. Come on, is pro pickleball real? Are people really going to tune into this? If you're playing money ball with a huge bag of money, you're going to be really, really good. Bloomberg Business of Sports from Bloomberg Radio. Hello, this is the Bloomberg Business of Sports where we explore the big money issues in the world of sports. I'm Michael Barr. I'm Damian Sassauer. And I'm Vanessa Perdomo. Coming up today, we'll talk with Vice President and General Manager of Futures and International for Robinhood Markets about his company pushing into prediction markets.

2:05The goal that I was brought in for was to begin to offer not only our U.S.-based product internationally, but also to develop a futures product here in the U.S. that we could offer out to our retail investors. And in that pursuit to offer, I will say, the futures product is where we developed an opportunity to offer prediction markets out to our end clients. And so a little over 12 months ago, we launched prediction markets on the presidential election. And then from there, we've continued to build that product out. And we are looking into our crystal ball for 2026. Our team of sports business reporters here at Bloomberg News got together to share what they think is in store for the sports world in the new year.

2:49And you're going to want to hear it. We know somebody. We're pretty smart. Yes. All that is straight ahead on the Bloomberg Business of Sports. But we start with a big story in the world of sports investing. And it is a big story, Michael Barr. Our private equity giant KKR is working on a deal to acquire Arctos Partners, a deal that values the sports-focused private equity firm at about$1 billion. For more on the deal, we welcome Bloomberg News private equity reporter Allison McNeely in the studio. Allison, welcome to the Bloomberg Business of Sports. Thanks so much for joining us. Thank you for having me.

3:23Now, what happens when this deal is set upon the landscape? Will it change everything in sports? It's certainly a significant development in terms of the institutional capital that is quickly swarming into seemingly all areas of sports. KKR, you know, one of the oldest private equity firms in the United States, really in the world, and kind of the granddaddy of the asset class, if you will. They have been investing for a few years now, sort of around the edges of sports and media and entertainment. But this Arctos deal that is on the table with the leagues, this would really move them in a meaningful way into minority team ownership and, you know, put another big money player in the business of owning sports teams.

4:16That's exactly what I wanted to ask you, Allison. Has KKR been looking to get more into exactly that, like you said, into team ownership? Is that exactly what they looked at Arctos? Has it been something that, because you said they're invested in gaming and other things around, but team ownership is a completely different ballgame. It is a totally different ballgame. So KKR is really, as I've heard from sources that I've spoken with, they're really kind of looking at all the opportunities. So obviously Arctos deal would put them into team ownership, But, you know, they're looking at stadium financing.

4:46They're looking at media rights. They're looking at, you know, lending. You know, they have been invested in some of these ancillary sort of services businesses. So they're really kind of assessing the landscape. I think the consensus view in the private equity industry is just that sports is a huge opportunity and there's a lot of money to be made in it, depending on kind of which angle you tackle it from. Consolidation, right? I mean, we know that the NFL has basically limited the number of teams or the stake sizes that private equity firms can take and professional franchises. You know, do you foresee that this type of a deal, consolidation in the industry, can create some issues there, can perhaps create some forced liquidation, so to speak?

5:30Is that a risk? I'm not sure that that's a risk at this point in time, but I would maybe not be the best person to comment on that. What I think is happening more than anything right now is folks in private equity from the investing side are kind of looking, everybody's looking for their way in. And how they sort of tackle that and who might be willing to sell to them or who might be willing to come into the club is kind of what's most top of mind for these managers. I remember back in the day, here I go, back when you could buy the Detroit Tigers for$36. And if you had the sponsorship, you know what?

6:10And if you had the sponsorship from Fred's Bait Shop, you were good to go. Now, not only owning the team means something, but you have to have the sponsorships as well to make a whole bunch of money. And the sponsorship thing is a really interesting question, because one thing that I've heard from speaking to people kind of around sports investing is the potential for conflicts is a really, really big issue for them. And certainly that's an issue. I shouldn't say issue, but that's a question for this deal. And right now we're hearing that this deal has gone to the leagues to start to get their approval.

6:52And so they're kind of, as I understand it, running checks to basically find out, like, you know, is there some athlete somewhere who's, you know, a pitch man for a KKR portfolio company that they're not aware of that might create some kind of potential conflict? So, yes, there's tons of money to be had in sponsorship. And, you know, that obviously plays into the valuations of these teams and these assets. And we are speaking with Bloomberg News private equity reporter Allison McNeely. And like, Allison, when you're just exactly on what you're talking about, when they're talking about how these leagues have to run checks, I mean, Arctis is into the NHL, the NFL, the NBA, all these different leagues.

7:31So with a deal like this and they've, you know, they're agreed to acquire it, but all these leagues have to say yes. And how long does something like that take to get over the line? So that can just depend. I've heard that it can take months. So I don't know that we know, or I certainly don't have any reporting at this time that indicates exactly how long it might take. But it can take several months. It can be a very complex and certainly a thorough process. Considering also KKR's vast portfolio. Yeah. They have$723 billion in assets under management as of the end of the third quarter. They're one of the largest private equity firms in the world.

8:15They're constantly getting involved in new areas of investing. And, you know, you got to run the traps and see, you know, if there are any conflicts. All right. So I get it. So, I mean, basically, the acquisition goes through. We have a bigger, better Arctos with some better institutional capital behind it. What comes next? I mean, they own PSG. They own the Devils. They own professional football teams. I mean, where, you know, do they go next? What do you think comes next for a firm such as Arctos? So for a firm like Arctos, the value proposition that they bring to KKR is essentially giving them an entry point into all of these leagues.

8:55As you noted earlier, they're already invested with teams in the major four leagues, so they kind of have boots on the ground. And that's a real competitive advantage because some of the other private equity firms who are in sports investing, there are certain leagues that they can't invest in because of, you know, there's one guy at the firm, you know, the co-president, the co-founder, something like that, who is a investor as a person, as an individual in a sports team. And so therefore, the investment firm, it can be very tricky for them to invest as an institutional investor in the sports team.

9:28And so this deal potentially, because Arctos doesn't have those issues and because KKR, to my knowledge, doesn't have those issues, what this really means for Arctos is they now have big money giant behind them. They kind of have clearance in all the leagues already. And, you know, they have access to the really sophisticated operational and investing capacity of KKR to kind of grow into all sorts of other areas. Certainly when I talk to people who invest in sports, the two themes that come up over and over again are college sports and women's sports. So you have to wonder, are they going to start doing deals in that space?

10:07I don't know, but that's certainly a question that would be a good one to ask. To bring more money into women's sports, I'm all about it. You had just said something on that, is that not every private equity is allowed to invest in certain leagues. In the NFL, there's only about six or so that are allowed to invest, and Arctos is one of them. But KKR technically wasn't. So is that something else that they have to check before? Or do they now have to be approved by as a official partner? Exactly. Exactly. Yeah. So so by becoming the owner of Arctos and sort of absorbing it into their their firm, KKR now has to get all the approvals that, excuse me, that Arctos got before.

10:48So that's exactly that's exactly what would happen. Right. Now, I want to compare two different types of owners at the especially in the NFL. No. One, you have Jerry Jones, owner of the Dallas Cowboys, and he's going to do it the way he's going to do it. Then you have other teams where you have a lot of private equity owners also involved. Can a guy like a Jerry Jones compete with a team that has a lot of money to it? I have no idea. No, but that's actually a really good question because it has the potential as more and more of these huge money managers come into sports, it has the potential to fundamentally change the landscape.

11:37They are so deep pocketed. You know, KKR and their peers are bringing in fresh dollars constantly. We haven't even talked about wealth. You know, private equity firms are trying to reach individual investors now and they're creating all sorts of investment products to market to people in their brokerage account and their 401k account. And so, you know, if you have all that retail dollars coming in, as well as your pension funds and your traditional investors, they just have a ton of money coming in all the time that they can put to work in, you know, potentially in sports. Allison, we've been talking a lot about how this is a win for KKR and getting into team ownership.

12:17But how big of a win is this for Arctos? Is the valuation proposition that they got and how big of a win is it for them? I mean, I would say that, you know, the individuals at Arctos with equity are probably happy. Is it$1 billion or$1.5 billion valuation that they got? So the valuation is around a billion dollars, but the way the deal, as I understand it from speaking with people who are familiar with it, is that there are sort of what they call earnouts or incentives. And basically, they bring over the senior team, and then depending on how the business performs, that can kind of potentially boost the valuation.

12:56And so, yeah. So there's a kicker in it for Ian Charles, is what you mean. Yes. Well, I mean, let's be clear. I mean, it's going to be an interesting scenario, to say the least. Allison, thank you so much for joining us here today on the Bloomberg Business of Sports. Allison McNeely, Bloomberg News private equity reporter, thank you. Thank you for having me. Up next, Robin Hood's move into prediction markets. Today, we got another old friend of the show. We're just piling them on all this week. For Damien Sassauer and Vanessa Ferdinand, I'm Michael Barr. You are listening to the Bloomberg Business of Sports from Bloomberg Radio around the world.

13:47I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you fascinating conversations with the people who shape markets, investing, and business. CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, everybody that affects what's going on in the market, whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations. Sometimes it's behaviorists like Dick Thaler or Bob Schiller. Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short, and Moneyball.

14:32Regardless of the conversation, these are the folks that move markets each week. That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify, or wherever you get your podcasts. This is Bloomberg Business of Sports from Bloomberg Radio. This is the Bloomberg Business of Sports, where we explore the big money issues in the world of sports. I'm Michael Barr. I'm Damien Tassauer. And I'm Vanessa Perdomo. Robinhood is pushing its way into prediction markets. And here to talk about the company's expansion and growth in the space is J.B. McKenzie. He's Vice President and General Manager of Futures and International at Robinhood Markets.

15:19J.B., welcome to the Bloomberg Business of Sports. Thanks for having me. You are Vice President, General Manager of Futures and International Robin Hood Markets. Tell us about that. Yeah, I joined almost three years ago to the day, and the goal that I was brought in for was to begin to offer not only our U.S.-based product internationally, but also to develop a futures product here in the U.S. that we could offer out to our retail investors. And in that pursuit to offer, I will say, the futures product is where we developed an opportunity to offer prediction markets out to our end clients. And so a little over 12 months ago, we launched prediction markets on the presidential election.

16:06And then from there, we've continued to build that product out. But it was all with this idea of creating the one-stop shop for everybody to be able to trade. That sort of financial super app that our CEO, Vlad, has been envisioning and pushing us to develop is what we started to create. And I mean, what a year it really was, right, in 2025 for prediction markets. It feels like, you know, back in 2018, the big new word was sports betting. And it was all this stuff. And we talk about it a lot on this show, sports betting. But now it feels like prediction markets is this new hot thing and everyone's talking about it.

16:42Tell us about how they differ from each other and why you think that prediction markets are getting so popular as a medium right now. No, Vanessa, absolutely. I think it's a great question. And I think the first thing I would start off with is that prediction markets, even just overall, whether it's sports or not sports, they actually use the identical structure as equity options in future markets. And what that means is it's a centralized order books where bids and offers come in from other participants in the markets. Unlike, let's say, a sports book where the sports book sets the line and creates the market and then you trade against the sports book.

17:15So there's sort of this inherent conflict, right, where the sports book is actually giving you a price and a product. And in some cases, it will reap a reward based upon you not being successful in that trade that you make. So I think that's the first thing. I think the second area that's really important about it is with that centralized order book comes transparency and consistency. And what I mean by that is whether you're a customer in New York or a customer in Illinois from where I'm from, you get the identical price for the trade that you're making. You see the same thing. The cost is the same.

17:48The price is the same. It's transparent for all the participants that are in the market. Again, just like what we see out of the traditional equities and futures and options markets. And then I think the third thing that's important about this is this is a CFTC or federally regulated product. So we follow very strict rules that have been put into place for whether that's opening accounts, KYC, AML, money movement, oversight, et cetera. So really, those are kind of the three key differences where you see on the other side of the sports. That's much more oriented towards state by state regulation.

18:21JB, so, you know, you have to help me out here. You're mentioning central limit order books, CFTC regulated product. And yet, you know, we see, you know, some markets on whether or not Maduro is going to be ousted last year and paying out, you know, I think there was a news article just the other day. I was reading$400 ,000 to someone who is, you know, placing bets, you know, into, you know, what happened, you know, just recently. Curious to hear how you manage that risk. How do you manage that two-way exposure? Are there, you know, two sides to the trade? Talk to us a little bit more about that.

18:52No, Damon, I think that's a great question. And with all of these markets, it is a two-sided trade. So Robinhood acts as an agency market, meaning what we do is we allow our clients to access an exchange where, in this case, the buyers and sellers come together, right? So we don't participate in the market. We don't make markets. We don't take positions. There's no risk on from a Robinhood standpoint. The way in which that trade occurs is there's a person out there, whether that's a market maker, whether that's an individual, we don't know what that is, who basically said, I believe there's X percentage chance that this happens.

19:26And on the other side is another person who says, I believe that I agree with that and I want to take the other side of that trade. So it's actually interesting. It does work just like if you think about a traditional market that's out there where it may feel a little bit awkward because of what it is you're trading. But at the end of the day, it's someone who believes that the probability of this occurring is happening is, let's say, at 51%. And that opposite side is willing to say, I'll put that price up there and I'll actually make a trade for it. So it's really creating the efficiency of the overall markets coming into this decision making process.

20:00But we're removing the conflict that's in place, which is one side is actually hoping that you are incorrect in that trade. In this case, we look at you as saying you can buy and sell and come in and out of that trade whenever you want. It has no impact on our book or how we do it because we don't take the opposite side of that trade. All we're sitting there saying is here's products that make sense that traders want to trade and we give access to them. Well, JP, how about those low probability outcomes? I mean, we're talking about Maduro. That was a 50-50. But, you know, there are some others.

20:26You know, I mean, I don't know whether a UFO is going to land on Earth next year. But talk to us a little bit about how you guys manage risk around like one to two percent or less probability type outcomes. So first off, these are fully collateralized products. And what that means is, is that you actually have to have the money in your account to place the trade. So first off, the risk that comes into play here is to the end user that does it. So if they decide to buy something at a 2 % probability, that's just going to be multiplied by the money they have in their account. If they have enough of that money, they're going to be able to place that trade.

20:56That also being said is we don't offer every single product that's out there. So some of the products you're talking about, some of them we do and some of them we don't offer. We actually look at those products and say to ourselves, is there enough liquidity and or interest in that product? The vast majority of the products that we look to offer out there are not running at a 98.2 type of probability until the event becomes closer and closer to occurring or coming to resolution. For us, what we look for are those products that are out there that have the opportunity for the market to participate in them at a probability that's greater than that.

21:28Now, some cases that works and sometimes it doesn't. But what you do see is very much like zero dated options. the probabilities come and compress quite a bit as you get closer to the end of that day for the example of a zero-day adoption but in these events as you get closer to the event coming to fruition so pick a sport you know the probability at the beginning of the game is going to be much wider than it is going to sorry it's gonna be much tighter meaning sort of 50 50 60 40 70 30 than it will be at the end of the game when the outcome looks to be coming to its its finality where the score is, you know, team A is beating team B.

22:00Same thing holds true with something like the Fed rate cut. The Fed rate cut today is going to be much different on a probability than when it will be as you get closer and closer to when they make that announcement. We are talking with J.B. McKenzie, vice president and general manager of futures and international Robin Hood markets. You guys, as we are now in the NFL playoffs, you guys rolled out the custom combos. What is that? So basically what they are is the ability for the customer to be able to select specific components and create their own trade, similar to what in the sports world is a parlay.

22:36And what that means is I can go and select, let's say, I grew up near Buffalo, so I'm going to be a little bit of a homer here. So I'm going to take the Buffalo Bills and I want to also pick Josh Allen will have two touchdowns. I can go and create that combo together where it'll price into the market and provide me back a probability of that outcome. And I can then make the decision of whether or not to place that trade. So we just started rolling this out this week for the first week of playoffs, as you mentioned there, Michael. And we really think that this is very an interesting product because we're seeing more and more of our customers wanting to go build this as part of their overall portfolios.

23:15while we're starting in the NFL, we think that this will be a product that will roll out to all asset classes longer term. But right now what we're doing is starting off specifically with the NFL playoff games that start this weekend. You know, JB, you mentioned there, obviously we were talking about the combos and you guys just introducing that. One of the other things you guys just introduced was Cortex, this AI chatbot that kind of, that gives you advice, right? And I'm curious what your thoughts are on these tools that are used for financial advice and things like that, other things that you guys offer, and how they're converging with the sports market?

23:49So I think that's a really interesting question. And the way I like to think about this, when I started in the markets 20 plus years ago, the only thing we had was the ability to phone call into a broker to figure out what maybe one of like Bloomberg showed on the television ticker and say, Oh, I want to go buy something like you had very limited access to tools. And what's happened since then is this dramatic revolution, where we've been able to get both data, as well well as charting and capabilities onto our mobile devices. And I think the natural progression with that has come into the AI world where what we're able to now do is utilize AI or Cortex in this instance to accumulate information from a variety of sources and provide alerts to our end customers to tell them that something is moving of interest to them.

24:36So while our Cortex product that we offer today is much more focused on just providing them generic information of, hey, this product is moving up or down. You see that happening already today in the overall sports world in many different ways where there's notifications or you even see it when you watch games with, you'll see AWS is powering a lot of the NFL statistics out there and they're talking about the probability of a team scoring a touchdown inside the 20-yard line in the red zone or the ability to get third down in less than five. And that information now is so handy at the fingertips of traders, I think AI now is making it even more accessible so that you can then make great decisions.

25:15I think as you've already seen AI take over, I think, all parts of the world in many ways, I think it's going to continue to play an important role when it comes into the sports world, because it can actually consume and analyze data so quickly and provide it back to you that it allows you as a trader to make a really good decision very, very quickly. JV, you talk about KYC and knowing your client, but doesn't that become really, really difficult when you move outside of sports into some of these other prediction markets like elections, economic events, where it's a different set of players who have, quote unquote, inside information.