UK
FanDuel co-founder Nigel Eccles said Kalshi is traversing a path comparable to that of vaping company Juul, adding that if the prediction market operator isn’t careful, it could meet similarly dubious end.
Eccles recently compared Kalshi to Juul, one of the first companies in the vaping business, in a post on X.
"For those that don’t remember, Juul was one of a number of the main vaping brands in the 2010s,” opined Eccles. “It took a product that had a social good (helping smokers quit) but then aggressively pushed it into a new market, non-smokers and particularly kids. (See the similarity?).”
Altria (NYSE: MO), which valued Juul at $38 billion, acquired a 35% share in the company in 2018, marking the culmination of Juul's heyday. Juul's valuation fell by 85% in just two years as a result of increased regulatory scrutiny of the business's purported teen-focused marketing strategies, and Altria lost 95% of its investment in the company by 2022.
Eccles queries Kalshi's marketing strategies
The framing of event contracts as an asset class that differs significantly from traditional betting is one of the numerous issues surrounding Kalshi and other prediction market operators.
Prediction market operators let clients as young as 18 to create accounts, although bettors must be at least 21 years old to gamble on sports. They do this by leveraging their status as federally authorized companies and framing event contracts as financial derivatives. According to Eccles, the strategy is uncommon in the game industry and may backfire on its users.
“I’ve worked in the online gaming industry for over 25 years, all over the world,” he added in the X post. “This type of marketing is actually extremely rare in real money gaming. Firstly and most importantly it is rare because operators view it as highly unethical. It might surprise you that a lot of people in the gaming industry do actually care about things like underage and problem gambling.”
He notes that the strategy is dangerous for businesses like Kalshi since young people who lose money on those platforms are more likely to give up and never come back, which means that customers are churning rather than sticking around.
Another Questionable Analogy
Eccles didn't end there. He pointed out that certain Kalshi ads portray prediction markets as extra revenue for users, a strategy that has also been used by the contentious skill game site Skillz (NYSE: SKLZ).
“The only other company I can think of that pushed this type of advertising was Skillz who aggressively pushed the ‘second income’ line,” said Eccles.
As the co-founder of FandDuel correctly notes, Skillz stock has taken a significant hit. The shares have lost 98% of their value since the company went public in December 2020, and investors have had to deal with reverse splits during that time.
