Some Of The Smartest World Cup Bets Weren't In Sportsbooks | The Brainstorm 137

Welcome to the brainstorm. Today we're talking prediction market mania. Or is it really just sports betting loophole mania? Nick, you'll, you'll let us know. And then midjourney, coming out with a new medical scanning device. I think this was a surprise to a lot of people and sparked a lot of conversation about whether more data is good or dangerous, I would say in the medical community. But Nick, for first to you, World cup going on, lots of sports betting happening, lots of predictioning happening in the markets. Can you kind of break it down for us? What's happening? And there's been any updates in the Kashi Verse poly market duopoly here? Yeah. So to start on the World cup, this has been a huge tailwind for the prediction markets basin. Just to set the Stage. In the U.S. prediction markets available in all 50 states. Sports betting not available in all 50 states. Notable holdouts, California, Texas make up a huge portion of the population. They don't have access to legal online sports betting. So yes, there is definitely some arbitrage at play. But to look at the numbers, you're seeing an explosion in the volume. So total notional volume pre World cup was at around 7.1 billion on a weekly basis since the opening week. The opening week was around 10 billion, so up 40% from that pre World cup figure. And then this last week, the first full week of the World cup it was up to 13.1 billion on a weekly basis. So annualizing well north of 100 billion and $100 billion on a yearly basis, up 84% since the start of the World Cup. So definitely seeing a huge product demand for this. And then also getting into these numbers, you can see that Kalshi is by far and away the biggest winner here. Their numbers alone on that June 15, so the first full cup weekend were up 117% from, from the pre World cup they were, they did around $9 billion in notional volume just last week alone. And then the other main competitor here did have a strong week, it was up around 73% in poly market. But what's interesting is, you know, there have been a lot of new players to enter the prediction market space. And Poly market, which once held essentially a monopoly, they were almost 100%. I think it was like 98% of the total volume is, is now actually on a weekly basis at one of its lowest points in terms of shareholder, in terms of market share that it's ever been. So I think it's fallen all the way down to around 25-ish%. Of the total market. So not great overall for Polymarket. But there was a Wall Street Journal article out there around polymarket and some of the practices around their marketing and how they handled influencers and some fake spending that, you know, I was, is sowing some distrust between consumers and Polymarket and they're trying to build out their US presence and it hasn't been going as well as I'm sure they, they like. But you know, that's where we stand. About 2ish weeks into the World cup, you know, people are definitely using these markets. I think Kalshi is the number one app in the app store from, you know, within their category. So definitely seeing that. Okay, so this, this is all World cup related. And I think you've said the big opportunity here, right? If this is just sports betting, then it's not that interesting. The real opportunity here is, you know, much more interesting financialization of a lot of different things. How are those numbers trending or is it still bulk sports betting and that's what's driving current. Yeah, market share. So I think what's, you know, interesting, just broad based about prediction markets is because you can issue a market on essentially anything, right. If you know, you have a question, you should be able to issue some sort of prediction market on it. You have these spikes in volume. So World cup is a great example of this massive spike. You had it in previous elections, you had it during the NBA finals, you have it in March Madness. So there are these, you know, global events or state events that do draw and bring in more volume. But I think what ends up happening is you have consumers come, they open up the Kalshi app, they see sports betting or you know, they see prediction markets relating to the World cup. And then it's the question is do they stay on the platform to then place, you know, a bet on something else or do they, you know, do they invest in another prediction market? And I think that's where we see the opportunity. And, and to your question, Sam, crypto. And if you look at Kalshi's volume has actually been kind of a sneaky second growth driver for them. I think in the last week their crypto volume surpassed 1 billion for the first time on a weekly basis. So there are other areas that are still definitely growing in terms of where we think that this market is ultimately heading. One, we still think that there needs to be institutions, institutional demand, especially around these KPI markets. So being able to issue a market on, you know, a company's specific KPI. So how many Falcon 9 launches will SpaceX have over the next year. To us, we think that those types of markets are ultimately going to be what drive the vast majority of volume. Because if you think about the hedging aspects of that direct risk that you can take on through those type of investments, that now starts to get into what derivatives have historically represented to the financial world. And we think that there are more pure expressions of risk in the market. If you look at the derivatives market in total, it's around currently a $750 trillion volume market on a yearly basis. We think that's ultimately going to grow to 900 trillion. But we think even if you were to take just 50 to 100 basis points or 1%, you're talking about trillions of volume, trillions of dollars of volume for prediction markets. So we ultimately see that as the largest opportunity for the space. But anytime you have these global events that bring eyeballs to the space, we ultimately think that that's good. Yeah, not just eyeballs, but also liquidity. Right. So as in kind of as you drive liquidity into these markets, it makes them able to be better hedging instruments potentially and expands the category of things you can do. Nick, what is the most economical explanation for what I would think the World cup international event would drive volumes towards polymarket, which is the more international facing company, rather than Kalshi. So how come the World cup is driving more volume to Kalshi than to polymarket? Yeah, I think right now, you know, it does come back to that arbitrage we were talking about, you know, being able to unlock, you know, I think between California and Texas, you're talking about, you know, over a quarter, maybe more of the US population that just does not have access to a traditional sports book. Globally, the sports betting space is actually more established. In the uk, sports betting was legalized way before the US and in a number of different markets global, globally, there is, you know, call it gray or just easier access to sports betting. So so far as, you know, poly markets lead relative to the Kalshi lead, us versus international. I think us is very much the story. You know, you have a strong consumer base that's willing to spend this, you know, just call it discretionary spend into sports betting. And that very much is what's driving this at least initial, you know, surge in, in volume. The other thing to consider, and I think this was pointed out in the Wall Street Journal and everyone should take a look. I don't want to mischaracterize anything around the Wall Street Journal report because Everyone, you know, deserves their fair, you know, everyone deserves their day in court. And, you know, Wall Street Journal is trying to do this in front of everyone. But what they noted is that there's actually a lot of activity that flows through to polymarket's international exchange that was actually coming from US Users. So, you know, they allege that polymarket was trying to bring US Users onto the international exchange and trying to market to this US Customer. Because I think everyone understands and you can see this just in sports, like traditional sports betting, you want to be in the US Market, whether it's sports betting, the KPI markets, econ markets, politics, you know, everything from a, from an exchange perspective, you want to be able to tap into that. It's why when we, you know, did our underwriting on these companies, Kalshi Dos, you know, because they had that regulatory play within the US and they went about it in the right manner, was, you know, the more attractive opportunity. All right, and We've got the US at now a 5.2% chance of winning the World cup. So not bad. I think it's, we're getting there. We're closing in right now. France is in the, in the lead at 19.7%. But just a few more wins and, and we're there. So, no, Brett's our internal, our internal soccer guru, so we should ask him, are those. I, I, I, I think the US Is going to be doomed by their bad goalkeeping and slow back line, but they have a better coach than they've ever had. And actually it's amazing how much better their coaching is this year, but unfortunately their defense is going to let them down in the end. All right, there you have it. Who are you liking? Cape Verde as the underdog Cinderella run here. Yeah, yeah, Cape Verde. All right. All right, Brett, Midjourney medical comes out. Ultrasonic CT scan. What is it, why is it exciting and why did it cause so much controversy? The fundamental idea here is there's a company called Butterfly Networks that produces basically transistor based ultrasound sensors. You stack a lot of them together into a ring and you run ultrasounds from all parts of people's bodies. And then you lower somebody's body through the ring. And so you get a very high definition ultrasound of slices of the body. And this is similar to what you do with MRI where you're doing magnetic resonance across different slices of the body. But the underlying equipment and the time to do it can be much shorter. And so your cost could be one tenth as much. It could even be a hundredth as much, depending on how you do the math, to run these scans so you can put somebody through in one minute. And so you don't need that many scanners to do a lot of scans over time. Why that's potentially important diagnostically people, the criticism of full body scans is you take a full body scan and there's something that appears that's weird and then you're like in limbo because you either you have to go and try to resect it or kind of like figure out what it is and it's net worse if it identifies a lot of ambiguous data, if you're able to do it very frequently and inexpensively, then you could see if whatever it is is changing over time or growing. And so it gives you not just the time slice but, but longitudinal data on what's going on inside the patient's body. So the promise here is inexpensive scans that are easily accessed for maybe 100 or $200 rather than 2,000 or 3,000 can give people higher definition, higher frequency data that then allows for the detection of things like early stage cancers that otherwise you would never detect. So that's the high level tick. And what's the timing here? I know it was just announced, but is this a theoretical machine? Is this something that people are going to be able to use? How many? Yeah, they're going to launch it and yeah, yeah, they're going to launch in San Francisco in I believe it's 2028 they said, which is relatively quickly. And then their ambition is to be able to do a billion scans a month by 2031, which would require some tens of thousands of these scanners. There is a potential impact on Butterfly where suddenly they were selling handheld ultrasonic wands to basically EMTs to be able to use in the field. Well now this is a device that's a new breed of device that this could their IP around these ultrasonic transducers could be the core piece of technology that allows these things to work. And if these prove to be useful, it could be an interesting business line for them. I am also interested in the idea that Midjourney, which made its money off of video generation, is then deploying capital against this thing that seems totally separate from it. And Nick, I'd ask you, what do you think is. Or, sorry, image generation. What do you, what do you think about image generation and video generation as a consumer facing category? And you know, this company is clearly not re injecting capital into that category. How do you think that's going to play out on the consumer side? Yeah, I mean, I think from Midjourney's perspective, you know, you're starting to get into a moment at least with chatbots where they're becoming generalists. So you have, you know, their capabilities across various video, photo, text are all. When you use Gemini, when you use ChatGPT, when you use Grok, you're getting performance that is in line with mid journey. Maybe not fully at the frontier, but it's good enough. I think from having these specific applications or models that are specific to one use case. To me, I think that ends up dying out in favor of more generalist type chatbots. Could be wrong. That could be why they're moving into medical. I also saw that, I think Midjourney's longer term plan is to have four devices. This is one, there's a second device that is, you know, of the same scale, so a large piece of hardware, and then there's two other consumer devices on the way. And so I do think that they might see hardware as a new vector for disruption and, or a potential moat down the line. And I think that's something we've talked about. Brett, you know, does hardware represent the ultimate, you know, forcing function for disruption against current incumbents and or is that the moat that current incumbents have against, you know, just model providers and AI labs? Yeah, I do think that they are looking at, probably the pathway by which they got here was how do we get proprietary data for higher value applications? And so the frontier AI labs, first they go to Reddit and they say, hey, we want this Reddit data because that's better than raw Internet data. And then they sign deals with academic journals and if you can create a hardware mechanism that induces the consumer to go in and provide actually what is orthogonal and really interesting data, then that will give you the raw material you need to train better kind of AI models against that specific data set. And here, part of the reason nobody would have done this before is because your cost of an MRI is the cost of the mri, but it's also the cost of the person who has to interpret the mri. So if you have a much lower cost of interpreting the data, then it makes it worth it to lower the cost of the machine. And so here they're going to have this data stream and attach it to outcomes that then allows them to not only be producing these wellness centers where you can get this done, but also creating the model that is tuned to this particular data output to give people health guidance which will, you know, could be really differentiated and Interesting, right? Well, I think that's the most interesting piece is this is going to be a bifurcation between the biohacker world and traditional academia, which is I think how this normally progresses. And I think there will be the ability to move much faster on the biohacker front here. And so I think this is one of those things where you often hear, you know, this is bad science from the academia side because it's not the way it has been done before. And often what may be best for the individual is not what is good for the population in a certain framework. And so I'm sure there will be numerous head buttings to come, but I think this is a really exciting development for AI, for science, for medical imaging in general. Yeah. And I think that the one, the scientific process is amazing and the scientific publication process is hugely important to everything that's happened for basically humanity. As in like the core idea of you publish your results, people can refute or duplicate them, is how kind of information that's reliable gets transmitted and how the rate pace of productivity advances. And that process itself has gotten increasingly kind of arcane and bogged down. And you can see it even in the core AI space where academics are publishing papers saying AI is incapable of something based on two years ago AI models. The pace at which publication happens is very far off sides of the pace advance of underlying technological tools. And that's nowhere is that more evident than in the biology space where a lot of the studies you really do need time in human body to understand the impact. And so you can't accelerate some of the science, you just have to wait. But you can reasonably say, hey, this is probably going to turn out to be net better and we are at least prescriptively allowing this to happen so, so that we can do natural experiments of this is the outcome for this population versus that population. So long as it's not something that causes egregious harm to the individual and you're giving people a right to try. And that's in some ways the consumerization of healthcare, which is driving volumes for like the grail multicancer blood screening test and these things that insurance companies are unwilling to underwrite because they don't have enough data to underwrite it. But somebody with excess resources is going to say, hey, this seems reasonable to me, I'm going to try it out to guide my health decisions. It's going to provide a lot of pieces of evidence as to whether or not it was a good idea when it happened and as it improves, whether or not it becomes a better idea. And I think that's where this is going to sit. And kind of this wellness insurers will be like, no. Influencers will be like, yes. And in the immediate term influencers will win out and we'll see. It seems reasonable to assert that actually this could be useful data over time as well. That's right. And you know, just like the vast history of academic studies have been biased and they're all done on like white males, this will be biased by SF nerds. So. And a different. A different baseline. No, this is super exciting. And we'll see everyone next week on the Brainstorm ARK Investment Management, LLC is an SEC Registered Investment Advisor. 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