When the Elite Eight ends on Sunday, a dynamic freshman is virtually assured of traveling to Indianapolis for the Final Four.
At Polymarket, three of the top five choices to win Most Outstanding Player at the NCAA tournament are freshmen, underscoring the vast depth of this year’s talented class. Duke’s Cameron Boozer, a favourite for Naismith Player of the Year, is also the top choice to capture tournament MOP. But for Polymarket users eager to trade on March Madness, they may benefit by locking into a contract before the start of next week.
That is because Polymarket is updating its fee structure beginning 30 March, including a new market fee for sports-event contracts. Under the new structure, Polymarket plans to lift fees for sports markets to a peak effective rate of 0.75%. Although sports will remain among the most affordable categories for traders, the updated fees will nearly double in many instances.
The new fee parameters are being introduced as leading prediction markets construct the most effective methods to monetise their product within the market-maker/market-taker model. Over the last several weeks on the spring conference circuit, the debate has intensified on whether highly liquid major exchanges will move toward a zero-commission based fee structure.
A so-called “race to the bottom” transpired nearly a decade ago in the online brokerage industry, catalysed by behemoths such as Fidelity and Charles Schwab. If a comparable one occurs among prediction markets, some smaller operators worry they could be squeezed.
“If prices are driven down and people are competing by trying to offer zero commission, they will need to have either a really, really strong brand or a unique selling proposition that causes one customer to place a certain prediction at a particular outfit over another,” Sharp Alpha Advisor managing partner Lloyd Danzig told iGB.
The maker-taker model
In many respects, prediction markets offering contracts on sports are drawing from the same playbook employed by high-frequency trading firms. Two in particular, Susquehanna and Jump Trading, are institutional market makers that provide liquidity by ensuring that every trade has a counterparty.
For instance, if a user purchases a contract on Boozer to capture most outstanding player ($100 to win $481.05), the counterparty will match the other side of the trade. Conversely, a contract that correctly predicts that Boozer will not win the award (probability of 84%), will carry a payout of $118.19 on a $100 trade.
In finance parlance, the market maker will add liquidity to the order book while the market taker removes liquidity by taking orders that match with the existing ones. While makers can be rewarded with lower fees or even rebates, takers are assessed higher ones for the convenience of immediate execution. The new fees will only apply to markets that debut beginning on 30 March. One potential market not launched yet could be on the leading scorer at the Final Four.
The model benefits high-frequency traders who act as makers since those traders capitalise from lower fees. As a result, the structure creates a fluid, efficient marketplace that encourages high volume. Market makers for sports on Polymarket will receive a 25% rebate, according to the company, slightly above the 20% rebates for crypto trades.
In explaining the new fee structure, Polymarket wrote that it charges a “small taker fee” on certain markets that the exchange redistributes to fund the “maker rebates programme”. The programme, Polymarket added, assists makers to incentivise “deeper liquidity and tighter spreads”.
Polymarket did not respond to a request from iGB for comment.
Dynamic pricing
Polymarket’s new structure relies upon “dynamic pricing”, which hinges on rapid adjustments of asset prices depending on market conditions such as liquidity, supply and demand. The strategy differs from flat pricing by using algorithms to optimise execution prices in periods of heightened demand.
The new fee of 0.75% is a “peak effective rate” for when a market’s probability approaches 50%. In Thursday night’s Arizona-Arkansas matchup in the Sweet 16, there is a 50% probability on Polymarket that the Over (163.5 points) will hit. Through the new structure, a $50 sports trade at 50% probability will cost approximately $0.38 in fees, up from $0.22 previously.
As an outcome becomes more certain (0% or 100%), the fees will typically decrease. In the same game, the Wildcats have a 78% probability to win at the moneyline. The fees are also lower for massive underdogs. On Friday, Alabama is a 9.5-point dog against Michigan, the top seed in the Midwest. With a 19% chance of prevailing at the moneyline, market takers on the Crimson Tide will be assessed a relatively low fee.
Fee structures across the market
Trading fees can vary widely, with exchanges utilising both flat fees and dynamic pricing depending on the market. Fees at Kalshi, the archrival of Polymarket, usually range between from 0.07% to 7% based on contract probability, with the average hovering between 1%–1.5%.
While high-volume events such as the Super Bowl drive down fees, Kalshi reportedly generated $8.7 million in fees from this year’s game. It is expected that high liquidity from March Madness will drive fee revenue for Kalshi during the NCAA tournament.
Both FanDuel and DraftKings have indicated that they plan to launch in-house market making divisions. When reached by iGB, a FanDuel spokesman did not have a timetable for the potential rollout. Although the companies intend to invest at least $100 million this year in building their platforms, uncertainty on fees revenue have contributed to sharp declines in their share prices this year.
Other fee structures:
- FanDuel Predicts: The platform charges a fee of two cents per dollar on the potential payoff. If a user sells the contract before expiration, the fee applies to the original value of the potential payout.
- Fanatics Predicts: From $0.0034 to $0.02 per contract (roughly 2% or two cents per $1) for matched orders, depending on the price of the contract.
- Robinhood: Robinhood currently has a partnership with Kalshi that it will reportedly phase out as its acquisition of LedgerX takes effect. Robinhood’s prediction market arm typically charges a $0.02 per contract fee, with one cent retained by Robinhood. Additionally, a “spread fee” of one cent goes to Kalshi.
The Robinhood Effect
Danzig spoke to iGB on the sidelines of NEXT Summit New York, held in Lower Manhattan this month across from The Freedom Tower. Given the proximity of the event to Wall Street, high-frequency trading on prediction markets served as a popular topic.
The conference was held less than two weeks after DraftKings announced the impending launch of a “super app” at its annual investor day presentation. The one-size-fits-all app will allow users to gain access to the company’s online sportsbook and prediction markets segments on the same platform. In limited states, DraftKings users will also be able to access its online casino platform on the app.
Sporttrade CEO Alex Kane appeared on a panel entitled “Prediction Markets & Investable Controversy: Opportunity or Overreach?”. Kane believes that major operators can use the “super app” concept as a tool to drive customer acquisition costs above $2,000 per player. Several years ago, Bally’s Chairman Soo Kim shuddered at the prospect of CACs of $1,000 in New York before the Empire State launched online sports betting.
Smaller players such as Sporttrade can’t compete with those levels when Kane hopes to keep them closer to $200 per customer. For firms such as Robinhood that offer crypto trading, Kane noted the CACs could run as much as $2,500.
Consequently, he predicts the top three prediction market operators by 2029 will offer “zero commissions”.
The sharps weigh in
After the conference ended, Citizens analyst Jordan Bender hosted a webinar featuring a pair of professional sports bettors. The bettors, Isaac Rose-Berman, a fellow at AIBM, and Canzhi Ye, co-founder of PY Research, discussed insights regarding evolving prediction market trends.
Increased fees for market takers may also have an effect on firms like Susquehanna who are reputed for making markets with tight spreads. If prediction market raise market-making fees, they will drive the “sharper bettors” to other platforms, therefore losing liquidity, Ye surmised.
Rose-Berman, meanwhile, noted that while sharp bettors can serve as market makers on Kalshi, they are restricted from doing so on FanDuel and DraftKings. He also cited historical trends in other jurisdictions, particularly Betfair in the UK, as a potential harbinger for conditions in the US.
On platforms with relatively lax conditions, practically anyone can serve as a market maker, he indicated. In those environments, sharp players may flourish since they are going head-to-head with inexperienced customers. Hence, the largest prediction-market exchanges may be cautious in designing their market-making arms.
“The majority of the profit comes from being able to be the counterparty to that recreational flow,” he said.
Matt Rybaltowski
Matt is primarily responsible for long-form feature coverage on complex sports betting scandals. He also provides coverage on finance, M&A and other technological developments.
Original article: https://igamingbusiness.com/prediction-markets/polymarket-sports-fee-hike-2026/
