Polymarket Investment a Win for ICE, Says Moody’s

• ICE’s $2 billion investment in Polymarket meshes with long-term goals
• Moody’s believes the deal will enhance ICE’s revenue stream

Last week, Intercontinental Exchange (NYSE: ICE) invested $2 billion in prediction market operator Polymarket at a pre-money valuation of $8 billion — a stake that pushes the derivatives exchange’s post-investment valuation to $9 billion to $10 billion. Moody’s Investors Service views the move as a win for the financial services company.

Under the terms of the deal, the owner of the New York Stock Exchange (NYSE) will distribute Polymarket data on a global basis, and the two entities will work together on future tokenization initiatives, potentially deepening ICE’s exposure to the fast-growing world of decentralized finance (DeFi). Moody’s says the investment jibes with the exchange operator’s goal of broadening its analytics and data business while boosting its digital currency footprint.

Although the deal carries valuation and regulatory risks, the potential for recurring revenue growth, product innovation and competitive positioning in emerging markets is credit-positive, provided ICE’s leverage remains within its targeted levels and regulatory risks are managed,” notes Moody’s.

The ratings agency said a portion of the $2 billion investment in Polymarket may need to be funded with debt because ICE had $1 billion in cash on hand at the end of the second quarter, but if that proves accurate, it would likely result in just a small increase to ICE’s leverage.

Polymarket Relationship Could Lift ICE Revenue

With prediction markets gaining traction and representing a credible threat to the US sports wagering industry, ICE’s investment in Polymarket could prove prescient because many of the professional market participants ICE already serves on other platforms are embracing event contracts.

“ICE’s distribution rights to Polymarket’s data will likely enhance its recurring revenue base, which is less sensitive to cyclical trading volumes,” adds Moody’s. “Polymarket’s data—derived from real-time event probabilities—will likely lead to the development of additional products on ICE’s platform, such as indexes, sentiment indicators, and other analytics products, expanding ICE’s product suite.”

The relationship with Polymarket also strengthens ICE’s exposure to the cryptocurrency space – an area in which it’s had previous success. The exchange operator was an early investor in Coinbase Global (NASDAQ: COIN), turning a $10 million investment into a $1.2 billion gain. ICE also holds a minority interest in digital asset marketplace Bakkt.

Competition May Have Necessitated ICE Move

ICE may have been compelled to join the prediction markets party because some of its rivals are already doing the same. Robinhood Markets (NASDAQ: HOOD) partners with Kalshi — Polymarket’s nearest competitor — while CME Group (NASDAQ: CME) and FanDuel announced an event contract partnership in August.

“ICE joins a growing list of traditional financial firms entering prediction markets. CME Group Inc. has partnered with FanDuel to offer regulated event contracts, while Robinhood launched its own prediction markets platform,” concludes Moody’s.