Sportsbook Ops Look to Leverage Prediction Markets to Their Advantage
In response to a fresh competitive challenge from prediction markets, online sportsbook operators are striving to capitalize on that competition by adopting a state-level strategy.
The distinct benefit held by firms like Kalshi, PredictIt, and others that provide event contracts is their regulation by the Commodity Futures Trading Commission (CFTC), a federal organization. Consequently, they are able to — and do — provide derivatives across different markets, including sports, in all 50 states. On the other hand, sports betting is permitted in 39 states and Washington, DC, with fewer states allowing mobile betting.
For prediction market companies, this is a clear benefit as it allows the major population hubs of California and Texas to be included while helping to break the Florida sports betting monopoly controlled by Hard Rock International. The gaming sector is aware of the challenge, and New Jersey exemplifies this concept.
"We are hearing that New Jersey OSB operators are making the case against Gov. Phil Murphy’s proposed sports betting tax increase by noting that event contract operators, a form of competition, pay zero in state taxes,” notes Eilers & Krejcik Gaming (EKG) in a new report.
The research company states that the argument presented by the gaming sector is resonating with certain Garden State lawmakers who might be inclined to maintain future tax hikes on sports betting at a minimal level, ensuring the gaming industry stays competitive with prediction market firms.
Prediction Markets Could Encourage OSB Development in California
In the online sports betting sector, the clear frontrunners are California and Texas; however, it seems unlikely that either of these two most populous states will authorize sports wagering in the near future.
EKG indicated that the challenge presented by firms like Kalshi has resulted in some advantages in California, as it ignited conversations between the gaming sector and tribal casino organizations. However, significant efforts remain, and it may take multiple election cycles before tribes revisit the topic of sports betting.
The concerns regarding how tribal casino operators would distribute sports betting revenue with commercial entities and among their peers still require resolution. For now, Kalshi and its rivals will keep functioning in California since the state hasn't entered the cease-and-desist letter arena yet.
“These two points (revenue sharing) remain sufficiently challenging as to leave our California OSB launch projection — not prior to 203 — unchanged for the time being. But we do see scope for further discussion in California and other tribal states that may not have been possible without a new common enemy,” adds EKG.
Court Case Might Serve as a Rallying Cry for OSB Operators
Kalshi has stated that it will rely on its position as a federally regulated firm to contend with various legal challenges at the state level. It is significant for the gaming industry that at least one federal court has already supported the prediction markets operator on this issue.
Last week in Nevada, US District Court Judge Anthony Gordon issued an injunction in favor of Kalshi against the Nevada Gaming Control Board (NGCB), allowing the prediction markets company to keep providing event-linked derivatives, including sports, in that state.
Gordon's decision serves as a possible caution to other states that sent cease-and-desist letters to Kalshi, as he indicated that the company could likely demonstrate its federally regulated status takes precedence over state regulations, while the NGCB was probably unable to prove otherwise.