Sportsbook Ops Look to Leverage Prediction Markets to Their Advantage

• Gaming industry taking state-level approach to combatting prediction markets
• Market observers see a future in which both forms of betting coexist

Amid a new competitive threat from prediction markets, online sportsbook operators are attempting to wring benefit from that rivalry and are using a state-level approach to do so.

The clear advantage possessed by companies such as Kalshi, PredictIt, and others offering event contracts is that they’re regulated by the Commodities Futures Trading Commission (CFTC), a federal entity. As such, they can — and do — offer derivatives on various markets, including sports, in all 50 states. Conversely, sports wagering is legal in 39 states and Washington, DC and the number permitting mobile wagering is smaller than that.

For prediction market firms, that’s an obvious advantage as it puts the population centers of California and Texas in play while serving to crack the Florida sports wagering monopoly held by Hard Rock International. The gaming industry isn’t ignoring the threat and New Jersey is one example of that theme.

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 firm adds that the argument put forth by the gaming industry is gaining traction among some Garden State politicians who may prove inclined to keep future sports betting tax increases modest so that the gaming industry remains competitive with prediction market companies.

Prediction Markets May Stoke OSB Progress in California

In the online sports betting industry, the undisputed golden geese are California and Texas, but neither of the two most populous states appears likely to legalize sports wagering anytime soon.

The issues of how tribal casino operators would share sports betting revenue with commercial counterparts and among themselves still need to be addressed. In the meantime, Kalshi and its competitors will continue operating in California because the state hasn’t yet thrown its hat in the cease-and-desist letter ring.

“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 Could Be Call to Arms for OSB Operators

Kalshi has made clear it will lean on its status as a federally regulated company to fight various state-level legal battles. Of note to the gaming industry is the fact that at least one federal court has already sided with the prediction markets operator on that matter.

Gordon’s ruling is a potential warning shot to other states that issued cease-and-desist letters to Kalshi because Gordon made clear that the company was likely to be able to prove its federally regulated status supersedes state regulations whereas the NGCB was unlikely to prove the opposite.