No Free Lunches
Prediction markets are seen as a low-tax version of sports betting, but will that status remain intact when the government sees the money rolling in?
The Bulletin Board
THE LEDE: Are prediction markets a long-term tax haven?
ROUNDUP: LA sweepstakes bill passes legislature; NH proposes removal of table game wager limit; The second wave of tax hikes; High 5 settles with CT.
NEWS: DC mayor wants to legalize brick-and-mortar poker.
NEWS: RSI unofficially announces major online poker expansion.
AROUND the WATERCOOLER: The consulting trap.
STRAY THOUGHTS: the unsung hero of the run-and-gun 80s Denver Nuggets.
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The Lede: Sportsbooks Have Prediction Market FOMO, But a Tax Trap Looms
A very interesting line jumped out at me in a recent Earnings+More newsletter about DraftKings and FanDuel having FOMO about prediction markets [bold mine]:
“If I am anyone of the incumbents, my biggest fear is getting this wrong. The secondary concern is trying to understand what ‘wrong’ looks like.”
Let’s be clear: prediction markets, as currently offered (even if the number of markets increases significantly), are not an existential threat. Conversely, if they are allowed to cast a wider net and offer parlays and SGP products, they are an existential threat… Or are they?
Previous STTP thoughts on the prediction market opportunity/threat
I’ve learned a few things over my two-plus decades in this industry, and right at the top of the list is that when there is money to be made from gambling, the sharks start circling, and in this case, the sharks are the government (look no further than the recent per-wager fee passed in Illinois). Someone is going to make money from sports betting besides the operator.
Let’s assume for a moment that Tarek Mansour’s wildest dreams come true:
Kalshi wins its legal battles with states (and tribes, when they join the fray).
The current iteration of the CFTC expressly authorizes or takes no action against any sports contract that Kalshi offers.
The next administration and subsequent CFTC Commissioners do the same.
Are we really to believe that these CFTC-regulated sportsbooks will be allowed to keep the tax revenue they were previously paying to states? I’m supposed to believe that Congress will pat Kalshi (and all the other sportsbooks and companies that flood into the market) on the back and say ‘good on you,’ and won’t impose a new tax and financial burdens on a $25 billion a year industry?
There is a world where the state-by-state approach is preferable to a CFTC-regulated offering.
Take a look at the federal excise taxes on Tobacco and Alcohol as a percentage:
Cigarettes: Ranges from 8% to 14%
Beer: Ranges from 2.5% to 6%
Wine: Ranges from 1% to 4%
Spirits: Ranges from 7% to 21%
Toss in the state excise tax (I’ll use Massachusetts), and we approach New York sports betting tax rate territory for cigarettes:
Cigarettes: Ranges from 27% to 32%
Beer: Ranges from .5% to 1.25%
Wine: Ranges from .5% to 3%
Spirits: Ranges from 2.5% to 8%
And that doesn’t include local excise taxes, sales tax, or licensing fees.
But what if states aren’t allowed to stick out their hands and demand payments? Rest assured, the federal government will happily increase its percentage to cover what the states are missing out on. They know what operators can pay, and they will want that and probably a little more.
Bottom line: It may not happen all at once, but over time, sports betting (by whatever name you give it) will face significant financial burdens. If states can't tax it, the federal government will step in to claim its share, ensuring no $25 billion “sin” industry escapes without paying up. And if the last couple of years have taught us anything, governments have no problem increasing burdens on vice.
Roundup: LA Sweeps Bill Passes; NH Proposal to Remove Wager Limit; The Second Wave; High 5 Settles with CT
Louisiana House passes sweepstakes prohibition [SB 181]: Louisiana is a governor’s signature away from becoming the third state (Nevada and Montana are the others) to prohibit sweepstakes gaming in 2025. SB 181 was passed by the House in a 99-0 vote, following its passage in the Senate with a 39-0 vote.
New Hampshire proposal would remove wagering limit on table games [Concord Monitor]: New Hampshire State Sen. Tim Lang introduced an amendment to HB 2, the policy section of the Governor’s budget, to lift the wagering limit on table games like poker and blackjack. The amendment was approved, but there is likely to be some significant pushback, considering the wagering limit was raised from $10 to $50 just two years ago.
A second wave of tax increase bills: Several states have passed or are advancing bills that increase the tax burden on sports betting operators, including a tax rate increase in Maryland and the sunsetting of promotional credit deductions in Colorado. That was the first wave. As Eilers & Krejcik Gaming noted in its most recent Sports Betting Policy Monitor, “A second wave, from states whose legislative sessions stretch into the summer months, is coming now.” EKG focused on HB 639 in Louisiana, a bill STTP has been monitoring closely.
High 5 settles with Connecticut [Press Release]: The Connecticut Department of Consumer Protection (DCP) announced that it had reached a settlement with High5Games, which the DCP accused of conducting illegal gaming in the state. As part of the settlement, High 5’s supplier license was reinstated (it was suspended in March). “High5Games has agreed to pay nearly $1.5 million as part of the settlement,” the press release reads. “That includes more than $643,000 in restitution to consumers who lost money to High5Casino, and nearly $800,000 for use in consumer complaint resolution programs, consumer education, consumer protection enforcement, and litigation.”
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News: DC Mayor Proposes Legalizing Poker and Blackjack
Washington, D.C. Mayor Muriel Bowser’s $21 billion budget includes several gambling expansions, including the legalization of terrestrial poker and blackjack games for participants aged 18 and over, as outlined in the Poker and Blackjack Gaming Authorization Act of 2025.
The fiscal impact statement reads:
“Legalizes poker and blackjack and requires the Office of Lottery and Gaming (OLG) to regulate card gaming in the District. Only locations licensed and approved by OLG as eligible establishments can operate card gaming facilities.”
“To obtain a two-year license, individuals must submit to OLG an application, supporting documentation, background investigations, and onsite inspections, and pay an application fee of $5,000 plus $2,000 per card gaming location… The subtitle establishes a 25 percent tax on all gross gaming revenue collected through poker and blackjack.”
“The CFO will establish rules governing card gaming, including internal control standards, financial controls, security and surveillance requirements, game integrity, employee-related standards, information technology standards, minimum and maximum wager amounts, and age verification standards.”
The budget also includes the Commercial Bingo Amendment Act of 2025, which would legalize commercial bingo in a manner similar to poker and blackjack, with reduced financial burdens, no licensing fee, and a 7.5% tax rate.
News: RSI Plans Massive Online Poker Expansion
Rush Street Interactive plans to launch an online poker site in Michigan, West Virginia, and Delaware, connecting them with its existing operations in Pennsylvania “soon.”
As first reported by Poker Industry PRO, Harry Corvese, Social Media and Content Manager for BetRivers Poker, revealed the expansion plans on the operator’s official Discord server: “I assure you, forever is not an accurate timeline for when we will be merging,” Corvese wrote in response to players asking about expansion plans. “While I can’t provide a locked-in date yet, it is coming very soon.”
RSI has a monopoly on the Delaware market due to its contract with the state. The company will also be the first to launch in West Virginia, which legalized online gambling in 2019. Still, due to its small population, poker operators have eschewed launching in the state.
On a recent episode of the Straight to the Point podcast, Nick Jones shared some thoughts on BetRivers Poker, describing the launch as a significant move as it’s one of the few sites, alongside PokerStars, to own its platform. This enables rapid product iteration and the introduction of innovative features. Jones also notes their marketing efforts, like Poker Night in America on YouTube, which draw in poker fans and enhance brand visibility, positioning BetRivers to retain and attract customers in a competitive market.
Jones is optimistic about its potential to become a strong competitor across multiple states, given Rush Street’s market access — an opinion that appears to be coming to fruition, based on Corverse’s comments.
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Around the Watercooler
Social media conversations, rumors, and gossip.
The tension of truth in paid consulting…
One of the most profound lessons I’ve learned as a consultant is how money transforms relationships. In the early, unpaid stages—think exploratory calls or initial meetings—clients are refreshingly open. They reach out, curious and eager to explore ideas, ready to hear perspectives that challenge their assumptions. It’s like the dating phase of a relationship: a low-stakes dance to see if you’re a match, full of curiosity and few expectations.
But once a financial transaction enters the picture, the dynamic shifts—sometimes dramatically. It’s as if the relationship goes from a first date to marriage in a matter of weeks. Clients hire you because they like what you’ve said in those free conversations, but that alignment can become a trap. They start expecting confirmation, not challenge, as if paying you means you’re now on their team, nodding along to their plans.
As George S. Patton said, “If everyone is thinking alike, then someone isn't thinking.”
The truth can often be hard to hear. They can react like a stubborn bar owner in the first act of Bar Rescue, flying off the handle when Jon Taffer points out why their business is flailing. Or with incredulity, like in Fargo, when Marge Gunderson says, “I’m not so sure I agree with your policework there, Norm.” A less secure Norm might push back (Bar Rescue style), offended by the critique and feeling a tad foolish.
That’s the consultant’s bind: your value lies in delivering evidence-based insights and flagging flawed strategies, yet those are the very things that can clash with a client’s craving for validation and jeopardize your paycheck.
Consultants aren’t blameless here, either. If you take every client who waves a check, you’re more likely to end up with clients seeking a yes-man than those open to real expertise. Just as clients vet you, you must vet them as well. In those early talks, ask: Is this someone I can work with? Do they value candor, or are they after affirmation? A little discernment upfront saves headaches later.
Ultimately, the consultant’s role is to guide clients toward what works, not just what feels comfortable. By setting clear expectations and choosing clients who value your expertise, you can foster relationships that withstand the truth, even when it’s hard to hear.
For various reasons, I don't take on many clients; however, if you're looking for a consultant who will be honest with you (and you CAN handle the truth), please don't hesitate to contact me.
Stray Thoughts
Whenever people bring up underrated basketball players, I always point to Fats Lever. How good was Fats Lever’s stat line during the highlighted four-year streak in Denver? An absolute triple-double threat every night at 6’3”. It should be noted that the 1980s Denver Nuggets were playing the basketball equivalent of the No-Huddle offense.
This paragraph from Wikipedia says it all:
“With 43 [triple-doubles] over 11 seasons, ahead of players like Michael Jordan (28), Clyde Drexler (25), and Kareem Abdul-Jabbar (21). Of the top 23 triple-double career leaders, Lever is the only eligible player not in the Hall of Fame.”
He currently ranks 13th all-time in triple-doubles in NBA history.
I certainly don't want to make light of gambling troubles. Compulsive gambling is estimated to affect a little more than 1% of population. Estimates of "problem gambling" run up to 5%. Easy to understand how regulating authorities attempt to help with this problem (and they accuse Kalshi of lacking), but it amazes/disgusts me that not one of these same regulators steps in to warn or protect ALL their customers from the proliferation of "sucker" bets that allow some operators to claim a 37% profit margin.