Round And Round
The April 30 CFTC roundtable is being billed as a pivotal moment for prediction markets, but it could very well be a point of first contact in a lengthier debate.
The Bulletin Board
THE LEDE: What to expect during (and after) the April 30 CFTC prediction market roundtable.
ROUNDUP: Online casinos have a new supporter; Sportsbooks warn affiliates; ME iCasino bill dead; PA battle pits Regulators vs. Sweeps.
NEWS: BetMGM CEO Adam Greenblatt talks cannibalization.
BEYOND the HEADLINE: Spectrum jumps into the cannibalization debate.
AROUND the WATERCOOLER: Prop Swap’s ticket fiasco a PR nightmare.
STRAY THOUGHTS: The reactionary stock market.
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The Lede: Looking Ahead to the April 30(?) Prediction Market Roundtable
A recent webinar discussion hosted by KPMG tackled the hot topic of prediction markets, including some thoughts on what everyone can expect when the Commodity Futures Trading Commission (CFTC) holds its roundtable, which is expected to occur on April 30.
The participants were:
Rick Arpin, US Gaming Leader, KPMG LLP
Robert Stoddard, Partner in KPMG Stamford Business Tax Services, KPMG
DJ Hennes, Managing Director, KPMG LLP
Alex Costello, VP Government Relations, American Gaming Association
Reade Jacob, Counsel, WilmerHale
The AGA’s Alex Costello made several interesting comments. Most notable was her belief that there will be several CFTC roundtables (indicating a speedy decision on sports markets is unlikely).
DJ Hennes concurred: “I expect the CFTC to be in listening mode. This is an opportunity for opponents to make their case. I don’t expect any resolution at the end of this roundtable. They will receive the comments they have received in writing, and then proceed from there.”
THE UPSHOT: The April 30 roundtable is unlikely to provide the clarity many desire. If that’s the case, it can still be insightful, as it may show how the CFTC commissioners are approaching the issue.
What if the CFTC Greenlights Sports Contracts?
Costello indicated that if the CFTC sides with prediction markets, it will be a moment of self-reflection for licensed operators: “If the CFTC allows this to go forward, there’s going to be a lot of hard decisions.” However, in the interim, they have a license to consider.
When asked why a licensed sportsbook wouldn’t just shut down and shift to prediction markets (assuming the CFTC okays sports markets), Costello said there were reasons for and against:
“When these ideas were first raised, going back to 2020/2021, it was more of a hedging product, which was more of interest to our membership. I don’t think we envisioned this retail, all 50 states, bet on sports kind of product. Some of our members are looking into this because it’s out there.”
Costello went on to say that operators must ask themselves why they would pay hundreds of thousands of dollars for a license, upwards of 51% tax to a state, the federal excise tax, or deal with the regulations, adding that some markets aren’t open to anybody [Texas and California]. Turning to prediction markets dangles that carrot out there.
And it looks like a tasty carrot.
Per the team at Citizens, “The infrastructure of an exchange slightly differs from a sports betting platform, and we would expect new entrants to initially rent or purchase existing platforms for speed to market.”
Citizens also noted that a licensed sportsbook could leverage a separate prediction market platform in states with legal sports betting, creating “a tax arbitrage between sports betting and prediction markets, assuming prediction is not subject to a tax rate near sports betting tax rates (or any at all).”
Citizens believes that by pushing players to prediction markets for lower hold wagers (single-game outcomes), they can avoid hefty sports betting taxes in states like New York on those bets. At the same time, their high-hold products like SGPs, that fall outside the prediction market category (at least for now), are better suited to handle the higher tax burden.
Some other areas to think about:
Crypto payments: Gambling regulators have been slow to authorize crypto payments (notably, Kalshi started accepting Bitcoin as a payment this week)
Customer base: Citizens believes prediction markets attract crypto users, whales, and VIPs.
This for that and that for this: In addition to SGPs, some low liquidity markets might be too risky for market makers on an exchange — as Citizens notes, thus far, sports markets on polymarket lack liquidity outside of tentpole events. A dual operator could price and wager limit those on its sportsbook and not on its exchange or vice versa (eliminate the thousands of vanity markets to improve its sportsbook UX).
Roundup: Land-Based to Online; Books Warn Affiliates; ME iCasino Bill Dead; PA Regulators vs. Sweeps
A new online gambling supporter emerges: After Urban One’s (in conjunction with Churchill Downs) $562 million Richmond Grand Resort & Casino project was rejected in its last referendum in Virginia, despite $10 million in spending, the company is shifting to a new strategy in its Q4 earnings call. “Our Maryland effort was not around a bricks-and-mortar casino. It was around their iGaming legislation,” CEO Alfred Liggins said. “We'd like to position ourselves to be in that business and get a license, and so we've been lobbying to be part of the legislation.” Virginia is another candidate state, and given the company’s land-based efforts there, it’s likely to shift to online there, too.
Licensed sportsbooks are giving affiliates an ultimatum: According to Dustin Gouker over at The Event Horizon, “Some regulated sportsbooks have asked/told their affiliate partners to stop promoting Kalshi, Robinhood, and Crypto.com in the states where they have been issued cease-and-desists.” It will be interesting to see what affiliates, ‘bend the knee,” so to speak, and which don’t, as the relationships between operators and affiliates have become somewhat strained. However, as Gouker notes, “Right now, TEH understands Kalshi is generally paying about $60 per player,” which is an extremely low number compared to regulated operators.
Online gambling bill in Maine meets its end: A bill, LD 1164, legalizing online casinos in Maine (allowing each of the state’s tribes to partner with an online casino operator) met its fate in the Joint Veterans and Legal Affairs Committee on April 7. To no one’s surprise, the state’s two casinos, operated by Penn and Churchill Downs, opposed the bill.
Pennsylvania regulators request lawmakers ban sweepstakes sites: Per local reporting, “At a house gambling oversight committee hearing Monday, the state’s gaming control board testified they’re all across the commonwealth. They believe they’re illegal and asked lawmakers to ban them in the state.” The PGCB said it has sent 18 cease-and-desist letters, but it doesn’t have the ability to take legal action against these companies. Interesting aside, I queried the PGCB way back in May 2020 about the presence of sweepstakes operators in the state and was told they were not aware of them.
Views: What BetMGM CEO Really Said About Cannibalization
In an interview with iGaming Business, BetMGM CEO Adam Greenblatt said, “There has been a level of fearmongering by some in the retail sector on the issue of cannibalization.”
“The concerns around retail to digital cannibalisation, we believe, are totally overstated by the retail incumbents,” Greenblatt told iGB in a March interview. Far from saying cannibalization is a myth, he said, per iGB, something to the effect that ‘it has expanded the tax bases in states that also have retail facilities, Greenblatt says.’
“If you look at the underlying trajectory of the retail facilities in states where igaming has been introduced, [across] the really long-term trends, it’s been pretty much business as usual. The point here is, I think the scaremongering around cannibalization is greater than the actual [threat],” Greenblatt told iGB.
As STTP has been saying (screaming, actually), calling cannibalization a myth is a losing argument. The question isn’t whether online gambling cannibalizes land-based gambling; instead, it’s a question of, do you want legal, regulated operators or gray and black market operators?
“Is there seepage from land-based gambling to online? I think it would be difficult to argue there isn’t. On the other hand, online customers also become land-based customers. It’s a door that swings both ways.
“But it’s not an industry-wide outcome. Individual casino properties will have different outcomes, and some should be concerned.
“Still, casinos can’t stop online gambling any more than Blockbuster could stop Netflix, or Tower Records could stop streaming.
“Instead of asking how long we can preserve the current ecosystem and delay the inevitable, they should ask where they fit in. How can my organization mitigate or embrace online gambling to future-proof our business and bring in younger customers?
“The answers to those questions will differ for different properties, but complete opposition is little more than a stalling tactic. All that does is give you a stay of execution. It doesn’t eliminate online gambling or the threat it may pose to your property.”
Beyond the Headline: Spectrum Wades Into the Cannibalization Debate
Spectrum Gaming has joined The Innovation Group, Eilers & Krejcik Gaming, and other firms with some analysis on online casino cannibalization — Previous STTP coverage of the cannibalization debate.
In a recent Insight Note, Spectrum “compared the retail (i.e., land-based casino and distributed) gaming results from six non-igaming states (IL, IN, IA, MO, OH, NY) with those from six igaming states (CT, DE, NJ, PA, RI, WV),” and that “in the igaming states, retail gaming revenue decreased by $9 million, or 0.1%, from January 2023 to January 2024. In the non-igaming states, retail gaming revenue increased by $2.2 billion, or 4.1%, during the same period.”
Spectrum concluded (with a “yeah… but” caveat that needs to be included in any analysis of this sort) that “by one measure, igaming cannibalized 0.1% of retail revenue (essentially nothing). By another measure, igaming cannibalized 4.2% of revenue (0.1% shifted plus 4.1% loss of growth) from the retail operations.”
That seems to be the point of division: how do we look at the numbers?
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Host Brad Allen is joined by industry founder Stephen Taylor-Matthews to discuss:
Selling his company to Underdog
Why Flutter, DraftKings, and bet365 are leading on A.I.
Around the Watercooler
Social media conversations, rumors, and gossip.
This tweet from a user going by the name of Cat has become a significant story on X:
Here’s a summary of the full story from Casino Reports:
“PropSwap, the online marketplace that allows users to buy and sell active sports betting tickets, was forced to issue a statement via X Wednesday morning after a user claimed he didn’t get paid in full after purchasing a ticket for the Philadelphia Eagles to win the Super Bowl.”
Stray Thoughts
A wild week in the stock market streets reminded me of this quote: "The stock market is a device for transferring money from the impatient to the patient." ~ Warren Buffett