Short Term Gain; Long Term Pain

Sporttrade’s CFTC petition highlights a broken regulatory system, where gaming licenses burden operators, acting as an albatross instead of an asset.

The big news of the week was Sporttrade’s decision (first reported by Sportico) to petition the Commodity Futures Trading Commission (CFTC) “with a letter asking permission to offer its product nationwide so it can avoid the ‘irreparable harm’ of a competitive disadvantage.”

There’s a lot more roiling under the surface. Sporttrade CEO Alex Kane’s recent comments on the Straight to the Point Talking Shop Podcast and elsewhere point to larger issues: The entire playing field is tilted toward companies willing to bypass the licensed and regulated state-by-state model. They have better market access, fewer financial and regulatory burdens, and they are getting a lion’s share of the investment money.

As Kane explained, he just wants an equal playing field. Sporttrade is offering precisely what Kalshi is offering (and has been for far longer) as a state-licensed sportsbook: “You’re not going to hear me say this isn’t sports betting. That’s a ridiculous comment,” the Sporttrade CEO told the CFTC.

Sporttrade is seeking expedited CFTC approval, which, according to Kane, will “encourage an open and fair capacity to offer sports event contracts, giving consumers choice among like options that all provide a safe, regulated, and compliant experience.”

But what Kane is getting at is that the current system (top to bottom) isn’t giving him many options but to petition the CFTC.

The Investment Dilemma

Investment dollars are in short supply for companies seeking to enter the legal, regulated online gambling sector. What was once seen as a considerable growth opportunity has shriveled, as states suddenly got cold feet over further legalization, while others have been, or are considering, increasing financial and regulatory burdens on existing operators.

The opportunity slowdown has spawned several new alternatives, from sweepstakes to prediction markets, which are seen as the new growth areas and are vacuuming up all the available investment dollars.

A willingness to be licensed should be a competitive advantage. One thing that has become glaringly obvious since the repeal of PASPA is that bettors want to use licensed and regulated sites. They will pay a premium for trust and peace of mind.

The evidence is pretty overwhelming:

• In 2020, the AGA released its Survey of American Sports Bettors, noting that 74% of bettors valued betting through legal providers. STTP would highly recommend that more groups ask these types of questions.

• Poll after poll shows respondents prefer legalization, which ipso facto indicates legal, regulated gambling is a positive development in the customer’s mind.

• Despite the regulated market's growth, gray and black market sites continue to show no signs of slowing down, suggesting that legalization and regulation don’t overwhelmingly migrate bettors from illegal to legal channels; they do, but they also increase the pool of bettors, bringing in people who were uncomfortable betting through gray or black market operators.

However, a license is also a significant headwind in the current landscape, as the path to riches from an investor’s perspective lies outside the regulated framework. Rather than an advantage, a gambling license is something of a liability.