Several conditions surrounding the state of the sports betting industry in the US have caused Flutter Entertainment and its subsidiary FanDuel to caution against external factors that could have deleterious effects on its growth, citing trading platforms as being chief among them.
Prediction Market Gray Area
Prediction markets have muscled their way into what had previously been the exclusive domain of regulated and licensed sportsbooks in the US – sports wagering. While the prediction platforms like Kalshi, Crypto.com and others do not work the same way a traditional sportsbook does, they nevertheless take sports betting dollars out of a pool that was exclusively meant for licensed mobile sports betting operators.
The difference is that futures trading platforms use sports prediction markets the same way the commodities market works by offering contracts and allowing people to buy those contracts at dynamic pricing. The trading platforms do not accept “bets’ per se; rather, they house the contracts and provide a platform that is essentially peer-to-peer betting with the operators taking a percentage for their service.
Sportsbooks accept all the risk, acting as the house and charging a vig on each bet. Should a bettor win, they would get paid out of the pockets of the sportsbook. Should the bet lose, the entire amount would go into the pockets of those same sportsbooks. This is unlike the prediction market platforms that merely act as an agent for a fee.
From Politics to the Playing Field
The trading platforms, ala Kalshi, stole headlines during the most recent election cycle when they were offering contracts on the presidential race between Donald Trump and Kamala Harris. The Commodity Futures Trading Commission (CFTC), the industry’s governing regulatory board, took action and brought the matter to court, where it won an initial ruling but lost at the appellate level.
Kalshi, emboldened by its legal victory, then began delving into sports event trading by offering Super Bowl contracts and launched 38 other sport-related contracts. The legality of it all is murky, but it poses a potential competitive threat to traditional sportsbooks, including America’s most popular digital gaming platform, FanDuel.
New Competition
Flutter Entertainment, in its most recent 10-K report, revealed it considered sports event trading as derivative products, licensed under the aegis of the Commodity Futures Trading Commission (CFTC), as one of its business risk factors.
Among others cited were increased tax rates from states in which it operates as well as a growing public concern regarding the risks mobile gambling may pose to the well-being of the American public.
“While we believe that we are well positioned to compete with new entrants to the betting and gaming market through our online betting and gaming offerings, the competitive dynamic is evolving, and we cannot assure you that our results of operations will not be adversely impacted by the expansion of legalized online gaming and betting,” the company wrote in its annual 10-K form filed with the US Securities and Exchange Commission last week.
However, there has been industry pushback from stakeholders, including the American Gaming Association and the Indian Gaming Association (IGA), that has requested the Commodity Futures Trading Commission prohibit these trading derivative platforms from participating in sports events futures, citing the breach of state and federal law.
The CFTC will be holding a prediction markets roundtable after the public comment period is over, while the Nevada Gaming Control Board recently submitted a cease-and-desist letter to trading platform Kalshi, cautioning them not to operate in the Silver State.
