Analysts from Bank of America discuss the prospective evolution of forecasting marketplaces
Let's Dive into the Exploding Sports Betting Prediction Markets!
United States 📊 Prediction Markets 🏈 Get ‘er Done, Buck Wargo's Take
Listen up, homies, it's time to talk shop! Bank of America analyst Shaun Kelley just dropped a bombshell prediction about the prediction markets moving into the sports betting scene, and it's gonna shake things up!
Since the end of December, online betting platforms like Kalshi, Crypto.com, and Polymarket have exploded onto the U.S. sports betting stage, expanding their market offerings on a national level, rather than limiting themselves to individual states.
So, what's going on here? Well, according to Kelley, prediction markets are market-based exchanges that deal in futures contracts – a derivative product that resolves after a crucial event, such as an election or sports game. Unlike traditional sportsbooks, these markets match buyers and sellers and typically collect a fee per transaction, like a stock exchange, instead of calculating odds and taking that infamous "vig."
But here's where things get interesting. Unlike traditional sportsbooks that are regulated by individual states, prediction markets are overseen by the federal Commodities Futures Trading Commission (CFTC). Historically, CFTC rules have prohibited gambling, but last fall, Kalshi won a court case to offer election markets. Post-election changes to CFTC leadership and a more deregulatory policy environment could open the door to more expansive definitions of these markets.
Now, if you're wondering what's next, the CFTC's upcoming roundtable and an expected ruling on Crypto.com's launch of sports contracts, both happening around March/April, could be significant catalysts for the adoption of these products.
" prediction markets can drive new customers, expand the total addressable market of sports betting, and blur the line between sports betting and fintech," Kelley says. "But they could also be disruptive new entrants, with deepening products/markets, access to national scale, and cost advantages that need to be closely monitored."
Polymarket currently offers over 400 sports markets, with another 40+ available on Kalshi.
From a strategic standpoint, prediction markets offer several advantages over traditional online sports betting. These include immediate national scale, access to crucial markets like California and Texas, zero state gaming taxes, and no market access requirements or fees.
But Kelley warns they also face challenges. These include the need for liquidity to be an active market, less promotions, limited product and market depth, and regulatory uncertainty.
All in all, this fast-evolving landscape is a bit of a wild west, but it could potentially be reshaped by either further fragmenting regulation or consolidating oversight under the CFTC. So stay chill, keep your eyes peeled, and remember – this game is just getting started!
- The explosive growth of sports betting prediction markets in the United States is drawing particular attention to platforms like Polymarket, which offer derivative products related to critical events, such as sports games.
- The federal Commodities Futures Trading Commission (CFTC), which historically has prohibited gambling, could be a key player in shaping the future of these markets, as shifts in CFTC leadership and policy toward deregulation may open doors to broader market definitions.
- Prediction markets, such as Polymarket and Kalshi, could potentially drive new customers, widen the total addressable market for sports betting, and blur the line between sports betting and finance technology (fintech).
- While prediction markets hold advantages like immediate national scale, zero state gaming taxes, and no market access requirements or fees, they also face challenges, including the need for liquidity, limited product and market depth, and regulatory uncertainty.
