Operators of OSB should not overlook the potential of prediction markets, according to JP Morgan analyst.
In the rapidly evolving world of sports betting, a new frontier is emerging: prediction markets. These markets, which allow individuals to bet on the outcome of various events, have caught the attention of multiple stakeholders, including regulatory bodies, tribal entities, and sports leagues.
The Ohio Casino Control Commission (OCCC) has issued a warning to sportsbook operators about offering market bets, signalling a potential regulatory challenge for this burgeoning sector. The concern stems from the possibility of these markets bypassing state regulations and tax requirements.
This issue has not gone unnoticed by state attorneys general, with 34 of them expressing opposition to the expansion of prediction markets into sports betting. The rapid growth of the sector has also raised concerns for tribal entities, who worry about potential cannibalization of the online sports betting market and possible violations of the Indian Gaming Regulatory Act.
One of the key concerns is the lack of consumer protections at the federal level. Gambling advocacy groups share this concern, as they strive to ensure the safety and fairness of these new betting platforms.
Despite these challenges, analyst Daniel Politzer sees potential in prediction markets as an expansion opportunity for online sports betting operators. He projects a sizable $62 billion in potential customer volume, a figure that was cut in half due to expected product limitations and weaker marketing. If this estimate holds, it could translate into approximately $1 billion in additional cash flow for online sports betting operators.
Politzer also suggests that companies like DraftKings and FanDuel, some of the biggest names in the sector, may enter prediction markets through a tax-exempt pathway in states where online sports betting remains illegal, such as Texas and Georgia.
The federal Commodity Futures Trading Commission (CFTC) oversees prediction markets, but this jurisdiction has raised concerns for state regulators. The CFTC's involvement could potentially limit state regulatory authority over these markets.
Prediction markets operate under exchange-traded wagers, a promising market expansion opportunity according to Politzer. If DraftKings and FanDuel were to capture a 25% to 30% share of the market, they could see a cash-flow boost of $200 million to $300 million.
However, the expansion of prediction markets into sports betting is not without its challenges. Sports leagues are concerned about threats to game integrity and potential losses of sponsorships tied to traditional sports betting. Recently, the Ho-Chink nation sued a prediction market company over allegations of offering illegal sports betting on tribal lands.
As the debate continues, it is clear that the future of prediction markets in sports betting will be shaped by a complex interplay of regulatory, legal, and economic factors.
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