Peering into the Future of Betting: Prediction Markets in the US Sports Sector
Financial analysts at Bank of America discuss potential developments in prediction market landscapes.
Embrace the evolution as Bank of America analyst Shaun Kelley gazes into the crystal ball of prediction markets making their grand entrance into the U.S. sports betting realms.
Prediction markets, such as Kalshi, Crypto.com, and Polymarket, have been swiftly infiltrating the American sports betting scene since late December. With an expanding array of markets and betting options, these platforms are operating on a national, not just state, level.
Understanding prediction markets is a cinch. They are nothing more than market-based exchanges providing futures contracts. These contracts, Kelley explained, resolve after a crucial event such as an election or sports contest, matching buyers and sellers and taking a fee per transaction, akin to a stock exchange.
Disregard the traditional house-backed sportsbooks and their regulatory helmets. Prediction markets are supervised under federal authority by the Commodities Futures Trading Commission (CFTC). Historically, CFTC rules have tossed gambling into the naughty corner. However, last fall Kalshi won a court case, and recent changes in CFTC leadership, as well as a deregulatory policy environment, might expand the regulatory boundaries for these markets.
Keep a watchful eye on the March/April horizon, as a CFTC roundtable and an anticipated ruling on Crypto.com's sports contracts launch draw near. These events might serve as major catalysts for the adoption of prediction markets.
According to Kelley, "Prediction markets boast unsung potential as a companion product, which could rally fresh customers, expand the overall sports betting market, and smudge the line between sports betting and financial technology." In pure contrast, he warns they could disrupt the finance-rich sports betting industry, demanding close monitoring due to their deepened offerings, access to the national market, and price advantages.
Polymarket serves up more than 400 sports markets, with another 40 floating around on Kalshi.
When you weigh the pros and cons, prediction markets shine with favorable pricing and higher limits but struggle with liquidity, promotional clout, and limited market depth.
On the brighter side, these markets grant online sports betting platforms several noticeable advantages. Imagine instantly national scales, taxless revenue in contrast to state gaming taxes, and zero market access requirements or fees.
Bear in mind, however, they also face potential hurdles. Stability in market liquidity, lower promotional offerings, and shallow market depth, especially since parlay bets have assumed the crown in the online sports betting empire, remain major challenges.
The prediction markets' grand entrance into the U.S. sports betting scene entails both challenges and opportunities for operators and investors. Cautiously navigating regulatory inconsistencies and capitalizing on market advances from these new entrants will determine the future of sports betting and investments in this sector.
- Prediction markets like Polymarket and Kalshi, with their derivative offerings, are expanding in the U.S. sports betting scene, operating nationally instead of just on a state level, as Shaun Kelley foresees them as a potential companion product that could enhance the overall sports betting market.
- Although prediction markets such as Polymarket offer favorable pricing and higher limits, they struggle with issues like liquidity, limited promotional clout, and shallow market depth, especially compared to traditional house-backed sportsbooks.
- Embracing the technology of prediction markets can provide benefits for online sports betting platforms, such as instant national scale, taxless revenue, and zero market access requirements or fees, but it also necessitates dealing with potential hurdles like ensuring market stability, providing competitive promotions, and increasing market depth to rival popular parlay bets.
