To misquote Ernest Hemingway, change in online sports betting happens in two ways: gradually, then suddenly. That is what prediction markets are likely to do following their recent rise to prominence.
Has a betting format ever had more of an impact than political betting has had in the U.S. since a federal appeals court in Washington, D.C. lifted a temporary ban on it?
The court rejected calls from Commodity Futures Trading Commission to shut the site down, and the ban was overturned just over a month ago. Since then, the rise and prominence of Kalshi, the operator at the center of the court’s decision, has been striking. Much like those who follow politics obsessively, that might have been obvious only to those who consume too much news and social media and notice these things, but you get the drift.
This was visible mainly on X/Twitter, which is not surprising, since X owner Elon Musk has backed Donald Trump so heavily and Kalshi, and others like crypto operator Polymarket and UK exchange Betfair, had Trump so overwhelmingly as favorite on their sites.
Undue influence
For outsiders (i.e. this reporter), it was eye-catching. Political betting has always been a niche activity in Europe, but with the dictum that markets are always a better indicator of political outcomes, the disparity between opinion polls, which had Democratic presidential candidate Kamala Harris and Trump tied in many dead heats across so many states; it was striking to observe.
Professional confession:
I thought the sportsbook (and especially prediction market) betting odds were way too heavily skewed toward Trump. -125, sure. But -175 to – 200, heading into Election Day? No way.
Turns out they were way among the best indicators of the race.
— Ryan Butler (@ButlerBets) November 6, 2024
Again, with social media algorithms being what they are and the fact that Musk will definitely not have minded seeing those predictions get so much exposure, those sites were highly visible (or even more than usual) during the campaign.
In addition, while Trump ended up winning the presidency by a comfortable margin, the prominence of those prediction markets on X/Twitter often made it look like it was a foregone conclusion. Interestingly, the potential influence the sites might have on how voters think about election outcomes was one of the key reasons the CFTC gave for not wanting companies like Kalshi operating in the market.
Change happens fast
Also striking has been to see how quickly things have moved from the industry’s perspective. Indeed, since the ‘Kalshi ban’ was overturned and Polymarket joined the fray just over a month ago, numerous other U.S. prediction market providers are now targeting consumers stateside with political betting markets. One of the most prominent, Robinhood, became active on the scene via a technology agreement with Interactive Brokers a few days before voting day.
This issue was picked up by igaming industry investor and Eilers & Krejcik partner Chris Grove a few days ago. In a LinkedIn post, Grove said that for all the negativity stakeholders have expressed about sweepstakes and fantasy sport betting operators, “arguably the most significant threat to rearrange the deck is generating the least discussion.”
“As of this week, Robinhood is a betting site. Some might argue that it’s always been a betting site, but the launch of election markets moves it firmly into territory historically occupied by sportsbooks,” he said, before providing a sense of perspective of Robinhood’s scale vs. major sportsbooks such as BetMGM, Caesars Sportsbook or DraftKings.
“Robinhood towers over U.S. online betting companies by many key metrics. As of 2Q24, Robinhood had 24.2 million customers with funded accounts and 11.8 million active monthly users. Two million of those users pay a subscription fee to access premium features under Robinhood Gold. Robinhood users made net deposits of $13.2bn during the quarter, driving total assets under custody to nearly $140bn,” he explained and added that FanDuel had 3.46 million monthly users during the same quarter.
Keeping watch
Grove also noted that “Robinhood is more or less available in every U.S. state,” including the major jurisdictions of California and Texas and that it will “absolutely not stop at election betting.”
For transparency, we should point out that Grove is an investor in the fantasy betting operator Fliff and has hosted webinars on behalf of the sweepstakes companies that make up the Social and Promotional Gaming Association. He has also been vehemently and openly criticized by tribal gaming stakeholders such as Victor Rocha about those activities, so his post should be seen within that context.
Nonetheless, it doesn’t make what he is saying any less true and while Rocha and the American Gaming Association wring their hands at the thought of a sweepstakes industry that has a total addressable market worth about “1/10th tenth of regulated online gambling in the U.S.,” according to Grove, much bigger operators are making ominous moves in the space with not a word of disapproval from those parties.
Rocha actually posted about how accurate those companies had been at predicting the outcome of the election, but did not express any views on whether they might have a negative impact on tribal interests or those of AGA members. As Robinhood and the likes of Polymarket continue to be active over a much larger footprint, both population and financial, than sweepstakes or DFS operators, it will be interesting to see if he turns his attention to those companies.
