For many years I have written about the inevitable convergence of the crypto space and regulated online gambling, and it is without doubt now happening.
At ICE last month, I spoke to Paysafe’s President of Global Gaming, Zak Cutler, who was formerly in senior product roles at DraftKings and Jackpocket. He’s seen disruption from various angles over the course of his career, but his latest vantage point is payments.
I asked Cutler how far we are from crypto holding legitimate space in the regulated igaming market and he told me he expected to see regulated operators, in the U.S. and beyond, adding crypto payment methods within the next 12 to 24 months.
Paysafe has seen the shift coming and is preparing for it. Undoubtedly other payment providers are doing the same, and operators are quietly making their own plans to convert a proportion of the vast, largely unregulated crypto gambling market into a legitimate regulated offer.
Meanwhile, a new disruptor has risen at pace to challenge the industry. Prediction markets have swept across the U.S. in the last two years and are particularly popular with crypto investors. Prediction markets have been long been used to speculate on the future prices of major crypto currencies, as well predicting the outcome of elections, entertainment events, and sports.
In the U.S., where sports betting is regulated on a state-by-state basis, the likes of Kalshi, Polymarket, Robinhood and Crypto.com have secured Commodity Trading Futures Commission licenses to circumvent state regulators and offer event contracts that behave very similarly to traditional sports bets. Numerous legal challenges have been launched to stand in their way but, ultimately, they are riding a wave enabled by federal law, and forward-looking operators such as DraftKings and FanDuel have quickly jumped on board.
CDC Gaming’s Buck Wargo reported this week that prediction markets might have contributed to Nevada recording its lowest Super Bowl handle in 10 years, all despite Nevada regulators and federal judges issuing various orders in a bid to prevent the likes of Kalshi, Polymarket and Coinbase from offering contracts in the state.
Meanwhile, Bloomberg reported that as prediction markets took over the Super Bowl this year, the stock of some of the biggest sports betting operators saw sharp declines. This was not helped by the uninspiring Seattle-New England match-up, but the prediction markets didn’t seem to suffer, with Kalshi alone reporting $1 billion in trading volume on the game.
In Europe, prediction markets do not hold the same rampant appeal. First, the European market and its regulation doesn’t provide the same incentive for those interested in sports betting to choose a prediction platform over a traditional sportsbook. There are plenty of well-established sportsbooks that punters can access legally and enjoy using. Betting exchanges like Betfair, Smarkets, and Matchbook have also operated legally in the UK and Europe for many years, under gambling regulation, leaving less need for prediction markets in the sports betting space.
But that hasn’t stopped Matchbook announcing plans to replicate the prediction market model in the UK. It has announced it will be the first regulated prediction market in the country and will be adding predictions as a white label B2B play as well.
In announcing the move at the end of last year, Matchbook Chief Strategy Officer Jesse May said, “Prediction Markets are a fantastic way of presenting our market-leading pricing to customers in a more understandable user interface; all powered by the strength of the Matchbook betting exchange engine.”
In other words, there is an expectation that where betting exchanges may not have held wide appeal compared to traditional sportsbooks in the past, the simpler yes/no format of predictions markets may be more successful, not to mention tap into a growing crypto-savvy demographic.
Not every operator is jumping on the bandwagon yet though. In a recent earnings call, Betsson AB chief executive Pontus Lindwall was asked whether he was considering prediction markets to diversify the operators’ portfolio. It seemed a possibility given Betsson’s recent reported interest in buying crypto casinos Sportsbet.io and Bitcasino.io from Yolo Group.
However, Lindwall distanced himself from prediction market speculation, admitting it was “a very interesting market segment that has been created in quite a short timespan,” but suggesting it was not a fit for the operator’s core markets, despite its success in the U.S.
The Gambling Commission of Great Britain recently clarified its position on prediction markets, with director of strategy Brad Enright defining a prediction market in as far as the UK regulator is concerned.
“Whilst the presentation of prediction markets may differ, their core aspects are akin to what in the UK would be described as a ‘Betting Exchange.’ The betting intermediary gambling licence exists to cover such business models,” he said. “Whilst prediction markets are a relatively new development in the United States, betting exchanges have existed in the UK since 2000.”
Debunking any suggestion that prediction markets may fall under the scope of the financial regulator in the UK, as they do in the U.S., Enright added, “It is not for us to comment on ongoing legal debates on the status of prediction markets in the United States or elsewhere. If a prediction market operator was to launch here in Great Britain, we do not believe they would be able to classify themselves as non-gambling products.”
The GC’s position then is pretty clear, while in a number of other European countries Polymarket has been blocked rather than invited to apply for approval as a gambling operator. With reports this week that users of prediction markets face far greater loses than those placing bets on sportsbooks, these platforms can expect more scrutiny from European regulators – as always with these disruptive entrants, the question is whether the regulation will keep up with demand.
