Summary

In this episode, Nick and Dan catch-up with Mike Dreitzer, Chairman of the Nevada Gaming Control Board. Learn how Mike is applying experience from a decades-long tenure on the industry's supply side to improve regulatory efficiency, promote technological innovation, & strengthen consumer protections. Also, tune in as we discuss the constitutional and consumer protection issues at the heart of the prediction market disputes & the testing / certification complexities associated with AI. Also in this episode, why are Americans so obsessed with prediction markets?

Transcript

Nick Hogan:

Good morning, Dan. How are things in the silver state this morning?

Dan Cherry:

They’re wonderful. It’s good to see you, Nick. In honor of the Olympics, we’ve been celebrating. We had a Tuesday Mardi Gras snow dusting here in the Vegas valley.

Nick Hogan:

Oh, you’re kidding me. So you actually have snow on the ground now?

Dan Cherry:

No, no, just-

Nick Hogan:

Oh, it’s already gone.

Dan Cherry:

Just the dusting. Yeah.

Nick Hogan:

Okay.

Dan Cherry:

And I know we’re audio only, but I know you’ve been celebrating. I see you’re in your Orange Holland speed skating suit this morning.

Nick Hogan:

I’m really, really into it. Yeah, actually they’re bummed. The Dutch are always bummed when the entire podium is not orange. So that’s the issue. There’s an American who’s given them some hell this year, as I understand. All right, so Dan, let’s see. So the listener question I pulled this month really tees up this month’s news item and part about what we’ll be discussing with today’s guest. So I’m going to lead with that. Before I jump into it, let me say we love to tackle any questions that anybody listening may have. So if you have a question about what we’re presenting or something you’d like us to present, please drop us an email at reelcast@realmetrics.com. Again, that’s R-E-E-L-C-A-S-T @realmetrics.com, our policy is to keep all questions anonymous, so please speak directly and don’t worry about us revealing our identity. That’s not something we do.

So this question comes from a Spanish operator who asks, hello gentlemen. The industry news, and I include your podcast in this, is filled with so many stories about prediction markets. I understand that governments want to tax these companies, but your episode with Mr. Bussmann left me with the feeling that this is more like a fight to the death than a simple tax issue. Can you explain this for us, Europeans? Why are Americans so worked up about this? So very good question. Many thanks to the listener for that one, and I’ll do my best to summarize this as succinctly as possible. So this matter is a very big deal in that it’s really a case as most fundamental of the national, or as we call it, America, the federal government, challenging the sovereignty of state and tribal governments.

So the US Constitution is very specific that unless power is explicitly granted to the federal government by the constitution, that power is reserved for the states. So gaming regulation is not a power granted explicitly to the federal government by the constitution and has therefore been squarely in the hands of the states for better part of 115 years. So the only real challenge to that was in 1988 with the passage of the Indian Regulatory Act regulatory Act, which established that tribal nations themselves, sovereign entities, also have the right to regulate and tax gaming within their sovereign territories. So that’s really the foundation on top of which the world’s largest and one of the healthiest, most vibrant and best regulated gaming industries has been built.

And the laws are on the books, the licensing procedures, enforcement infrastructures, everything’s in place properly empowered and extremely effective. It’s also, you have to say, pretty adaptive and that as new technologies have entered the fray, like sports betting things of this nature, the states and tribes have done really impressive job of folding them into their regulatory and tax framework. So the headline just there is that the system is anything but broken. So as we mentioned in the previous episode, roughly 90% of the trades that are occurring on these prediction market apps relate to the outcome of sporting events. So as is their right, the state and tribal governments have defined this as bookmaking and they’ve moved to license and tax those providers within their sovereign territories.

The federal government, however, is using some extremely convoluted and bizarre logic to argue that sports related trades aren’t sports bets, but free market valuations of information that has the potential to impact, for example, the valuations of sports related industries or companies. And if that sounds logic, it’s because it is. I think what it has everybody really concerned in America or reason it’s such a big deal is really the slippery slope. So if you take the federal government’s logic to its ultimate conclusion, it can be expanded to encapsulate virtually any form of gambling. And if that’s permitted to stand, I think there’s no doubt that it’s going to plunge the entire American gaming industry into unbridled chaos. And as an industry, it’s not like we require incremental proof that chaos and gaming don’t mix. It’s not a recipe for success. It’s a core reason in fact that these regulators exist in the first place.

So to the listener who asked that question, thanks again. I hope I’ve answered it. It’s a very serious dispute and indeed a lot hangs in the balance. Now, Dan, we had some fortunate timing on this topic and that yesterday you sent me this Wall Street Journal that was published on Tuesday and entitled States Encroach on Prediction Markets. So I encourage everybody listening to read it. It was written by Michael Selig, who’s the chair of the Commodity Futures Trading Commission. That’s the agency that’s currently regulating prediction markets, and he’s the official who’s leading the charge for the federal government. So in this article, he lays out his argument, and to be honest, passages of that, I had to reread three or four times, and I’m not entirely certain that I could summarize it. Dan, you want to give it a shot?

Dan Cherry:

Oh, that’s a tough one. I mean, I think what you’re getting to, and people will have to read it to believe it, but I mean, effectively, he said essentially everything is unrivaled that falls under their jurisdiction