JP Morgan Analyst Highlights the Potential of Prediction Markets for Online Sports Betting Operators
Prediction Markets: A New Frontier for Online Sports Betting
Daniel Politzer, a JP Morgan analyst, suggests that prediction markets could offer a valuable alternative to traditional online sports betting (OSB), potentially opening up new avenues for growth in the industry.
Opportunities for Online Sports Betting Operators in Prediction Markets
Politzer describes exchange-traded wagers as an exciting opportunity that gaming companies shouldn’t overlook. He points to firms like DraftKings and FanDuel as likely pioneers in integrating prediction markets, especially in states where online sports betting is currently prohibited, such as Texas and Georgia, by utilizing tax-exempt channels.
By applying an average betting amount of $1,100 per person from states where online sports betting is legal to those where it remains banned, Politzer estimates that prediction markets could unlock a market worth around $131 billion. Even accounting for possible product constraints and less effective marketing, which he cuts in half, the market still presents a substantial $62 billion opportunity in customer engagement.
From this volume, he calculates that trading fees could generate $2.5 billion, translating to approximately $1 billion in additional cash flow for the industry. If prominent operators like DraftKings and FanDuel secure about 25% to 30% of this market share, they could each see their cash flow increase by $200 million to $300 million. Specifically, Politzer forecasts an extra $250 million in cash flow for DraftKings if these scenarios play out, especially if these operators can develop layered, parlay-style products in states lacking formal online sports betting legalization.
Challenges Facing Prediction Markets
Despite growing interest, prediction markets face significant hurdles, primarily legal challenges and opposition from various stakeholders. Politzer notes that 34 state attorneys general have expressed resistance to expanding prediction markets into sports betting. Regulatory bodies such as the Ohio Casino Control Commission have also raised concerns and cautioned sportsbook operators against offering market bets.
The central issue stems from the belief that prediction markets may circumvent state laws and taxes because they operate under the federal Commodity Futures Trading Commission’s jurisdiction. Tribal groups worry about losing business to these new forms of betting and potential breaches of the Indian Gaming Regulatory Act. For example, the Ho-Chunk Nation has recently filed a lawsuit against a company that allegedly offered unauthorized sports betting on tribal land.
Sports leagues are worried about maintaining the integrity of games and protecting sponsorship relationships tied to traditional sports betting. Furthermore, state gaming regulators highlight the lack of consumer protections at the federal level, a concern shared by many gambling advocacy organizations.
