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Few topics in gaming have been more controversial than prediction markets. This week, the conflict resulted in the exit of two major members from the American Gaming Association: FanDuel and DraftKings.
The AGA has steadfastly opposed prediction markets, which are controlled by the federal government. Included in the markets are sports event contracts, which are essentially sports wagers.
FanDuel and DraftKings see prediction markets as a way to offer sports wagering in states that don’t allow it, since they do not have to adhere to any state laws.
That impasse has resulted in the AGA losing its two top operators, both of which offer New Jersey sports betting and New Jersey online casinos.
What prediction markets mean for NJ gamblers
The federal government defines prediction markets as financial products. Besides giving them a chance to offer sports betting in states that don’t currently allow it, prediction markets could allow operators like FanDuel and DraftKings to pay less taxes than they currently pay under state rules.
The Commodity Futures Trading Commission regulates prediction markets. The difference between that type of oversight and what happens at the state level with sportsbooks could lead to better odds for consumers.
With prediction markets available from some companies in New Jersey, sports bettors have another method for wagering (in this case, “trading”) on sporting events. It’s considered an investment in which team will win Sunday’s game, or have the most wins in the regular season, or win the next Super Bowl.
Most importantly, when a consumer enters into a sports event contract on a prediction market, they are “wagering” against peers. In sports betting, the operator (the sportsbook or “house”) holds the bet, and stands to win if the consumer loses. In prediction markets, the house is removed.
Will NJ regulators penalize sportsbooks?
New Jersey lawmakers technically have no say on prediction markets, since they are federally regulated under the CFTC. That means companies like Kalshi and Crypto.com can offer prediction markets in the Garden State.
New Jersey gaming regulators balked at that, sending out a sent cease-and-desist letter to Kalshi earlier this year. That resulted with Kalshi suing the state. The company won a preliminary injunction against New Jersey and continues to operate in the state today.
Other states are also trying to stop prediction markets. New York is embroiled in a lawsuit with Kalshi, and lawmakers there are working to pass legislation that would ban prediction markets in the state.
In California, Native American tribes sued Kalshi and Robinhood to stop them from operating on tribal lands. The tribes lost a preliminary injunction to halt Kalshi and others from operating while the case advances.
Some states have threatened to revoke sports wagering licenses should a licensed operator, like FanDuel, offer prediction market contracts in that state. New Jersey has not, so far, gone that far.
FanDuel said it will not launch its upcoming FanDuel Predicts product in any state with licensed sports betting.
“In states where online sports betting is not yet legal, customers who are not on tribal lands will be able to trade event contracts on the outcome of sporting events. As new states legalize online sports betting, FanDuel will cease offering sports event contracts in those states.”
Tip of the iceberg
As of yet, prediction market operators have not figured out how to create products like parlays and player props, which consumers are used to from sports wagering apps.
However, the number and variety of markets players can bet on with prediction markets could drive some bettors to them.
Whatever happens with prediction markets in New Jersey, DraftKings and FanDuel will likely be involved in some way. Exactly what that means for sports bettors isn’t quite clear.
