Since the US legalized sports gambling in 2018, the gaming industry has exploded in popularity, with legalization efforts in 39 states sports helped the gaming industry generate over $66 billion in gross revenues in 2023.
With more states legalizing the practice shortly, such as Texas where Governor Greg Abbott indicated he doesn't oppose sports gambling, gross revenues will balloon beyond the $66 billion from 2023.
The explosive growth and billions in revenues are attracting new players to the table, and not just those gobbling up sign-up bonuses at traditional sportsbooks like FanDuel or BetMGM, but entirely new players in the market who are shaping the future of sports gambling in America.
Game Changers: Prediction Markets
One such new player is prediction markets. Unlike traditional betting where books determine the odds based on proprietary algorithms, prediction markets depend on users to set the odds with the number of bets placed on a specific outcome driving odds and price. It's a simple and easily digestible platform for users who can wager - sorry, 'trade' - on familiar outcomes like who will win Super Bowl 59 between Kansas City and Philadelphia.
But the key to prediction markets is how they can venture into areas traditional sportsbooks can't; such as the US Presidential Election. Prediction markets such as Polymarket and Kalshi were on everyone's lips in 2024 when they had accurately predicted Trump would win rather than the 50/50 coin flip traditional polls and pundits were predicting, a major factor in Donald Trump Jr. joining Kalshi as a Strategic Advisor, giving the firm even more notoriety and maybe some help with regulators.
Because prediction markets aren't considered gaming like sports gambling, they avoid the red tape and taxes faced by the industry, which has drawn the interest of major players like Robinhood.
Newer And Bigger Player
In the lead-up to Super Bowl 59, financial services app Robinhood dipped its toes into the sports side of prediction markets by offering event contracts on the outcome of the big game. The move was natural and consistent with the brand's strategy to diversify from being a financial product app.
The CFTC would shut that down a day later under some less-than-clear justifications, citing having "serious concerns about FCMs offering access to their customers to any contract that may not be permissible under the law and will exercise its oversight authority to the fullest extent as appropriate."
Nevertheless, the intent has been made, and Robinhood stepping into the sports gambling landscape - even if done so through a prediction markets model - is monumental. Robinhood boasts 18.9 million monthly users, easily towering over the two largest sportsbooks, FanDuel and Draft Kings, combining for just under six million users in March 2024.
Of course, Robinhood was barred from entering the market, but the door isn't closed thanks to a new acting chair at the top of the CFTC.
Regulator Shuffle: Changes at the CFTC
As is tradition, when a new President is elected, the standing chair of the CFTC resigns, and that's what former chair Rostin Behnam did on January 7th. A few weeks later as Trump took office he appointed Commissioner Caroline Pham as acting chair.
Pham is seen as favorable to prediction markets. As one of the acting chair's first acts, Pham launched a series of roundtables within the CFTC to discuss "clear rules" and "safeguards" around prediction markets.
Pham was also critical of the Commission's position vis-a-vis Kalshi and their political event contracts, writing a scathing dissension saying the Commission was misapplying its rulebook and regulating by enforcement. A federal court of appeals would later share that same opinion.
While the CFTC is currently blocking Robinhood's path into prediction markets outside of political event contracts, with Pham at the top of the Commission that blockage might not last for too long.
The Future
As sports gambling continues its march toward legalization in all 50 states the industry keeps pushing the envelope on what is legal. What's next isn't quite clear.
Is it crypto? We're already seeing sweepstakes gaming grow in popularity where digital currencies are wagered in place of real-world money (though those digital currencies can be bought with and redeemed for money).
Hold on to your seats because the world of sports betting is changing.
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