Prediction markets in the United States, particularly platforms like Kalshi, are rapidly gaining traction as an alternative to traditional sports betting sites. Unlike platforms such as DraftKings and FanDuel, prediction markets operate under the regulatory oversight of the Commodity Futures Trading Commission (CFTC), not state gaming commissions.
This crucial distinction allows them to offer financial instruments based on real-world events, including political outcomes, economic indicators, and even sports results. However, as these prediction sites expand, they face increasing scrutiny regarding their potential overlap with traditional sports betting.
In mature betting markets where matched betting arbitrage has flourished, betting exchanges are integral. Prediction markets could potentially replace betting exchanges in the US, creating new avenues for matched betting arbitrage. This is a crucial consideration for traditional sportsbooks.
How Prediction Markets Compare to Betting Exchanges
Traditional betting exchanges, such as Betfair, enable users to both back and lay bets, facilitating a peer-to-peer wagering system. This model allows traders to hedge bets and capitalise on market inefficiencies, similar to prediction markets. However, prediction markets are framed as financial exchanges rather than gambling platforms, operating in a regulatory grey area.
Like betting exchanges, leveraging odds discrepancies between prediction markets and traditional sportsbooks could become increasingly common.
Background: Growth Potential for Matched Betting and Arbitrage
Arbitrage betting (arbing) and matched betting have long been popular strategies in traditional sports betting. By exploiting free bet promotions, price discrepancies, and market inefficiencies, bettors can secure guaranteed profits regardless of event outcomes.
In the UK, specialised sites like Outplayed (formerly Profit Accumulator) have facilitated matched betting for years. While “picks” sites have been popular in the US, the emergence of prediction markets introduces a new dynamic.
In the context of US prediction markets, this could manifest in two ways:
- Arbitraging between sportsbooks and prediction markets: If a sportsbook offers odds on an event and a prediction market lists a corresponding contract, bettors could hedge positions for risk-free profits. This is more likely to occur if there are promotional price boosts etc.
- Matched betting using sportsbook promotions: Free bets, deposit bonuses, and odds boosts from sites like DraftKings and FanDuel could be used to secure guaranteed wins on Kalshi by backing opposing outcomes across platforms.
Impact of Prediction Market Sites on Marketing Teams at US Sportsbooks
If arbitrage betting between sportsbooks and prediction markets becomes widespread, major US brands like DraftKings and FanDuel will face significant challenges, including:
- Increased Bonus Abuse: Matched bettors exploiting free bets for risk-free profits will force sportsbooks to reassess promotional strategies.
- Tighter Restrictions and Account Limitations: Sportsbooks may implement more stringent monitoring to detect and limit sharp bettors.
- Regulatory Scrutiny: Increased arbitrage activity could lead to greater regulatory oversight.
Will the US See a Free Bet Arbing Boom?
In European markets, free bet arbing has significantly impacted sportsbooks. While the US sports betting industry is still developing, a similar trend is likely.
However, the US has fewer sportsbooks than markets like the UK, limiting free bet welcome offers. If offshore and crypto sites are factored in, more assistive tools and platforms might emerge.
As sportsbooks expand promotions, bettors will capitalise on arbitrage opportunities. Once sportsbooks detect abuse, they will implement stricter customer profiling and wagering limits. Prediction markets could become hubs for bettors seeking hedging strategies.
Legal Risks and the Future of Prediction Markets
Despite their current legal standing under the CFTC, prediction markets remain vulnerable to regulatory challenges. If state gaming commissions or federal agencies deem these platforms too similar to sportsbooks, they could face restrictions or bans.
There are currently cease and desist orders and counter legal suits ongoing.
The long-term viability of prediction markets depends on their ability to differentiate themselves from betting exchanges in the eyes of the regulators.
Conclusion
The intersection of prediction markets, sports betting, and arbitrage betting presents both opportunities and challenges. While Kalshi and similar platforms may not yet be mainstream targets for professional bettors, the potential for bonus abuse and risk-free arbing is significant. Sportsbooks will adapt their promotions and policies, and regulatory bodies may intervene.
Marketing teams must factor this into their promotions and collaborate with trading to identify matched betting and arbing customers. Robust KPIs that exclude these customers are essential.
Recommended Actions for Sports Betting Marketing Teams:
- Structure KPIs to exclude matched betting/arbing customers.
- Maintain regular communication with risk and trading departments.
- Generate reports on restricted customers and their traffic sources.
- Monitor prices and offers on prediction markets, exchanges, offshore, and regulated sportsbooks.
- Include a promo abuse section in weekly and monthly reports.
The relatively low number of sportsbooks in the US market means this issue will be less significant than in mature markets like the UK. However, the outcome of Kalshi’s case against Nevada and New Jersey could lead to a rapid increase in federally regulated prediction market sites. Regulated sportsbooks must closely monitor this development.
