Prediction markets, sweeps bring shocks to industry

As the seventh anniversary of the Professional and Amateur Sports Protection Act (PASPA) decision approaches, the legal sports betting landscape faces a series of formidable challenges that threaten its stability and growth. The gambling sector has witnessed an alarming upsurge in competition from illegal gaming operations, offshore platforms, sweepstakes casinos, and emerging prediction markets. These developments raise critical concerns about potential cannibalization of revenue from traditional brick-and-mortar casinos by legal online gaming entities.

This pressing issue was the focal point of a panel discussion held during the 28th annual East Coast Gaming Congress (ECGC) on April 15 at Hard Rock Atlantic City. The panel, titled “Future Shock: Confronting Unprecedented Challenges in Gaming,” consisted of industry experts, regulators, and legislators, providing an authoritative overview of the current state of the gambling industry.

### Addressing the Challenges

The session was moderated by Lynne Kaufman, a partner at Cooper Levenson, who steered the discussion toward the critical financial contributions of traditional casinos to state and local economies through licensing fees, infrastructure development, job creation, and tax revenues. As these establishments grapple with increased competition, particularly from legal iGaming, the pressure mounts to protect these vital contributions while preserving profitability.

The panel included prominent figures such as Shawn Fluharty, a West Virginia lawmaker and president of the National Council of Legislators from Gaming States (NCLGS); Mary Jo Flaherty, interim director of the New Jersey Division of Gaming Enforcement; Yael Harel Hertz, CEO of TheLotter Group; David Brace, principal of innovation and technology for Continent 8; and Andrew Winchell, head of government affairs for Betr.

Fluharty emphasized that while shifts in the gaming landscape could be daunting, many challenges are generated internally, particularly concerning taxation and competition among various gaming forms. The ongoing deliberation of internet gaming legislation has raised critical concerns about tax structures, with Fluharty advocating for bills that generate revenue without imposing additional tax burdens.

### The Ascendance of iGaming

Despite industry apprehensions regarding iGaming’s potential to erode land-based casino profits, legislative activity surrounding online gaming continues to gain momentum. Fluharty asserted, “While there is concern that iGaming cannibalizes traditional casinos, it does not equate to failure in the iGaming sector.” He highlighted that many states are in various stages of considering legalization, driven by the need to fill revenue gaps exacerbated by federal funding constraints.

Concerns regarding competitive pressures from online lottery couriers were also addressed during the discussion. Hertz noted that such services could undermine the profitability of traditional lotteries offering direct online purchasing and iLottery options. However, she underscored the importance of establishing a regulatory framework that nurtures courier services while safeguarding the interests of brick-and-mortar retailers.

Yet, the most immediate concerns facing legal gaming arise from the proliferation of unregulated facilities, notably sweepstakes casinos and prediction markets.

### Advocacy for Model Legislation

Fluharty mentioned that the NCLGS is actively developing model legislation aimed at regulating online gaming, which includes recommendations to ban sweepstakes casinos. These venues allow patrons to “purchase” products enabling gaming via mobile apps or in-house computers, thereby circumventing established legal frameworks and creating unfair advantages over licensed operators. “Licensing is a privilege, not a right,” Fluharty asserted. “If you pass an iGaming law, it must ban sweepstakes and impose penalties on offenders.”

In a separate panel discussion, gaming analyst David Katz of Jefferies highlighted the complex landscape of illegal sweepstakes and prediction markets. He noted the ambiguities surrounding these forms of gaming, which often operate in the gray area between legality and illegality. “Identifying which should be legalized and which should be prohibited requires careful deliberation,” Katz remarked.

Fluharty pointed to emerging prediction markets as another potential threat. These platforms allow users to place wagers structured as commodities but, in reality, function similarly to traditional sportsbooks. Fluharty challenged the notion that these markets should be classified as financial instruments, arguing, “If it walks like a duck and talks like a duck, then it’s probably a duck.”

### Conclusion

The gambling industry stands at a crossroads, confronting significant challenges that necessitate strategic legislative and regulatory approaches. As the legal landscape evolves, stakeholders are tasked with safeguarding their interests while fostering a competitive environment that promotes growth and compliance. The insights shared at the ECGC underscore the imperative of collaboration among regulators, operators, and policymakers to navigate these complexities effectively.

With the stakes higher than ever, the future of gaming will depend on the ability of industry players to adapt and innovate, ensuring that they thrive in an increasingly competitive market.