With Its War On Prediction Markets, The Gaming Lobby Plays A Bad Hand

Authored by Dean Heller via RealClearMarkets,

There's a saying in Vegas, the house always wins. I represented Nevada in Congress for more than a decade and I can attest to the truth behind that phrase. But what I learned is that it's rarely a fair fight. The gaming industry works to stack the odds against competition, whether it's at the tables, in courtrooms, or in the halls of Congress.

It was never a fair fight, which is why the gaming industry is so worried about prediction markets. Prediction markets are far from perfect, but they're fair. There is no house. It's no wonder the gambling industry is working overtime to stop them. Recently, the American Gaming Association tried to join a lawsuit in Wisconsin against the CFTC, and its lobbyists went to Congress this week asking for an outright ban on sports event contracts.

While representing Nevada, I sat on the Senate Finance and Banking committees, and whipped votes to protect our gaming industry from anything that smelled like competition. When Sheldon Adelson wanted a federal ban on online gambling, I backed the Restoration of America's Wire Act and warned that internet gaming would be "a final nail" for brick-and-mortar casinos. Looking back, I was probably being a little dramatic. The bill failed anyway, in large part because opponents argued it would cost states an economic boost and push bettors toward unregulated offshore sites.

So when I watch the gaming lobby go to war against prediction markets today, I recognize the play. I ran it.

The industry has launched a multi-state litigation campaign, fired off cease-and-desist letters to stop sports event contracts, and cheered as 41 state attorneys general urged the CFTC to cede jurisdiction over these markets to the states. In certain states, lottery and gaming agencies are colluding with the American Gaming Association. When your state gaming agency and the casino lobby are copying each other's homework, it's fair to ask who's actually regulating whom.

Here's what makes the crusade hard to take seriously. While the casinos lecture Washington about consumer protection, a lawsuit in Philadelphia is showing the country how the sportsbook business actually works. A gambler named Terry Thompson wagered roughly $18.5 million on FanDuel and lost more than $1.5 million. He was a "VIP." His reward for all that losing? His FanDuel host arranged a personalized Cameo video from Phillies star Bryce Harper, who says he never consented and thought he was recording a holiday greeting. Thompson is now suing FanDuel for feeding his addiction, and the Pennsylvania Gaming Control Board is reviewing sportsbooks' use of celebrity messages to keep high rollers betting.

Think about the business model that produces that story. Sportsbooks make money when customers lose. So the customers losing the most get the white-glove treatment, and the ones who win too much get shown the door.

There's a reason prediction markets can be straight with their customers in a way sportsbooks can't. An exchange collects a small fee on every trade, win or lose, so no revenue rides on anyone's losing streak. When a platform's paycheck doesn't depend on a customer going broke, it can step in at the signs of trouble, the repeat losses and the chasing, without touching its own bottom line. And instead of fighting oversight, this industry keeps asking for more of it.

Some of these markets, like Kalshi and NADEX, are federally regulated, based in the United States, and volunteering to pay state taxes. North Carolina just passed a law recognizing federal oversight and taxing prediction market revenue, which was smarter than burning taxpayer money in court and inconvenient for the claim that these platforms cost states money. New Jersey came close to taxing prediction markets this year, and the loudest opposition came from the union representing Atlantic City's own casino workers, who argued that taxing prediction markets would "legitimize" a competitor to their industry. They'd rather forgo the tax revenue than admit prediction markets are here to stay.

My advice to my old friends in gaming is the advice I wish someone had given me during the Wire Act fight: innovate, don't litigate. The knee-jerk lawsuits didn't stop sports betting, tribal gaming, or the internet, and they won't stop this. I love Las Vegas. It's one of my favorite places on earth, and there's plenty of room for everyone. Let consumers decide.

After all, this is the town that will take a bet on anything. Funny that the one wager it won't touch is a fair fight.