ECGC panel: Threats from prediction markets, sweeps present unprecedented shocks to US legal market
The challenges being faced by traditional casinos from illegal gaming, offshore websites, sweepstake casinos and so-called “prediction markets,” appear to have intensified as the debate continues over possible cannibalization of brick-and-mortar revenues by legal iGaming sites.
These issues were examined by a panel of regulators, legal experts and legislators on 15 April at the 28th annual East Coast Gaming Congress, held at Hard Rock Atlantic City.
Moderated by Lynne Kaufman, a partner and group co-chair at Cooper Levenson, the panel—titled “Future Shock: Confronting Unprecedented Challenges in Gaming”—featured Shawn Fluharty, a West Virginia lawmaker and president of the National Council of Legislators from Gaming States (NCLGS).
Confronting the challenges
The panel also included Mary Jo Flaherty, interim director of the New Jersey Division of Gaming Enforcement; Yael Harel Hertz, CEO of TheLotter Group; David Brace, principal, innovation & technology for Continent 8; and Andrew Winchell, head of government affairs for Betr.
Kaufman noted how brick-and-mortar casinos have pumped billions into state and local government through licencing fees, construction projects, job creation and taxes. The casinos are now facing battle after battle to maintain those contributions, as well as their own profits.
Cooper Levenson also served as a co-producer of the conference.
Fluharty noted that many of the challenges come not from outside the casino industry, but from within the industry in the form of taxes and competition with other forms of gaming.
As a multitude of internet gaming bills are under consideration, tax implications are a primary concern, Fluharty emphasized. He said lawmakers should pass bills that “raise revenues,” but don’t raise taxes.
Growth of iGaming
Fluharty added that industry concerns over cannibalization from iGaming are not slowing down the progress of legislative efforts to pass iGaming. “I’ve heard industry leaders say iGaming cannibalizes land-based gaming, but that doesn’t mean iGaming is failing,” he said. “We haven’t had passage in many states, but many are looking at it. It’s coming.” He said US President Donald Trump’s aversion to granting federal funds to states is likely to speed up efforts to legalize iGaming to fill revenue gaps.
Other concerns over internal industry competition involve lottery couriers, which players can use to purchase lottery tickets online, with the courier purchasing the actual tickets from retailers. Hertz of TheLotter, a worldwide ticket purchasing and courier service, said there have been concerns that courier services eat into profits of lotteries that offer direct online ticket purchase and online scratch-off games, known as iLottery.
She defended the courier business model, noting that with the correct regulatory framework, couriers can save states a lot of money, with sales retaining the business and profits of brick-and-mortar lottery retailers.
But the most pressing recent challenges to legal gaming, panelists said, include unregulated gaming, in the form of sweepstakes casinos and prediction markets.
Model legislation at NCLGS
Fluharty said NCLGS is working on model legislation to authorize internet gaming that includes a ban on sweepstakes casinos, which allow patrons to “purchase” products and use a mobile app or on-site computers to play games that can result in cash prizes. Fluharty said sweepstakes casinos skirt the law and provide unfair competition to companies that have gone through the rigorous process of licencing.
“Licencing is a privilege, not a right,” Fluharty said. “If you pass an iGaming bill, include a ban on sweepstakes, with penalties.”
David Katz, a gaming analyst with Jeffries, appeared on a separate panel addressing the landscape for gambling stocks from an investing perspective. The panel also delved into issues surrounding illegal sweepstakes casinos and prediction markets.
“These forms of gaming tend to position themselves right on the edge of legal versus illegal,” said Katz. “But now it’s not as simple as it was in earlier days. Some may need to be legalized, some may need to be swept away. You have to pick and choose.”
Fluharty, meanwhile, noted that the other potential unfair competitor to licenced casinos is the emerging prediction market, which treats wagers as “commodities.” Prediction markets, in his view, also allow customers to wager on political campaigns in a similar fashion as event contracts on sports.
While prediction exchange sites like Kalshi frame bets as “financial instruments” that pay off for correct predictions, Fluharty said in actuality they behave as expanded sportsbooks. “If it walks like a duck, and talks like a duck, then it’s probably a duck,” he said, dismissing the idea that those markets will be treated as “commodities.”