Sporttrade’s Kane gets philosophical about prediction markets and tribes’ role in the sector
The rise of prediction markets has had an interesting effect on US gaming, in the sense that it has upended traditional relationships. Enemies are becoming allies, vice versa, and everything in between. Depending on how one views it, stakeholders are both opening their ears and drawing their weapons, just in case.
An excellent example of this was the Indian Gaming Association’s New Normal webinar on Wednesday, where Sporttrade CEO Alex Kane offered insights from both a traditional bookmaking and a prediction market point of view. Sporttrade has been at the forefront of the prediction market debate, as the company offers a similar exchange product but operates as a state-licensed sportsbook rather than a federal designated contract market (DCM) like Kalshi and others.
This difference led Kane to pen a letter to the Commodity Futures Trading Commission in April asking to be allowed to operate as a DCM. The CFTC, historically a small, niche agency, has been thrust into the spotlight as prediction markets have taken off.
Kane served as a more moderate voice in the debate, in some ways a blend between both sides. Host Victor Rocha, conference chair for the IGA, said on last week’s webinar that he was trying to get representatives from Kalshi on the show. But Kane in some ways represented a mediator, explaining both the upsides and potential harms that could arise from the new offerings.
Right place, wrong time
Sporttrade is licensed for sports betting in five states: Arizona, Colorado, New Jersey, Iowa and Virginia. Kane explained that the company operates like an exchange such as the Nasdaq. The key difference, though, is that “our tickers are not stocks, our tickers are outcomes” on sports.
“We list those outcomes and then we match buyers and sellers,” he explained. The result is “a very open and transparent system” that allows the company to “publish the best results to the market”.
If this sounds similar to sports event contracts on prediction markets, that’s because it is the same model. The only difference is that Sporttrade opted to go the “traditional” state-by-state route rather than the federal DCM approach. This decision, Kane explained, was made in 2020 because another now-defunct exchange, ErisX, attempted to self-certify NFL contracts that year, long before Kalshi ultimately prevailed in federal court against the CFTC.
At that time, the CFTC ruled that such contracts were contrary to public interest and ErisX ultimately withdrew them. (As an aside, the nominee to be the next CFTC chair, Brian Quinentz, was serving as a commissioner and publicly disagreed with that ruling). Having seen that, Kane then decided to pivot Sporttrade to a more traditional sports betting business. Five years later, prediction markets are thriving, whereas sports betting is becoming increasingly competitive. In this way, Kane represented something of a tragic figure.
“We spent a lot of money really trying to do this the regulated way,” he lamented. “One could have spent that money to build a bigger brand, build a bigger name.” He later added that it “doesn’t feel right” to be “subjected to the sidelines when we’ve been pushing this all along”.
Death to American odds
With regard to arguments in favour of prediction markets, Kane listed several. Perhaps the biggest was the opportunity to detach from traditional sportsbooks, which Kane described as anti-consumer. Bookmakers operate with impunity, he said, and act unilaterally in setting lines, limiting bettors, voiding payouts, etc.
By contrast, bettors – or traders – are the drivers for prediction markets, like all open exchanges. While they do rely on market makers, or third parties who ensure liquidity by facilitating trades, the prices change in tandem with how the market reacts. Co-host Jason Giles called this the “essence of entrepreneurialism”.
The user experience is also much simpler in that odds are presented as traditional percentages instead of the usual sports betting parlance. Kane asserted that younger generations find the traditional betting lingo too confusing and that US odds “are a way to obfuscate what’s going on”.
While not being much for tattoos, Kane said that if he were to get one, it would be on his ankle saying “American odds should have never existed”.
‘Make no mistake: This is betting’
If the relationships between stakeholders weren’t muddy enough, Kane took an interesting position on Wednesday by acknowledging explicitly that exchange betting is in fact betting and not true economic investment. Such a stance places Kane and Sporttrade somewhere between sportsbooks and exchanges.
This question of purpose has been at the forefront from the beginning. One of Kalshi’s key arguments is that prediction markets provide real economic hedging benefits. This argument was successful as it pertained to election betting, but critics have latched onto this point since. For example, detractors would ask, what legitimate hedging opportunity is provided by a contract for the Knicks to win a non-clinching game against the Celtics?
Insinuating that prediction markets don’t constitute betting, as Kalshi has done, insults the public’s intelligence, Kane argued. Conversely, bookmakers and states themselves also tout record revenue and hold percentages, so the real meaning of consumer protection has become increasingly distorted.
“I think everyone has a pretty strong BS detector,” Kane said. “And if you say something like that, the problem is, it immediately nullifies everything you’re going to say after that. Unfortunately, or fortunately, this is a very nuanced topic…. If you start out by saying the sky is indeed not blue, [customers] aren’t going to go on that journey with you.”
Get in where you fit in
Wednesday’s discussion came just one day after a report from InGame that the CFTC has reached out to certain tribal interests to meet virtually on 29 May. This is a sharp pivot from a previous meeting scheduled for 30 April that was cancelled abruptly with no further details. That meeting was reportedly set to be more comprehensive, with an all-day agenda and multiple participants, although that was never publicly confirmed.
When the CFTC opened a portal for public comment this year, the vast majority of submissions were from tribes. As panelists discussed, Indian Country is not inherently opposed to prediction markets specifically, but tribes are weary of any potential infringement of their gaming rights.
“We don’t hate everything we see,” Rocha said. “We’ve just had a bad experience with people telling us ‘this is how it’s supposed to be’.”
As time goes on, it becomes clearer for both tribes and bookmakers that offering prediction markets may be better than fighting them. Kane noted that there’s nothing preventing any entity from pursuing a DCM licence and the most powerful gaming tribes certainly now have the capital and player bases to make them viable offerings. This is especially true in tribal states without legal sports betting, such as California and Oklahoma.
But that scenario would also raise the question of market saturation. Would prediction markets be as attractive a business if there were 25, 50 exchanges offering basic contracts on the same events? Most likely not, panelists agreed.