The United States Sports Betting Market is on the Verge of a Crisis

Less than a decade removed from the Supreme Court of the United States overturning the Professional and Amateur Sports Protection Act, the USA may be speeding toward a sports betting crisis. And it is not clear how it can be stopped.

A variety of factors are at the heart of it all, including a rise in problem gambling. But two issues, in particular, have left many to pursue redirecting their betting funds to international sites like MyBookie: a crackdown on alternative forms of wagering in markets that have not yet legalized it, and the growing or imminent cost of fees when using domestic sportsbooks.

Prediction Markets are Challenging Sports Betting Models

Sports betting licenses in the United States can be expensive and hard to get. They are also entirely predicted on market terms. A handful of states have yet to legalize online sports betting. Others, such as Florida, only allow a limited number of tribal operators to offer wagering services.

Newer workarounds have started to crop us as a result. Most recently, prediction markets are spreading like wild fire. These transactions, offered by companies like Kalshi, are packaged as “event-based contracts.” Customers are “investing” rather than “betting” in a certain outcome taking place.

As such, prediction-market providers believe their transactions are trades rather than wagers. By extension, they say that they are subject to federal oversight rather than state regulation. And this, in turn, is their justification for operating in legalized sports betting markets without licenses, as well as in markets that haven’t even green lit sports gambling.

Peer-to-Peer Pick ‘Em Games are Disrupting the Landscape, Too

Peer-to-peer Pick ‘Em Games are following a similar blueprint. Sam McQuillan of Legal Sports breaks down how these transactions work below:

Sam McQuillan breaks it all down for Legal Sports Report:

“The product should look familiar to sports bettors. Users select between three and six athletes and predict whether each will go “more” or “less” than a projected stat line such as rushing yards or touchdowns, according to the company’s website. Winners split pooled entry fees, with potential payouts up to 1,000x the stake, a format modeled after Same Game Parlays, which have become a central profit engine for sportsbooks. The pick’em product comes after PrizePicks and Underdog shifted from player-vs.-house models to peer-to-peer contests in several states, following action by more than a dozen regulators who identified their games as unlicensed sports betting. That change largely satisfied regulatory concerns and helped both DFS operators expand into additional states.”

 This workaround has left many sports betting operators, including tribal nations, as well as regulators irate. They see it as circumvention of United States sports gambling laws. And we are starting to see legal action taken as a result.

The Future of Sports Betting in the United States is Suddenly Murky

State regulators and policymakers are attempting to fight back against prediction markets and pick ‘em operators, just as they did against daily fantasy sports sites. Unlike the latter case, though, they may not be successful this time around.

Certain courts have already started siding with companies like Kalshi that offer those event-based contracts. Nevada and New Jersey are allowing prediction markets to remain in place while the larger litigation unfolds.

Meanwhile, other states are sending cease-and-desist letters to those providing peer-to-peer competitions. The last time this happened, with daily fantasy sports, the companies obliged. Now, however, it does not seem like they’ll vacate markets without a fight.

In fact, we have actually seen big-time sportsbooks branch out into peer-to-peer competitions in hopes of entering new markets. FanDuel just launched “FanDuel Picks” in 17 markets without legal sports betting. This is a monumental action that, quite frankly, isn’t being discussed enough.

Previously, FanDuel would not have made a move like this out of fear of ruining the push to legalize sports betting in these markets. That they are now providing sports betting alternatives in those same markets suggests any number of things. Perhaps they don’t believe it will damage the chances of legalizing sports betting in the future. It could also be an act of desperation—a recognition that, much like the streaming-service boom years ago, their business model cannot enjoy infinite growth. 

Betting on Sports in the United States Could Get More Expensive…for Gamblers

If industry heavyweights like FanDuel are running up against a profit-margin ceiling in their traditional sports betting offerings, it will change the makeup of the industry forever.

To be sure, we are not saying this is what’s happening beyond a shadow of a doubt. But given the broadening of services by FanDuel, DraftKings and others, it feels like a possibility.

And if this is the case, we may see sports betting operators follow the lead of the streaming providers we referenced earlier. In the face of capped growth, they might raise or implement fees. Just as a NetFlix subscription price has basically more than doubled since the company’s early days, we could see sportsbooks start to assess fees on every transaction. We are not just talking about withdrawals, either. Those fees are often standard. No, we are talking about operators assessing a surcharge to every bet placed, and maybe even every deposit made.

This is already happening on some level. In markets that have raised taxes on operators, sportsbooks have started adding fees to every single bet. As of now, these surcharges aren’t climbing above $0.50, but rest assured, they will eventually increase again.

On top of that, we are starting to see sportsbooks raise the minimum amount of money users must deposit or even bet on a single wager. This, again, has been in response to elevated taxes and the increased overhead they cause. But the trend could continue at a faster rate if courts hold up the legality of prediction markets and peer-to-peer competitions, since those could cut into sportsbook profit margins even further.

One way or another, it seems as if one of the United States’ newest and most lucrative forms of revenue generation is headed for a major disruption.