Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: On Sunday, one hundred million or more Americans plus fans
Speaker 2: from around the world are expected to watch the Seattle
Speaker 2: Seahawks take on the New England Patriots in Super Bowl sixty.
Speaker 2: For some, it's a chance to gather with friends around
Speaker 2: plates of nachos and wings, to root for a team
Speaker 2: casually or not casually, and maybe to place a better two.
Speaker 2: For others, it's the biggest work deadline of the year.
Speaker 3: I'm betting right up until game time, and so it's
Speaker 3: not like I can be a host. Ever, I'm not
Speaker 3: really eating that much during the game anyway, or maybe
Speaker 3: stress eating occasionally.
Speaker 2: Rufus Peabody got his start in the sports gambling world
Speaker 2: more than fifteen years ago. He was a college junior
Speaker 2: when he heard about a company that consulted for bookmakers
Speaker 2: in Vegas casinos.
Speaker 3: It was like academia for sports. Basically, I didn't know
Speaker 3: a job like that existed. I didn't know this whole
Speaker 3: world existed. So I cold called them and tried to
Speaker 3: talk my way into an internship.
Speaker 2: It worked, Rufus, as he bugged the company for a
Speaker 2: month until finally he landed a call with the boss.
Speaker 3: It's the ultimate eight leg parlay.
Speaker 2: In other words, it was a risky bet, but Rufus
Speaker 2: got the offer, and that summer a major sports betting
Speaker 2: scandal broke. An NBA ref had been betting on games
Speaker 2: he officiated. Former NBA referee Tim Donneghe plated guilty to
Speaker 2: two fel many charges at a federal court in Brooklyn
Speaker 2: earlier today.
Speaker 3: And so I was able to break down the numbers,
Speaker 3: and they sent my analysis to the FBI and the NBA,
Speaker 3: and they got the NBA as a client. So I
Speaker 3: basically was able to show my worth and then they
Speaker 3: hired me.
Speaker 2: Today. Rufus still spends a lot of his time in
Speaker 2: Vegas and a lot of his money betting on sports
Speaker 2: and those same casinos, but recently he's been placing more
Speaker 2: and more of his bets through prediction markets.
Speaker 3: I predicted that the Patriots would not win the Super
Speaker 3: earlier in the year on calls at ninety one percent,
Speaker 3: So I'm a Seahawks fan.
Speaker 2: For professional gamblers like Rufus, who are known as Sharp's,
Speaker 2: prediction markets offer a lucrative new betting opportunity, one that's
Speaker 2: taken off in the past few months.
Speaker 1: A lot of these sports contracts have taken over these
Speaker 1: prediction market sites, you know, like Kawshi and polymarket, and
Speaker 1: because of the kind of haven't really met that much
Speaker 1: like regulatory pushback, so it's kind of exploded.
Speaker 2: Justina Lee is a reporter on Bloomberg's Cross Asset Markets team.
Speaker 1: We write about everything in markets and now including sports
Speaker 1: betting thanks to prediction markets.
Speaker 2: Justina has been working with Ira Budwe, a Bloomberg reporter
Speaker 2: who covers the business of sports, to break down how
Speaker 2: a wave of savvy, full time sports betters like Rufus
Speaker 2: are looking beyond casinos and sports books and embracing prediction markets.
Speaker 4: These are people who you know, have just a lot
Speaker 4: of them make their living as professional gamblers. That's their job.
Speaker 4: And they're not betting on this because it's necessarily fun
Speaker 4: or they have a favorite, or they want to make
Speaker 4: watching the game more entertaining. They're doing this to try
Speaker 4: to make steady margins over time.
Speaker 2: I'm David Gera, and this is the Big Take from
Speaker 2: Bloomberg News Today. On the show, we dig into the
Speaker 2: platforms that are fielding an increasing number of bets and
Speaker 2: the pros who may be on the other side of
Speaker 2: your amateur wager. Since online sports betting became legal in
Speaker 2: the US in twenty eighteen after a decision by the
Speaker 2: Supreme Court, its growth has been staggering. In twenty nineteen,
Speaker 2: Americans bet thirteen billion dollars on sports. Last year it
Speaker 2: was one hundred and forty five billion. The Super Bowl
Speaker 2: is the sports betting mother load. Americans are expected to
Speaker 2: wager and estimated one point eight billion dollars on this
Speaker 2: year's game through legal sports books, but the matchup also
Speaker 2: has more than eight hundred million coming in through a
Speaker 2: rapidly growing alternative prediction markets websites like call she and polymarket,
Speaker 2: where you can place all sorts of bets.
Speaker 1: You might remember that Kowshi got really famous around the
Speaker 1: presidential election in late twenty twenty four, and that's because
Speaker 1: they only kind of were allowed to start hosting election
Speaker 1: betting around that time because of a legal victory.
Speaker 2: Before that, betting on election outcomes had been illegal in
Speaker 2: the US. In twenty twenty two, Polymarket had to settle
Speaker 2: with the CFTC, the Commodity Futures Trading Commission, and restrict
Speaker 2: its election betting to users outside the US. But in
Speaker 2: twenty twenty four call She challenged that in court, the
Speaker 2: company argued that it was a market like the stock market,
Speaker 2: that the election outcome bets were a kind of derivative.
Speaker 1: Kwshi was arguing in court that the reason they should
Speaker 1: be allowed is because they're all about kind of hedging
Speaker 1: economic outcomes and people using Kawshi to figure out, you
Speaker 1: know what, what are the odds of the government being
Speaker 1: shut down for a long time, or kind of where
Speaker 1: are the odds of each presidential candidate.
Speaker 2: Call She won that case and the right to let
Speaker 2: users bet on elections, clearing the way for people to
Speaker 2: cross the US to put money on all kinds of things,
Speaker 2: but mostly sports. Today, sports bets make up ninety percent
Speaker 2: of Call She's trading volume, and placing one of those
Speaker 2: bets is simple. On call She's or Polymarket's homepage, you'll
Speaker 2: see a ton of different areas you can bet on,
Speaker 2: say the twenty twenty eight Democratic presidential nominee, or where
Speaker 2: Taylor Swift and Travis Kelsey are going to get married,
Speaker 2: and of course who's going to win the Super Bowl
Speaker 2: IRA When I last checked, Pollmarket had the odds of
Speaker 2: the Seahawks winning at sixty nine on call she was
Speaker 2: sixty eight. What exactly do those numbers mean.
Speaker 4: That means that you could buy a contract for sixty
Speaker 4: nine or sixty eight cents, and if the Seahawks won,
Speaker 4: that would pay you back a dollar on.
Speaker 2: The back end. What's happening when you place a bet
Speaker 2: on one of those platforms.
Speaker 4: They are matching you up with some other trader who
Speaker 4: is taking the other side of that. So they're on
Speaker 4: a no for the Seahawks and you're on a yes
Speaker 4: for the Seahawks, And if the Seahawks lose, then they
Speaker 4: get the dollar and you lose your money.
Speaker 2: The whole business is matching up people on opposite sides
Speaker 2: of a bet, and the odds or price fluctuate based
Speaker 2: on market demand. If more people think the Seahawks will win,
Speaker 2: it'll cost more than sixty nine cents to buy a yes,
Speaker 2: and your profit margin gets smaller if they do win.
Speaker 2: Prediction markets do operate kind of like the stock market.
Speaker 2: In order to sell at a certain price, you need someone
Speaker 2: to buy at that price. Polymarket or callshe is just
Speaker 2: the exchange.
Speaker 4: They are passing money between the winner and the loser
Speaker 4: and taking a small cut, typically like two cents on
Speaker 4: every one of those dollar contracts, and so theirs is
Speaker 4: a volume business. They don't care who wins and who
Speaker 4: loses those trades because it's the same to them.
Speaker 2: This is different from a traditional sportsbook. Wager a bet
Speaker 2: you might place at a casino or on a site
Speaker 2: like fan Duel or DraftKings.
Speaker 4: The sports book because they're taking the other side of
Speaker 4: your bet. When you wager that ten bucks to win
Speaker 4: thirty if the sportsbook loses, they're paying you that thirty
Speaker 4: dollars out of their pockets. And so their business is
Speaker 4: to basically balance their books and to get losing betters
Speaker 4: to wager a lot. And typically the sort of margin
Speaker 4: for a sports book is about ten percent. If they're
Speaker 4: good at their jobs, then they will keep ten percent
Speaker 4: of the handle right as their margin. And so in
Speaker 4: that regard, it's a better business. It's more profitable than
Speaker 4: in exchange. But it's also it's really difficult. The sort
Speaker 4: of churn of customers and limiting out the best betters
Speaker 4: so that they don't take all your money, and encouraging
Speaker 4: the worst better so that they drive your profits takes
Speaker 4: a lot of work.
Speaker 2: That's why sports books will offer free bets or other
Speaker 2: promotions to keep less sophisticated better as betting, and why
Speaker 2: they'll limit activity among professional gamblers or sharps to keep
Speaker 2: from losing too much.
Speaker 1: It's too good. You know, if you're a sharp, you
Speaker 1: could find that your account size could be limited in
Speaker 1: that they're not really letting you put down a lot
Speaker 1: of money, whereas prediction markets don't have these restrictions.
Speaker 2: Some of those sharps come from the world of sports,
Speaker 2: applying what they know about the game as they learn
Speaker 2: the ins and outs of trading, but others come from
Speaker 2: Wall Street. They're taking their trading and prediction expertise and
Speaker 2: applying it to sports.
Speaker 1: Prediction markets operate a lot more like traditional stock or
Speaker 1: futures markets, so it's attracting a lot of these like
Speaker 1: giant you know, trading firms like jeff Yass's Susquehanna Group
Speaker 1: or you know, even Jump Trading in Chicago. And these
Speaker 1: people are bringing, you know, all their quant power, their
Speaker 1: computing power to sports gambling.
Speaker 2: Can I ask you about relative riskiness, Justina, So our
Speaker 2: prediction markets inherently more or less risky than sportsbooks, traditional
Speaker 2: kinds of betting.
Speaker 1: It's kind of hard to say. I think On one hand,
Speaker 1: it could be better for gamblers in the sense that
Speaker 1: it's meant to facilitate more competition for your bets, right
Speaker 1: because on a prediction market, like anyone can come in
Speaker 1: and be on the other side. So because of that
Speaker 1: more competition, it could mean that you should get better
Speaker 1: odds and lower fees, but at the same time it's
Speaker 1: sort of a more competitive market.
Speaker 2: Prediction markets also offer new options when it comes to gambling,
Speaker 2: ones that can allow sophisticated betters to take advantage of
Speaker 2: their expertise. These are liquid markets, so you can buy
Speaker 2: and sell your position throughout a game as long as
Speaker 2: there's someone willing to take the other side. The contracts
Speaker 2: aren't locked in until the outcome is set one team wins,
Speaker 2: the other loses, and you aren't limited to whatever bets.
Speaker 2: A sports book is offering.
Speaker 4: What you and I would traditionally think of as betting
Speaker 4: is you go on you see a price offered that
Speaker 4: you know we'll pay. Let's say plus one ninety eight
Speaker 4: for the Patriots to win the Super Bowl. If I
Speaker 4: bet one hundred dollars, they're going to pay me two
Speaker 4: hundred ninety eight dollars, right, And it's the house that's
Speaker 4: taken the other side of that bet. With a prediction market,
Speaker 4: you can go on and say I will pay a
Speaker 4: certain price if the Patriots win, if you want to
Speaker 4: take it right, and you can just sit there and
Speaker 4: wait and see who else on the exchange is willing
Speaker 4: to pay that price. And so you are now essentially
Speaker 4: acting like a sportsbook.
Speaker 2: So not to put too fine a point on it,
Speaker 2: there's a saying among gamblers that the house always wins.
Speaker 2: In the context of prediction markets, there is no house.
Speaker 2: It doesn't operate in that in that way.
Speaker 4: Right, and in fact you can become the house.
Speaker 2: Coming up. What that growth in prediction markets means for
Speaker 2: everyday betters, whether letting anyone originate bets on anything increases
Speaker 2: the risks of rigged down comes, and who is in
Speaker 2: charge of policing that. There's good reason for the competition
Speaker 2: between traditional sport books and emerging platforms like CALSH and polymarket.
Speaker 2: Unlike sports books, prediction markets can operate in all fifty states,
Speaker 2: including places like California and Texas where sports betting is
Speaker 2: currently legal.
Speaker 4: Prediction markets kind of found a loophole and the CFTC rules,
Speaker 4: whereas the regulated sports betting is regulated on a state
Speaker 4: by state basis, and so those states where they have
Speaker 4: legal sports betting have all pretty much tried to fight
Speaker 4: this and come forward and brought lawsuits and sees and disisorders.
Speaker 2: I imagine part if that has to do with the
Speaker 2: fact that a number of states are making good money
Speaker 2: tax revenue off.
Speaker 4: Of sports books. Yeah, I mean, and it's really the
Speaker 4: states more than the sports books that are leading that charge,
Speaker 4: because it is their tax revenue that is at risk.
Speaker 4: So you know, in a lot of states, your winnings
Speaker 4: for sports books are taxed at really high rates thirty
Speaker 4: forty to fifty percent, and that's not happening in the
Speaker 4: prediction market context because these are federal trades. It's sort
Speaker 4: of like in a whole different tax context when you
Speaker 4: do that. And so there's actually a sense that this
Speaker 4: is going to push more states to jump in the
Speaker 4: pool of regulated sports betting, because if this is going
Speaker 4: to happen anyway in their state, they would like to
Speaker 4: get the taxes from it. And then you have to
Speaker 4: figure out, okay, well, how are prediction markets going to
Speaker 4: be taxed? And in the meantime, a lot of the
Speaker 4: sportsbooks are saying well, we're just going to start offering
Speaker 4: prediction markets in the states where we can't run regulated
Speaker 4: sports books. We'll just go there and do prediction markets
Speaker 4: so that KLSHE and these other prediction event exchanges don't
Speaker 4: sort of steal our business before we can get there.
Speaker 5: We are going to make some investment there.
Speaker 2: That's the CEO of Draft Kings Jason Robbins on Bloomberg
Speaker 2: back in November.
Speaker 5: First, of course, and getting a product developed and making
Speaker 5: sure that that's the best in class. You can't win,
Speaker 5: and we've always said this product is the most important thing.
Speaker 5: You can't win if you don't have a great product.
Speaker 2: The prediction markets, meanwhile, have tried to distance themselves from
Speaker 2: the gambling industry, which is known to take a heavy
Speaker 2: financial toll on participants. At AXIOSS BFD summit in November,
Speaker 2: Polymarkets founder Shane Copeland said the way traditional sportsbooks can
Speaker 2: profile users and ban the ones that make too much
Speaker 2: money is quote a scam.
Speaker 1: Now, you can't expect to run a business that is
Speaker 1: that rigged against the consumer in perpetuity in America.
Speaker 2: But as the sports betting landscape continues to change, both
Speaker 2: traditional sports books and prediction markets are navigating some potential
Speaker 2: problems with an increasingly popular kind of wager, betting on
Speaker 2: whether some pretty specific events will happen within a game.
Speaker 2: It's called prop betting. Here's Rufus Peabody explaining his prop
Speaker 2: betting for this weekend's game.
Speaker 3: So I'll price out things from how many rushing yards
Speaker 3: Kenneth Walker will have to you know, whether there'll be
Speaker 3: a two point conversion attempt. The Super Bowl's kind of
Speaker 3: a unique betting event in the sense that there is
Speaker 3: this wide variy of prop offerings that aren't really offered
Speaker 3: for any other NFL game, and so it's kind of
Speaker 3: a big opportunity.
Speaker 2: The value comes because with more people betting yes, the
Speaker 2: price of no gets cheaper, So a sharp like Rufus
Speaker 2: can profit from wagering against the casual betters.
Speaker 3: And there's a lot of recreational actions, so oftentimes prices
Speaker 3: can be sort of skewed towards what the public wants
Speaker 3: to bet on. People like betting that players will score touchdowns.
Speaker 3: They like betting on things to happen, and so there's
Speaker 3: often value betting against things to happen, betting that there
Speaker 3: won't be a safety, that there won't be a two
Speaker 3: point conversion.
Speaker 2: The problem for both prediction markets and sportsbooks is that
Speaker 2: prop betting creates opportunities for athletes, coaches, and others to
Speaker 2: work with betters to influence outcomes. This fall, some NBA
Speaker 2: players and coaches were indicted from manipulating game outcomes. Two
Speaker 2: MLB pitchers facing similar accusations are scheduled to go on
Speaker 2: trial this spring. Here's Bloomberg's Eira Budwe.
Speaker 4: That is actually one of the most sort of pressing
Speaker 4: issues around all of this is when these prediction markets
Speaker 4: first started offering contracts tied to sports, a couple of
Speaker 4: sports leagues, Major League Baseball, the NBA. Since then, the
Speaker 4: NFL came forward and said, well, wait a second, We've
Speaker 4: been working with state regulators to protect our interests when
Speaker 4: it comes to sports betting. So we do things like
Speaker 4: track and monitor for unusual and suspicious betting activity and
Speaker 4: have lists of prohibited betters, and we've built these agreements
Speaker 4: in this infrastructure to make sure that these markets are
Speaker 4: not corrupted. And are you doing that.
Speaker 2: One of the quirks here is that prediction markets are
Speaker 2: not regulated by gaming authorities, remember calls. She's argument is
Speaker 2: that its contracts are like the financial futures regulated by
Speaker 2: the Commodity Futures Trading Commission. The CFTC has said it
Speaker 2: will clarify its position on these contracts soon.
Speaker 4: This isn't what the CFTC was built to do. This
Speaker 4: is usually like corn futures, not sports betting. The answer
Speaker 4: from the prediction markets is kind of actually no. There's
Speaker 4: a lot of know your customer and anti money laundering
Speaker 4: rules that we have to follow, and we have started
Speaker 4: working with some of the very same companies that help
Speaker 4: sports betting operators monitor markets for suspicious trading. We're doing
Speaker 4: that in this context. And they will sometimes argue, you, look,
Speaker 4: it's even more transparent. You can see every trade, and
Speaker 4: you can watch the market move, and some thinks suspicious
Speaker 4: happens every market participant can watch it happen. But I
Speaker 4: think that is actually a question that has not really
Speaker 4: been ironed out. How effectively are they monitoring for suspicious bets,
Speaker 4: how much do they care about insider trading, and how
Speaker 4: good will they be at catching bad actors. We've seen
Speaker 4: leagues start to partner with them. The NHL did deals
Speaker 4: with Polymarket and call she MLS did a deal with
Speaker 4: Polymarket and so they're saying, when they sign these deals,
Speaker 4: this is so that we can protect ourselves. But if
Speaker 4: you ask different people, you'll get very different answers about
Speaker 4: whether prediction markets can really and are really doing this
Speaker 4: job already of monitoring for integrity.
Speaker 2: Last month, Polymarket users traded over seven point six billion
Speaker 2: dollars in volume. Call She users traded over nine point
Speaker 2: five billion. That's up from one point three billion on
Speaker 2: polymarket and under a million on call she just six
Speaker 2: months earlier. Like any good professional, Rufus Peabody has been
Speaker 2: following the trends in the sports betting industry today. He
Speaker 2: says he makes as much as a quarter of his
Speaker 2: bets on prediction markets, but even he isn't sure though.
Speaker 3: Last I think myself and other professionals are all kind
Speaker 3: of trying to gauge that to figure out how much
Speaker 3: we should invest in building things for prediction markets. I'm
Speaker 3: banking on them remaining sort of a viable option for
Speaker 3: the next I'd say three years or so, at least,
Speaker 3: based on like the political climate.
Speaker 2: Well, if you ask Rufus for advice as someone placing
Speaker 2: amateur bets on this weekend's game or any other for
Speaker 2: that matter.
Speaker 3: Well, hey, first don't. But if you do it, you
Speaker 3: know it's realized it's for entertainment value. And if it's
Speaker 3: like going to the movies, and you accept that there's
Speaker 3: a cost to it, and you're paying that cost to
Speaker 3: make watching the game more entertaining than by all means.
Speaker 2: Seahawks or Patriots.
Speaker 4: Sarrah, I'm gonna take the underdog, you know, because I'm
Speaker 4: not a pro.
Speaker 2: Just seeing how about you?
Speaker 1: Oh man, I feel like to take the other side.
Speaker 4: Yeah, you can find an exchange to.
Speaker 1: Line it up for I know that because that is
Speaker 1: how you know prediction markets fork.
Speaker 2: We've made it happen, Justina, Iira, thank you very much.
Speaker 2: This is the Big Take from Bloomberg News. I'm David Gerret.
Speaker 2: The show is hosted by me wanha and Sarah Holder.
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