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