Betting on Sunday’s Game? Here’s Who You’re Up Against

0:01アプリル 29th and 30th, Bloomberg House arrives in Miami at the Formula One Grand Prix.

0:22Set is where ideas connect. Bloomberg House Miami. Learn more at BloombergLive.com slash Bloomberg House Miami. Bloomberg Audio Studios. Podcasts. Radio. News.

0:40On Sunday, 100 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 60. 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 bet or 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 it's stress eating occasionally. Rufus Peabody got his start in the sports gambling world more than 15 years ago.

1:18He 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 says 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 Donaghy pleaded guilty to two felony charges at a federal court in Brooklyn earlier today.

2:03And so I was able to break down the numbers, and they sent my analysis to the FBI and to 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 in 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 Bowl earlier in the year on Kalshi at 91 percent. So I'm a Seahawks fan. For professional gamblers like Rufus, who are known as Sharps, prediction markets offer a lucrative new betting opportunity, one that's taken off in the past few months.

2:45A lot of these sports contracts have taken over these prediction market sites, you know, like Kaoshi 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 Boudwe, a Bloomberg reporter who covers the business of sports, to break down how a wave of savvy full-time sports bettors like Rufus are looking beyond casinos and sportsbooks and embracing prediction markets.

3:22These 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 Gurra, 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.

4:01Since online sports betting became legal in the U.S. in 2018 after a decision by the Supreme Court, its growth has been staggering. In 2019, Americans bet$13 billion on sports. Last year, it was$145 billion. The Super Bowl is the sports betting motherlode. Americans are expected to wager an estimated$1.8 billion on this year's game through legal sportsbooks. But the matchup also has more than$800 million coming in through a rapidly growing alternative, prediction markets, websites like Kalshi and Polymarket. where you can place all sorts of bets. You might remember that Kaoshi got really famous around the presidential election in late 2024.

4:45And 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 U.S. In 2022, Polymarket had to settle with the CFTC, the Commodity Futures Trading Commission, and restrict its election betting to users outside the U.S. But in 2024, Kaoshi 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. Kaoshi 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 Kaoshi to figure out, you know, what are the odds of the government being shut down for a long time or kind of what are the odds of each presidential candidate.

5:37Kalshi won that case and the right to let users bet on elections, clearing the way for people across the U.S. to put money on all kinds of things, but mostly sports. Today, sports bets make up 90 % of Kalshi's trading volume, and placing one of those bets is simple. On Kalshi's or Polymarket's homepage, you'll see a ton of different areas you can bet on, say the 2028 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, Polymarket had the odds of the Seahawks winning at 69. On call sheet, it was 68.

6:16What exactly do those numbers mean? That means that you could buy a contract for 69 or 68 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 69 cents to buy a yes.

6:56And 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 Kalshi 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 FanDuel or DraftKings.

7:32The sports book, because they're taking the other side of your bet, when you wager that 10 bucks to win 30, if the sports book loses, they're paying you that$30 out of their pockets. And so their business is to basically balance their books and to get losing bettors to wager a lot. And typically the sort of margin for a sports book is about 10%. If they're good at their jobs, then they will keep 10 % of the handle, right, as their margin. And so in that regard, it's a better business. It's more profitable than an exchange. But it's also, it's really difficult, the sort of churn of customers and limiting out the best bettors so that they don't take all your money and encouraging the worst bettors so that they drive your profits.

8:16It takes a lot of work. That's why sportsbooks will offer free bets or other promotions to keep less sophisticated bettors betting. And why they'll limit activity among professional gamblers or sharps to keep from losing too much. If you're too good, you know, if you're a sharp, you could find that your account size could be limited and 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.

8:50They'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 are prediction markets inherently more or less risky than sports books, 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?

9:34Because 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 bettors 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.

10:10And you aren't limited to whatever bets a sportsbook is offering. What you and I would traditionally think of as betting is you go on, you see a price offered that, you know, will pay, let's say, plus 198 for the Patriots to win the Super Bowl. If I bet$100, they're going to pay me$298, right? And it's the house that's taking 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 sports book.

10:47So 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 way. Right. And in fact, you can become the house.

11:01Coming up, what that growth in prediction markets means for everyday bettors, whether letting anyone originate bets on anything, increases the risks of rigged outcomes, and who is in charge of policing that?

11:20Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

11:57So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube, or wherever you get your podcasts.

12:43It's kind of found a loophole in 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 cease and desist orders. I imagine part of that has to do with the fact that a number of states are making good money, tax revenue off of sportsbooks. Yeah, I mean, and it's really the states more than the sportsbooks 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, 30, 40, 50 percent.

13:19And 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, OK, 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 sportsbooks.

13:50We'll just go there and do prediction markets so that Kalshi 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 DraftKings, Jason Robbins, on Bloomberg back in November. First, of course, in 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.

14:22At Axios' 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 sportsbooks 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.

14:59So 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 is kind of a unique betting event in the sense that there is this wide array 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 bettors. And there's a lot of recreational action, so oftentimes prices can be sort of skewed towards what the public wants to bet on.

15:36People 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 bettors to influence outcomes. This fall, some NBA players and coaches were indicted for manipulating game outcomes. Two MLB pitchers facing similar accusations are scheduled to go on trial this spring. Here's Bloomberg's Ira Boudwe.

16:11That is actually one of the most sort of pressing issues around all of this. When these prediction markets first started offering contracts tied to sports, a couple of the 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 bettors. And we've built these agreements and this infrastructure to make sure that these markets are not corrupted.

16:42And are you doing that? One of the quirks here is that prediction markets are not regulated by gaming authorities. Remember, Kalshi'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.

17:20We're doing that in this context. And they will sometimes argue, look, it's even more transparent. You can see every trade and you can watch the market move. And if something 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 vets? 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 Kalshi. MLS did a deal with Polymarket. And so they're saying when they sign these deals, this is so that we can protect ourselves.

18:01But 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$7.6 billion in volume. Kalshi users traded over$9.5 billion. That's up from$1.3 billion on Polymarket and under a million on Kalshi 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 they'll 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.

18:50I'm banking on them remaining sort of a viable option for the next, I'd say, three years or so, at least based on 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, realize 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, then by all means. Seahawks or Patriots, Ira? I'm going to take the underdog, you know, because I'm not a pro.

19:28Justina, how about you? Oh, man, I feel I have to take the other side. You can find an exchange to line it up. I know, because that is how, you know, prediction markets work. We've made it happen. Justina, Ira, thank you very much.

19:43This is The Big Take from Bloomberg News. I'm David Gurra. The show is hosted by me, Wan Ha, and Sarah Holder. The show is made by Aaron Edwards, David Fox, Eleanor Harrison Dengate, Patty Hirsch, Rachel Lewis-Kriskie, Naomi Ng, Julia Press, Tracy Samuelson, Naomi Chavin, Alex Kura, Julia Weaver, Yong Yong, and Taka Yasuzawa. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back on Monday.

20:24I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you fascinating conversations with the people who shape markets, investing, and business. CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, everybody that affects what's going on in the market, whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations. Sometimes it's behaviorists like Dick Thaler or Bob Schiller. Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short and Moneyball.

21:09Regardless of the conversation, these are the folks that move markets each week. That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify, or wherever you get your podcasts.