Why Prediction Markets Should Scare Sports Leagues

0:01Bloomberg Audio Studios Podcast Radio News.

0:30is a bulletproof business. Racing's unique because there is absolutely no reason why we can't compete with the guys. Come on, is pro pickleball real? Are people really going to tune into this? If you're playing money ball with a huge bag of money, you're going to be really, really good. Bloomberg Business of Sports from Bloomberg Radio. This is the Bloomberg Business of Sports where we explore the big money issues in the world of sports. I'm Vanessa Perdomo. Michael Barr and Damian Sassauer are off this week, but joining me is special guest and friend of the show, Bloomberg U.S. business reporter Randall Williams.

1:02Randall, thanks so much for jumping in this week. Thank you for having me. It's always a pleasure. Coming up, we'll talk college sports, but from a bit of a different angle than we have lately. We'll talk to Dr. James Borchers, chief medical officer at the Big Ten and president and CEO of the U.S. Council for Athletes Health. And I'm really looking forward to asking him if he thinks private equity, specifically who's trying to get into college sports, should invest in the medical departments and maybe not so much on the sponsorship side. All that and more is on the way, but we start with a new project in Oklahoma City involving NBA star Russell Westbrook.

1:36Westbrook is teaming up with an investment firm tied to Nick Gross, who's Bill Gross' son, to build a new entertainment district anchored by a new soccer stadium in Oklahoma City. Bloomberg News municipal finance reporter Max Adler did some reporting on this and joins us now to discuss. Max, welcome to the Bloomberg Business of Sports. Of course. Thank you guys for having me. So we're here talking about Russell Westbrook and an Oklahoma City project that's now being he's now being joined by by big money. Please, please give us some info on that. Yeah. So Russell Westbrook is going to invest in this soccer stadium that's also going to be surrounded by a mixed use entertainment and retail district.

2:20and the project is being backed by Nick Gross, who is the son of Bill Gross. And it's being led by Echo Investment Partners, which is led by a fellow named Christian Kennedy. And they have the backing of the city. They seem to have a good amount of private investment as well. The city is going to be giving them about$120 million to finance this project. and they're joining a wave of other mixed-use soccer stadium developments that are happening all across the country right now. This is like one of the hot areas of municipal finance right now. How is this going to revitalize Oklahoma City? And before you answer, I'll say that I spent a day and a half, maybe two days in Oklahoma City earlier this year for the NBA finals, and that town is empty.

3:08You get outside of the city itself and it just feels very bare. Where is this going to go? And how do you think it's going to impact Oklahoma City as a city? So academics that have studied these types of stadium developments frequently come to the conclusion that the benefits don't necessarily outweigh the public cost of all of this. There have even been some studies that show that like a big box retail store, like a Target or a Walmart would end up producing more revenue for the city and even more full-time jobs. If you think about these stadium developments, they're usually used about like 30 to 50 times a year.

3:47If you have a soccer stadium, they're going to have about 20 home games a year. And then it depends on what you could fill the venue with in those off days. So I don't know if this is necessarily going to revitalize Oklahoma City, but Oklahoma City, it's impossible to deny the Thunder's impact on that City, since 2008, when the Thunder arrived, after the Hornets did a brief stint in Oklahoma City, and the Sonics then relocated to Oklahoma City, their GDP has risen like 84%. Their population has also grown a lot. And as you know, I mean, the Thunder won the championship last year. I was watching that Netflix starting five documentary and watching the town pumped up after the championship, you could tell that there's thunder fever running through the veins of the people in Oklahoma City right now.

4:42Right. We're not here to make them mad, Randall. We're not here to make OKC, you know, residents. Listen, I went to a CVS outside of the city and I sat in that CVS for 15 minutes. They thought I was loitering. I was like, no, I'm just waiting for an Uber. There was nothing out there. Well, they have a very pro-development mayor right now. and their population has risen since 2008. They went from the 31st biggest city to the 20th biggest city in the country. It does seem like a lot of cool cultural things are moving to Oklahoma City. They're going to get some shine in the global spotlight during the 2028 Olympics because they're going to be hosting the softball and whitewater rafting events in Oklahoma City.

5:24And that also is only made possible by public investments in sports infrastructure. So a bunch of years back, they expanded their softball facility. It's the home of the Women's College Softball World Series. So they have that every year. And they also built this whitewater rafting complex. So these investments are definitely paying off for the city. And although I tend to agree with the academic research that I've mentioned before, showing that the benefits usually don't outweigh the public cost, you could see it's hard to put a number on the marketing benefits that they're going to get from all this, from having their city showcased during the LA Olympics.

6:08And if this stadium really does work out well for the city and for its owners, it's possible that the Oklahoma City Football Club ends up in the MLS. So they're also the owners of the Oklahoma City Football Club right now. They're called the Oklahoma City Energy, and they're owned by Echo Investment, which is the lead developer on this. They currently play in the USL, and the USL is about to completely change their structure. They're going to become the first North American league to adopt relegation the way that the European football leagues and associations do. And they're hoping to create a top tier in the USL that competes with the MLS.

6:51So that also is a very interesting opportunity for the owners in Oklahoma City right now. One of the ways in which these sports owners and investors say that a stadium can help is it can bring tour acts. It can bring different events like festivals. And if Beyonce or Taylor Swift or Kendrick Lamar and SZA or in Vanessa's case, the Jonas Brothers are in town, then a stadium like this can attract an A-lister to that town. Do you see this working out? Because in reading your story, there's only 20 ,000 seats. That's roughly a little bit more than what is right down the street at the Paycom Center.

7:31How do you see this impacting touring for artists and them being able to book people when there isn't a soccer or football game going on at the stadium? Well, first of all, if the Jonas Brothers do tour in Oklahoma City, Vanessa, we are going immediately. Max, we're there. I love it. The stadium's only going to have 11 ,000 seats for soccer to start off, but they're building it with the possibility of expanding it to about 20 ,000, which would make them competitive with the other MLS stadiums. But they would be able to host more people when you consider how many people could fit on the field. And you're right, they'll be competing with Paycom.

8:12But Nick Gross is actually very involved in the music industry. He's been playing in Southern California bands for a long time. He manages a lot of bands. So he hopefully will be able to leverage his connections in the music industry to bring some acts to Oklahoma City. They're also talking about bringing festivals to Oklahoma City. And right now in the Southwest, there aren't that many festivals. Like there's Austin City Limits, there's South by Southwest, but there aren't that many things happening in that part of the country, a little further west of Texas. So I do think that there's a market for them.

8:49I do think they'll be able to bring in some big musical acts. And like I said, Oklahoma City is a growing cultural hub. So I'm hopeful that they will be able to leverage Nick's connections in the music industry and be able to monetize that as it pertains to the musical acts that they bring in. We're speaking with municipal finance reporter for Bloomberg news, Max Adler. Max, I think they do have a better chance of getting the Jonas Brothers than they would Beyonce into a 10 ,000 seat arena. But as we're talking about that, and obviously when we're looking at the soccer-built stadium specifically, and they won't be opening until 2028, they're missing this big moment in time for soccer for the U.S.

9:31when we are hosting the 2026 World Cup next year. How has that impacted them and really what this space could really be. I mean, hopefully we'll have the 2031 Women's World Cup. And I don't know if they're looking at that as something that will continue the popularity of soccer for them specifically maybe getting a game or not a game, but hosting training facilities. So they'll miss out on that. Yeah, you're right. They're not going to be able to host training facilities and stuff like that. They definitely won't have any games there. Obviously, they don't have a facility in Oklahoma City that could support a World Cup match.

10:10But they hopefully will be able to capitalize on some of the momentum directly after the World Cup. You know, and we saw that in the U.S. after the Women's World Cup in 94. There was a lot of enthusiasm. But it does seem like every five years or every decade, there's someone, some pundit in the U.S. that's saying, you know, soccer is a really growing sport here. It's going to become as popular here as it is in Europe. That obviously hasn't come to fruition yet. I don't think soccer is even the fastest growing sport in the U.S. at this point. It might even be Padel. But I think that they'll be able to capitalize on some of the momentum post-World Cup.

10:48Max, you mentioned that these mixed-use districts are really hot areas for municipal finance right now. What is it about them that make these decisions get made, get actually through? Because we've also seen a lot of different cities and towns around the U.S. really denying taxpayer money to build massive stadiums. Oklahoma City, I'm so glad you mentioned that. Oklahoma City really stands out as an anomaly in respect to getting its voters to approve capital projects that are municipally funded. So I believe since 1993, Oklahoma City is 15-0 in voter-approved capital projects. And several of them are sports stadium projects.

11:32So while elsewhere in the country, we're seeing voters are having spending fatigue, particularly when it comes to sports stadiums, because they're looking around, they see billionaire owners and they're like, why can't they afford to privately finance this themselves? Why shouldn't we be directing our public funds towards services that all of us will be able to use? But Oklahoma City is totally bucking that trend. And also I was talking to the mayor, David Holt, and he said when he was thinking about this project, like he looked around the country and he recognized that Oklahoma City might be one of the only top 50 cities by population that doesn't have a professional soccer or football stadium in its city limits.

12:15So for Oklahoma City, they miss out on a lot of local events that end up going to Tulsa or going to Norman, Oklahoma, or Stillwater, because those are where the big universities are. Our thanks to Bloomberg News Municipal Finance reporter Max Adler for joining us. Up next, we turn to the sudden growth of prediction markets in the world of sports. For Randall Williams, I'm Vanessa Perdomo. You're listening to the Bloomberg Business of Sports from Bloomberg Radio around the world.

12:54This is Bloomberg Business of Sports from Bloomberg Radio. This is the Bloomberg Business of Sports, where we explore the big money issues in the world of sports. I'm Vanessa Perdomo. And I'm Randall Williams. Randall is jumping in for Michael Barr and Damian Sassauer. They're off this week. Prediction markets are booming in the world of sports and drawing attention from everyone from fans, leagues, and now regulators. Joining us to discuss is Bloomberg U.S. business reporter Ira Budwe. Ira, thanks so much for joining the Bloomberg Business of Sports. Always a pleasure. All right, so, well, today it's a fun one because it's me, you, and Randall who we get to talk every day.

13:31Absolutely. We're neighbors. Neighbors. So let's get into it. This is something I've been really excited to talk to you about. You know, you just dropped your Kalshi story recently, all about prediction markets. And it's something that I ask you about, I think, every day in the last couple of weeks. So let's get into that. I was really interested. The first part of the story is this anecdote about a trader and how they were trying to make this bet on the U.S. Secretary of Energy. Tell us about that and a little bit more about the story there. Yeah, I spoke with a guy who traded professionally.

14:04His name is Adi. He actually was a trader for the trading arm of Kalshi for a few years as well. And he got his start in politics trading. A lot of, I think, events, markets, traders, that's kind of where they began, especially Trump, Biden. So he started back in 2020. And then he started doing it for a living. And he told me this story about in 2021, trying to figure out when Jennifer Granholm would be confirmed as Secretary of Energy under Biden, because there was a market on that. And so he's doing his homework and he called a lobbyist who told him that he had sources with inside the Senate staff who said it would be a certain day.

14:48And so he took that information and bet on it, made thousands of dollars. And he was very proud of this. And he bragged about it on the message boards for these various early versions of events markets. And he told me the story, you know, not because he wanted me to know that he won a thousand, few thousand dollars on this but because it's it's the kind of thing that as advanced contracts as prediction markets get into sports could be a real problem right because this is not the sort of thing that sports leagues the type of behavior that they want to have happening and this is almost exactly the kind of story that you see for instance in the federal case against the those various nba players, former coaches and all their associates, right, who that were unveiled in October.

15:35Same thing. Somebody knew somebody who told a friend who had information about who was or wasn't going to be starting. And they use that to bet. In the one case, nobody cared. In fact, they would see this as kind of how it's supposed to work. In the other case, guy could go to jail for 20 years. And I think they're going to have to solve that tension as they figure out how to, you you know, whether and how events contracts can function in the world of sports betting. So let's I want to ask you a little bit about how the leagues feel about this. You know, we've seen sports gambling partnerships across the NFL, NBA, MLB, but I haven't seen anything with Kalshi just yet, except for one league in particular.

16:16Tell me about how the leagues are approaching this. Yeah, you know, this really all started last year around this time. And so at first, everyone was trying to just figure out what's going on. The CFTC, for the first time, was allowing prediction markets to offer contracts tied to sports. And so they said, we're going to have this roundtable about it. And the leagues were among those who submitted these letters saying, here are our concerns. So Major League Baseball, the NBA, put in letters and they said, look, when we do sports, when we have sports betting through state licensed sports betting operators, they do certain things for us that we think are important, right?

16:55They have consumer protections around problem gambling and addiction, but also they help us monitor markets for potential manipulation, insider trading, and other infractions that we care about that go to the integrity of our games. We want to make sure that's in place when we do, if we're going to do prediction markets. And that roundtable got canceled never happened uh and this thing kind of rolled along and got bigger and bigger and bigger um and so since then the one league well the ufc i should say did a partnership with polymarket but the one of the big major leagues in the u.s that's gone into any kind of relationship officially with them is the nhl which did a deal with both kalshi and polymarket where they will share their official data and the prediction markets can use their names and their intellectual property, their marks and logos.

17:45The other leagues have all still sort of kept an arm's length relationship. The NFL just recently testified before the U.S. House that there's these guardrails in place, basically saying what the NBA and Major League Baseball had already said in their letters, that there are guardrails in place with state regulated sports betting that they don't see with these prediction markets and that that's for them a potential problem. And that's what states are also saying right now. Now states are coming after Kalshi and saying that they're they're violating the fact that these states now, New Jersey and Nevada, have contracts with sports books and they had to, you know, get those specifically regulated.

18:30And now and now these this prediction markets are coming into place and kind of violating that they're they're essentially offshore gambling or whatever. Yeah, well, they're unlicensed gambling sites in the eyes of about 30 attorney generals who filed an amicus brief in several states, gaming regulators and states have said, look, to call you another prediction markets, you have to stop offering these contracts in our state. And so this is being contested in federal court right now. And that is the question, right? Are these a new kind of thing that the Commodity Futures Trading Commission oversees and therefore that supersedes any kind of state regulatory authority?

19:14Or are these, in fact, just sports betting under a different name and they're escaping the authority of these state regulators who are built to do all these things that the leagues are worried about? The state gaming regulators typically have relationships with the leagues where they're in tune with what the leagues feel like they need in terms of what types of betting markets are allowed. Can you bet on injuries? The NFL doesn't like that. Can you bet on referee calls? The NFL doesn't like that. Can you bet on kicks, right, in field goals? Because that's a thing that a single person controls and is therefore a little more susceptible to manipulation and corruption, right?

19:54These are things that NFL has long asked state gaming regulators to prohibit, right? And there's all kinds of examples of this kind of thing where the gaming regulators are working with leagues and sports books to create a system that they feel like works for everybody. And they represent U.S. citizens or citizens of those states and taxpayers. So there isn't an equivalent kind of framework for the prediction markets. The prediction markets will argue, look, we're doing that stuff. We're building the monitoring programs. We're partnering with the same monitors that the sports books do. We have a whole set of rules that we have to follow.

20:27They just come from the federal government. And the argument is really like, are those rules the right rules? Are they sufficient? You know, because I think there's a lot about how the CFTC regulates futures markets that doesn't really feel like a fit or enough for sports betting. And so this is kind of the question, like, do we let this go forward and let the prediction markets kind of build their own rule system that we think is good enough? Do we say, no, you can't do this? You know, it's and I think that's why the leagues are being cautious right now, because this is still kind of unsettled question.

21:04We're here with Ira Boué, U.S. Sports Business Reporter for Bloomberg News. Ira, you mentioned all of these things about guardrails. But tell me what the NHL did that's different than what the NFL, NBA and MLB are saying. Yeah, the NHL is saying, look, this is here. And so we think it's better to be business partners. Right. So that they have our official data so that we can call them up, basically, if there's a problem so that we can find out what they're doing to put guardrails in place. Right. And have that conversation with them is the essence of what the NHL's approach to this is. you know i think also frankly these companies are not they're paying right and so there's a revenue stream for the nhl as well to consider but but they have been the first among the big team sport leagues in the u.s to go ahead and take that step and the argument is look if these event if these prediction markets are going to exist which they appear to be then we want to be able to like be a phone call away from them and we want to be able to cooperate with them and putting the guardrails in place that we want.

22:08Right. And the counter argument is like, isn't that what state regulators need to be doing? So one of the things I'm going to call she's website right now, and its offerings are absolutely absurd outside of sports. It offers Oscar nominations for best picture, Oscar for best picture, all of these things that feel like they are very easily manipulable because of the fact that if you are a voter for the Oscars, why not just put$10 ,000 on this and then you talk to other voters and put all this money into it, obviously that would be a scandal. But it does feel like, going back to sports, that there are no guardrails around this and that if you are, we've seen a very, very distinct and crazy plan with Chauncey Billups allegedly giving out information for injuries.

22:59I wonder, is that the reason why the NFL is saying, we don't want this? because if you were manipulating an NFL game and catches, the quarterback has to throw them the ball. That's not as bad as someone actually pulling themselves out of a game in the NBA. In the NFL, I think because the game size and the amount of games is smaller, players are less likely to do that, I would say. But with Kalshi, if you're betting wins and losses and injury reports and all these things that they are potentially offering, it feels very, very dangerous for everyone in the sports business, no? yeah i mean i think that's the question and call she's you know they if you look under their terms there'll be a list of people for any market who are not allowed to participate and that would include insiders or people who could influence that market potentially um so a lot of this stuff is at least notionally prohibited um and they seem to be building now the the infrastructure to kind of monitor it um and and we have not seen to my knowledge a big scandal around a sports market in a prediction market space.

24:04But I think that's partly because it's these are still so new. And so, yeah, that is what the NFL is worried about, right, is this type of stuff that we've seen go on in the early days, at least, of prediction markets where people who have influence over a market are trading in it or people who know things that aren't public information are trading in it. And there was, I think, a logic in those markets that this is what you want to happen because the whole idea is to kind of figure out the probability of future events. That is what prediction markets were built to do. And so if you have people who really know what's going to happen and they're using these markets to place bets, then that's telling everyone through that price signal the probability of that event.

24:47And that's something that a league cannot tolerate because the whole idea obviously with competition is no one knows until they go out on the field and do their best. And so they have to maintain that or eventually it erodes all of our trust in these games that we watch. So those two things are just gonna, they're in kind of on a collision course now and we're watching it get sorted out, you know, with very little guidance, frankly, from the federal government at this point. It's almost, it seems like almost early days of NIL when everyone was like, it's the Wild West and we're trying to figure that out.

25:19This is kind of what that sounds to me right now. It's the Wild West and no one knows how it's going to shake out. So I imagine we're going to come back to you about this quite a lot, Ira. Our thanks to Bloomberg U.S. business reporter Ira Boudwey for joining us. Up next, we talk with chief medical officer at the Big Ten Conference about the challenges of keeping athletes healthy. For Randall Williams, I'm Vanessa Perdomo. You're listening to the Bloomberg Business of Sports from Bloomberg Radio around the world.

25:49This is Bloomberg Business of Sports from Bloomberg Radio. Thanks for joining the Bloomberg Business of Sports, where we explore the big money issues in the world of sports. I'm Vanessa Perdomo. Michael Barr and Damian Sassauer are off this week, but joining me is special guest and friend, Bloomberg U.S. business reporter Randall Williams. Thank you for having me. We spend a lot of time talking about NIL money in college athletics and about the growth of sports betting. But we don't often talk about the toll all of these things could have on individual players and their bodies. as players are playing for big money at younger and younger ages.

26:26Joining us to discuss the cross-section of some of the big money deals in college and the challenge of keeping athletes healthy for the long haul is Dr. James Borchers. He's chief medical officer at the Big Ten Conference and president and CEO of the U.S. Council for Athletes Health. Dr. James Borchers, welcome to the Bloomberg Business of Sports. Thanks for having me. So really excited to talk to you today, all things about college athletics and everything you're doing there on the medical side and really seeing where it's evolved from your seat on the medical side. But first, tell us about the U.S.

26:57Council for Athletes Health and your role as president and CEO. Well, the U.S. Council for Athletes Health is an organization that was founded to really prioritize athlete health, safety and well-being for sport organizations, for institutions and associations. We do that through strategic planning, education, consultation, compliance work. We work with over 300 NCAA institutions and over 20 conferences in the NCAA, for example, and work with groups like the USOPC, the U.S. Olympic and Paralympic Committee and national governing bodies to really craft medical standards for athletes with the goal being to have the best environments for athletes to be able to perform while protecting their health, safety and well-being.