Prediction Markets Raise Gambling Addiction Concerns

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1:35Ira Boudway:You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. I've been eager to get to this story by Ira Boudoué. He's a global business reporter for Bloomberg News. This is one of those stories in Bloomberg Business Week that you start reading and you just can't put down because it's engaging. and it's about something that I think everybody is thinking about right now. And that's about prediction markets and the connection to gambling, specifically when it comes to sports. Ira Boudouet joins us here in the Bloomberg Interactive Brokers Studio. Your story focuses on a man named Chad, does not go into his last name, but tell us a little bit about him and what happened to him once he discovered this prediction markets platform.

2:19Yeah, he's a college student enrolled a few years ago in Texas and fell into a gambling addiction there, not through prediction markets. Initially through dorm room bookies, daily fantasy sites, all the kind of social gaming, all the different ways because gambling is not legal. Sports betting is not legal in Texas, but he found ways. And by his junior year, it had gotten so bad, he bottomed out. He basically lied to his parents, burned through about$100 ,000, fessed up, went home to Utah. and was sort of cleaning up, getting away from gambling, and discovers Kalshi. And in his mind, so it's legal in Utah, sports betting is not.

3:05And he thinks, oh, this is a way to win back the money that I owe my parents to get everything back. And quickly starts betting there, and over a six-month or so period, lost about$12 ,000. And then his father discovered bank statements where he was depositing money to Kalshi, including money that he'd borrowed in personal loans. And they intervened. He eventually went to rehab, into a treatment facility. But it was interesting to me because this was a case of sort of expanding access for people who are vulnerable. And this was something that his parents, certainly his mother, had never heard of, didn't know what it was, didn't know to look out for it.

3:47And other people I spoke with said, yeah, this is a problem. We're seeing clinicians and support groups saying, yeah, there's young people, especially men, falling vulnerable to prediction market betting and not necessarily knowing that they should think of this as you might think of DraftKings or any other sports book as an addiction risk. So in your story, we also got the perspective from Kalshi, right? And very importantly, they say that Chad's story, it's a cherry pick case. And they maintain that they do have a list of users who have self-excluded. And they have, just in general, really made a distinction that prediction markets are not gambling.

4:24But for consumers like Chad, is there really much of a difference effectively? Yeah, I mean, it's interesting. I think when you just talk about the basics of it, a few clicks, you're getting to put money down on an outcome. You might win. You might lose. That is the essential experience. And that is the same addiction kind of dopamine rush, the same chasing losses, all the same problems that you see with sports betting. Clinicians told me they come up in the context of prediction markets. There's no real important difference there. Kalshi says, look, you're not betting against the house. We don't lose when you win.

5:00or so we don't have the same incentives to prey on you as a prediction market does. And they also say, hey, we use a lot of the same tools to protect our users, exclusion lists, and so on. So it's interesting because on the one hand, they're saying we're not a sportsbook. On the other hand, we're saying we do all these things that sportsbooks do to try to protect our customers. What do you think of that? Well, I should note, Kalshi says, quote, this is a cherry-picked case. As you mentioned, the company says that we've prioritized making Kalshi the safest venue for people to trade on. This is according to a Kalshi spokesperson.

5:34Ira, I'm glad you brought up this idea of what the prediction markets say when you say, isn't this just sports gambling? Tark Mansour has told me the same thing. Brian Quintens, who we had on yesterday, a former CFTC commissioner who's now on Kalshi X's board, Kalshi Exchange's board, says the same thing. It's not gambling because the house is not involved. You're not betting against the house. You wrote this story about Chad. There are a lot of folks who say, wait a second, but you're still doing the same thing on the platform that you could do on a sports book. So it is gambling. What do you make of that distinction?

6:07Yeah, I mean, who the counterparty is from an addiction perspective doesn't especially matter. But also, I think this idea that it's John Q. Public, Mr. Retail User versus Mr. Retail User. When you go on a prediction market is a bit misleading because so often the market makers who are in essence the house playing the role of the market. of the house, are Wall Street institutional firms or very sophisticated professional So it's like David versus Goliath? Yeah, you're still going up against users who are, you're still likely to lose in the long run. In fact, there's been some data that has shown that prediction market users actually fare a little worse.

6:44And really what it is, is then traditional sports betters. And what you're seeing is the dynamic that has played out in online poker, daily fantasy, where you have a small group of users who are extremely sophisticated and win consistently. And you call them sharks, right? And everybody else is the fish. And actually, in terms of the experience for the typical user, the retail user, the fish of the world, you're actually potentially being preyed upon even more sort of quickly by these other users. Now, it's not necessarily Kalshi that's doing it, but it's other users on the platform. but if you're that retail user it doesn't really matter right who who's on the other side if you're consistently losing and consistently encountering an addiction risk then it's fundamentally the same how long have you been covering gaming uh we start i started covering gaming seriously around the time of the supreme court decision in 2018 that allowed it to spread through more states so it's been close to a decade yeah you at this point i i asked that question because i feel like for as long as i've been here doing this show we've had story you've come on and talked about what essentially is the toothpaste being out of the tube when it comes to the Supreme Court.

7:53Is there an argument in your view to be made that there's a net benefit to society as a result of that Supreme Court decision? I'm not asking you to make a judgment here and whether the Supreme Court was right to do that, but it has been about eight years at this point. And a lot of money has been spent. There have now, I mean, look at what these leagues are doing. the USTA yesterday coming out and saying Cal she's the official prediction market of the US Open and that was that upset a lot of people is there in your view a net benefit it's a really hard question to answer because I think what we have started to see just in the last few years is some of the damage there's been some really good studies by academics looking at when states introduce sports betting and in particular online sports betting and this is separate from prediction markets.

8:45Second for prediction markets, what happens? And you see declining credit scores, higher delinquency on debt, and all kinds of damage and risky behavior that is concentrated among typically a fairly small group of users, but it's ruinous for that group. And so that's partly why I did this story on prediction markets. And just to speak to the idea that this one case that I encountered was cherry picked, it's true. That's the only person who would speak with me about it. But every clinician I talked to said, look, we're starting to see it, but we don't want to have you talk to people who are really fragile in their recovery.

9:22Basically, it takes a little while to bottom out and then it takes a little while to start getting better and to be sturdy enough in a recovery that you could maybe talk to a reporter like me. So it's not like there aren't other cases out there. It's just that we haven't been able to see it yet on the scale that we did with sports betting because we've had more time. Sorry, Christina. I'm just like, I'm jumping in again just because every time you mention something uh i'm thinking about this like if we think people have been betting for generations but maybe one distinction now is there's so much less friction and you saw that play out in chad's case right he lived in this state where because of the way that the sports betting industry is regulated state by state you're not allowed to access sports books in that state but because you have this federally regulated entity regulated by the CFTC, he could just open up his smartphone and do it.

10:11Maybe a generation ago, he would have had to go to an off-track betting, physically go there, actually get the money and bring the cash. It's not the same. The friction's not there. Yeah. I mean, I think we've seen the smartphone shifted everything. And to be fair, black market bookies operate through smartphones now too. Everyone makes it really easy. But I think you've also seen a normalization, right? It's advertised. sports leagues are in partnership with them you're told that it's legal in the case of calci you're told that it's a it's fine it's a financial product you're trading and so there's this notion that yeah why wouldn't you do this right and i think that is where we might see some pushback over time and the experience in the uk is maybe illustrative like they at least in the sporting context have pulled back on some of the advertising and tried to increase the limits and the and make access a little harder to basically put some of that friction back into the process because they were seeing a pretty serious fallout and societal damage from the spread of sports betting.

11:13And they were a decade or two ahead of us in terms of the widespread, legally sanctioned sports betting. Yeah. Well, based on that experience in IRA, how do you see this playing out from a regulatory perspective? Do you foresee states and maybe federally more measures to reintroduce the friction that Tim has alluded to is missing now? Yeah, I mean, the biggest question we got to solve first is can prediction markets do federally regulated sports betting or not, right? We've seen split decisions in the circuit courts that it looks like are going to have to get the Supreme Court to answer that. But I think if prediction markets are allowed to continue doing sports, then you will basically see a lot of pressure to recreate the regulations that exist in a state-by-state framework for sports betting, and maybe even just to bring a federal bill to say, hey, you can't do this to under 18.

12:08You have to have a national helpline or whatever to under 21, I should say, to basically bring all the things that states have slowly been building into their laws. laws, those protections may be into the prediction market framework. Right now, it seems like the prediction markets are just sort of voluntarily adding this stuff in and self-regulating because the CFTC is mostly absent when it comes to this kind of thing. I mean, this is going to continue, and I hope you keep writing about it. Ira Boudouet, global business reporter for Bloomberg News. Ira, while you are here, we're shifting gears a little bit because we're getting a headline from Randall Williams, one of your colleagues, our colleagues here he says that billionaire stan kronke is expanding his sports empire with the addition of mlb's the angels uh he uh kronky sports entertainment brought a controlling stake in the angels from the moreno family according to a press release terms of the deal weren't disclosed what can you tell us this is really interesting i think a surprise i don't think people thought moreno was on the brink of selling it's interesting for a number of reasons you've got the looming specter of a lockout in baseball next season when the collective bargaining agreement expires and there's a fight brewing over a salary cap.

13:22So there's some transactions may be sort of coming because of that. Owners maybe who want to get out before that happens, right? And suddenly their revenue declines. And also Kroenke is just such a major figure. I mean, He now has, if I'm not mistaken, controlling stakes in five of the biggest U.S. sports leagues. The Rams, the Nuggets, I'm probably going to miss some. Arsenal. And Arsenal's outside the U.S. The current Premier League champions, Arsenal, he also owns. It is the largest sports empire in the world. I think the only competition was Mark Walter, but he just sold the Lakers. So it's adding to what is already a formidable sports portfolio.

14:05Check out more on the Bloomberg Terminal. Also, check out Ira's stories. You got to read them at the Bloomberg Terminal and at Bloomberg.com. Ira Boudwe, global business reporter for Bloomberg News, joining us here in the Bloomberg Interactive Brokers Studio. Ira, thank you so much. Do appreciate your time.

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