BofA Analyst Highlights Regulatory Clarity As Key To Unlocking Potential Of Sports Prediction Market

BofA Securities analyst disclosed views about the future of prediction markets for online sports betting.

Since December 2024, prediction markets such as Kalshi, Crypto.com, and Polymarket have significantly impacted the U.S. sports betting industry, introducing an increasing variety of markets and betting options on a national scale, writes the analyst.

The analyst says that this trend, combined with an evolving regulatory environment, presents an area that both online sports betting (OSB) operators and investors should monitor closely.

Talking about the best scenario, the analyst writes that prediction markets can enhance the sports betting sector by attracting new customers, expanding the total addressable market (TAM), and creating a convergence between sports betting and financial technology.

The analyst sees opportunities for collaboration between these technologies, and the forthcoming regulatory guidance from the Commodities Futures Trading Commission (CFTC) in late March or early April could drive further interest in this nascent field.

Notably, on 2/5, the CFTC revealed plans for a roundtable discussion on prediction markets to gather input from key stakeholders as it works on refining its regulatory framework.

This event is anticipated to occur approximately 45 days after the February 5th announcement (specific date has not been confirmed) and the 90-day review period for Crypto.com's sports contracts will conclude in mid-April, adds the analyst.

The analyst notes that these events are expected to provide essential clarity on the regulatory landscape for sports-related prediction markets.

On the other hand, the analyst says that there is potential for legal challenges under CFTC regulations and the Wire Act.

On March 5, Nevada issued a cease-and-desist order to Kalshi, requiring them to stop offering event-based contracts on sports and elections by March 14 (extended at Kalshi’s request). California tribes have raised concerns about prediction markets impacting tribal sovereignty, notes the analyst.

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