G2E Las Vegas arrived as the sports betting industry looked to adjust after being caught flat-footed by the rise of prediction markets. In a panel on innovation Monday, speakers questioned whether state regulations had left the legal sports betting industry unable to fill demand for interesting new products and an easy target to be usurped by companies operating outside of the state-regulated model.
Sporttrade founder and CEO Alex Kane, GMA Consulting Senior Advisor and former Colorado regulator Dan Hartman, and Davis Catlin, managing partner at investment fund Discerning Capital, spoke on the panel. It was moderated by Kelly Kehn, founder of the iGaming start-up launchpad Defy the Odds.
The panel came exactly one week after prediction market leaders Tarek Mansour of Kalshi and Shayne Coplan of Polymarket spoke at a joint roundtable led by the Securities and Exchange Commission and Commodity Futures Trading Commission, where the question of regulators allowing for innovation was a major topic of discussion. While CFTC-regulated Kalshi has disrupted the sports betting world, many companies regulated under the same framework felt even those rules limited innovation.
Sports betting regulation origins
One particular topic was how the regulations around sports betting could be traced back to casino gaming rules, and whether these rules designed for casinos were still relevant as new challengers emerge from entirely different worlds.
“That’s the way online sports betting came to be,” Kane said. “Because it came from an online casino, which came from a physical casino, which is incredibly rigid. There are regulations about where the cameras have to be angled here in Las Vegas.
“And so when regulators and state lawmakers came to create online sports betting, they took the exact same approach: incredibly rigid.”
Catlin agreed that many regulations came from a world that no longer exists. He pointed to licensing requirements for minority shareholders. He said those rules were rooted in an era where stamping out the influence of organized crime was a top priority, but today they keep prospective investors out.
“If you look at the history of Las Vegas and casino gaming in the U.S., the mob initially controlled the whole thing,” Catlin said. “And so then you had to figure out how to get the mob out of Las Vegas. That made sense. I think we did that pretty successfully.
“If I have a colleague that gets $25,000, I have to share his name and then it’s at the discretion of the regulator to say, ‘Hey, we’d like to talk to that guy.’
“So if you think about my life of running around and raising money to invest in regulators, I have to disclose to all of my investors that there is a chance in a world where a regulator wants to come talk to you about your background, your financials, and all of that.”
Hartman said that if regulators don’t catch up, innovators and players ultimately will move on.
“If you’re not catching up with people or you’re not allowing innovation, the innovators are going somewhere else,” he said. “And then soon, the customers are going somewhere else. You’re sending great technology to dark spaces where people are going to go play because it’s better.”
Tight regulations, the panelists said, come with a cost that can be prohibitive for smaller players. Kane said Sporttrade had spent $35 million on regulation-related expenses, including license fees, market access agreements, and compliance suppliers. One example he noted of a regulation with a burdensome cost was Iowa’s geolocation rules, which require someone from the business to test that the geolocation service is working properly at 12 different points along the state border — resulting in a 1,699-mile drive.
Kane’s business is licensed in five states — Arizona, Colorado, Iowa, New Jersey, and Virginia — but is also pursuing CFTC registration to be a designated contract market like Kalshi.
Catlin said he sees the cost of innovation when his fund looks at investment opportunities, with startups often needing millions more dollars to operate in a compliant way. This, he said, limited the ability of venture capitalists to fund more of the most exciting opportunities.
Player protection still matters
However, Catlin was also keen to note that he didn’t believe stripping back regulations meant removing player protection.
“I believe that prediction markets are one horrible New York Times story away — some father of three kids, took his money into an account for 30 years, and then he’d lost it all — from a big problem,” he said.
However, he felt that state regulations often introduced burdens that went beyond what was needed for player protection goals.
Kane shared a similar sentiment.
“As society and user experiences and the way we sort of interact with the Internet changes, we need to be able to meet our current and potential customers — and provide those protections to them –where they are, instead of asking them to come and meet us where we think they should be,” he said.
Late in the panel, Hartman responded to a question on what the world could look like if courts — in the states where the status of prediction markets is being litigated — rule that prediction markets fall under state jurisdiction and could be regulated by states.
He said that it ultimately wouldn’t be regulators themselves that would determine how prediction markets are treated in that scenario, but instead it would come down to the laws handed down from state legislatures.
“Regulators are the instruments of public policy, but legislators make public policy,” he said. “So hopefully legislators make good legislation.”
