Media, Sports Partnerships Make Prediction Market Regulation Harder, Says Think Tank

The more prediction markets blend into the mainstream, the harder the nascent industry will be to regulate, and political will to do so will wane. Regulating prediction markets is likely to grow harder as the companies ingrain themselves in normal society. (Image: Shutterstock) That’s the take of the Roosevelt Institute, a progressive think tank that’s a vocal critic of all-or-nothing exchanges. As part of a multi-part series examining the rise of prediction markets and possible related downside implications, the institute examines the industry permeating three significant pillars of everyday life in the U.S.: financial services institutions, media and professional sports leagues, highlighting the “path dependence theory.” As it relates to yes/no exchanges, what companies and leagues are doing today may seem innocuous, but can have larger consequences in the future and become more difficult to reverse over time, according to the path dependence theory. “The costs of switching to a different path—some alternative way of doing things—become greater the further down the path you go, as the increasing returns of that path begin to self-reinforce,” notes the Institute. “A positive feedback loop emerges, gradually entrenching decisions that were made early on in the history of an institution or development. Large-scale changes, in turn, become harder to implement.” Translation: The more prediction markets become embedded in the normal zeitgeist, the harder it is for institutions, policymakers and regulators to shift directions. Prediction Market ‘Gold Rush’ in Financial Services, Media Amid rapid expansion, prediction operators are increasingly prominent in mainstream media by way of partnerships and are making strides in the old guard financial services community. The Roosevelt Institute examined the largest companies in the S&P 500 communication services and financial services sectors, noting that in the former, five already have prediction market partnerships. That quintet includes Facebook parent Meta Platforms, which is rumored to be working on its own yes/no exchange. Of the 20 largest financial services companies, only Morgan Stanley, by way of an investment in an operator, is engaged in the prediction market space. However, other institutions are mulling entry and plenty of financial companies outside of the top 20 are firmly in the arena. The Roosevelt Institute notes that media’s embrace of prediction markets is normalizing the exchanges while it’s likely that, absent regulation, financial services firms will continue expressing interest in the event contracts space, too. “In the absence of policy action, this trend is likely to continue, and as more and more firms expand into the prediction markets space, it makes the largest companies’ entrance easier, lending the whole enterprise an air of unearned inevitability,” adds the Institute. Sports, of Course The intersection of prediction markets and sports is well-documented. By some estimates, sports derivatives, including parlays, account for 80% of the turnover on the largest U.S. prediction market. As the Roosevelt Institute points out, Major League Baseball (MLB), Major League Soccer (MLS) and the NHL are the North American leagues that have agreements with at least one prediction market operator. The NBA and NFL have been stand-offish on that front, but the fact is leagues and teams are embracing prediction market sponsorships, potentially legitimizing the industry and solidifying its positioning as part of the regular sports conversation. “Because these are ongoing arrangements that include features like regular meetings and continuous information-sharing, rather than one-off deals, they establish durable relationships that will only become harder to unwind as more leagues follow,” adds the Roosevelt Institute. It’s possible that amid the convergence of prediction markets with finance, media and sports that path dependence is already in place and that could make altering course a heavy lift. “Once path dependence meaningfully takes hold, course correction will hinge on the rare moments when circumstances and political will converge,” concludes the Institute. “By then, how many more millions of dollars will retail traders have lost to sophisticated market makers? How many more insiders will benefit from trading on apparent insider information?” The post Media, Sports Partnerships Make Prediction Market Regulation Harder, Says Think Tank appeared first on Casino.org.