Risk Markets And Politics

Wednesday, March 08, 2006

Following the Money (and the Online Gambling Lobby)

Chris Masse, who graciously named RM&P "Blog of The Year" for 2005, has asked me what transpired at the "Event Markets & The Futures World" FIA luncheon which took place in New York last month. While much less touted than the "Summit", this short meeting was perhaps more significant and more telling of the future of prediction markets in the United States.

My first answer to Chris was that I had already written about the luncheon. I had noted over on Agoraphilia that Richard Shilts, Director of Market Oversight at the CFTC, said that the agency was considering the extent of its authority over non-hedging, price-discovery markets (i.e. "information markets", although no-one used that term on that day, and I only heard "prediction markets" once). Later on, a slightly contentious discussion addressed the difference between gambling and hedging markets. The essential ideas of those exchanges were toyed with in "Schedule One".

Representatives of companies enjoying less-than-cheery relationships with the CFTC may have been a bit uncomfortable that afternoon. Indeed, the event did little to relieve the fear that America's confused (and somewhat puritanical) attitude towards gambling has forsaken the quickly growing $11 billion online betting industry to the rest of the world, particularly to the rest of the Anglosphere. However, one was able to walk away with some doubt for the meme that has surfaced here and there that America's neglect of online betting will cause the country to fall behind in a new, important area of financial innovation. If nothing else, the list of US-based attendees, which was packed with top-shelf investment bankers, regulators, lawyers, derivatives industry groups and established exchanges was encouraging in that respect. While they are doubtlessly keen on innovation, online gambling is still a rather small business to that crowd.

In any case, legal online gambling in the United States is unlikely until there is a lobby behind it, but who will take that risk? The current legal gambling industries in the US, which include commercial and tribal casinos, state lotteries and sports betting operations, are not necessarily strictly opposed to online gambling as they are often accused of, but they are unlikely to lobby for it either. On the other side, since non-US companies already enjoy the business of American bettors, they are probably not going to argue for legalization that would bring them new competition from established local brands, even if the market were to grow in total size.

The fact that the stocks of overseas gambling companies are available to US interests also saps the potential life behind an online gambling lobby. Why bother when you can already share in the ownership of this industry?

Ultimately, either in terms of participation or investment, it may take an attempted crackdown to galvanize support for online gambling in the US. Markets that provide risk-sharing or some other demonstrable utility beyond entertainment should be less controversial, but as we know, these categories aren't completely distinct.

2 Comments:

  • Hey, I really enjoy these postings. You should post more frequently. I work for an exchange that you would know without a doubt, and have been involved in product development. We're launching a new currency product soon, but my real interest has been in more non-traditional markets. I just wish the mgt. over here was more open to new products.

    By Blogger Mickslam, at 9:11 AM  

  • Thanks, i would like to post more but the glory that is blogging must come second to other endeavors.

    In the past I thought that established exchanges would just roll over on newer players like Hedgestreet and be able to capture whatever new markets were out there, but your last comment shows why i might have been wrong.

    By Blogger Jason Ruspini, at 10:22 PM  

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