Tribal and commercial gaming industries are facing potential annual revenue losses ranging from $7.3 billion to $39.4 billion if prediction markets continue their expansion under federal oversight, according to a forthcoming report by KlasRobinson Q.E.D.
During a recent Indian Gaming Association (IGA) webinar, economists James Klas and Matt Robinson shared insights from the report, which was commissioned by the IGA and is expected to be released next week, as noted by IGA Executive Director Jason Giles.
The report outlines four scenarios in which the Commodity Futures Trading Commission (CFTC) permits prediction markets to offer sports event contracts in all 50 states. The growing legal confusion around these markets has prompted calls for the U.S. Supreme Court to intervene, due to differing opinions among Circuit Courts.
In their least impactful scenario, KlasRobinson predicts that tribal gaming could see a $1.5 billion drop in annual revenue, representing about 3% of the industry's record $46.2 billion earnings in 2025. The worst-case scenario suggests that tribes could lose $7.8 billion, or roughly one-sixth of that total.
**Scenario 1: Unlimited Sports Contracts**
The first scenario involves prediction markets operating without restrictions, allowing them to offer sports event contracts across all states. In this case, KlasRobinson anticipates that tribal gaming would lose $1.5 billion annually, while commercial casinos and online operators could see a combined loss of $5.8 billion, totaling $7.3 billion. This scenario also predicts the loss of approximately 38,000 jobs across the tribal and commercial gaming sectors, alongside $546 million in non-gaming revenue losses. Given that many tribes share gaming revenue with states as part of compacts, their payments would likely decrease as well. Klas emphasized that there's uncertainty about whether tribes would continue to fulfill their revenue-share obligations under reduced income conditions.
**Scenario 2: Major Sportsbooks Transition**
In the second scenario, an increase in major sportsbook operators shifting to prediction market models is expected. Robinson pointed out that this transition is already beginning, with operators advertising prediction market products in states where they lack sports betting licenses. In this scenario, tribal losses are estimated at $3.6 billion, while commercial casinos and online operators could see losses of about $14.3 billion, aggregating to $17.9 billion. Additional losses could include $3.6 billion in state tax revenues, 92,000 job losses, and $4.8 billion in lost wages. Klas indicated that these scenarios forecast a period of three to five years post-market stabilization, with losses likely to escalate over time.
**Scenario 3: iGaming Products Added**
The third scenario proposes the addition of iGaming-style products to prediction market offerings. Klas noted that it is easy to foresee platforms leveraging the same legal arguments for a broader array of products. He indicated that platforms could aggressively pursue market expansion opportunities. However, the proposed CFTC rules would restrict the launch of casino game-style markets.
**Scenario 4: Maximum Impact**
The most severe scenario posits that prediction markets could gain CFTC approval for both sports contracts and iGaming products, leading major companies to migrate significant portions of their business onto these platforms nationwide. KlasRobinson suggests tribal gaming could incur losses of $7.8 billion, while commercial casinos and online gaming entities not affiliated with tribes face losses of $31.6 billion, resulting in a total of $39.4 billion. This scenario also forecasts an $8.3 billion drop in gaming tax revenue and 225,000 job losses.
Klas underlined that the study highlights the shifting dynamics of consumer spending in gaming, indicating that, unlike traditional casinos where a greater share of winnings remains within local economies, prediction markets distribute winnings among a nationwide pool of traders. He pointed out that a significant portion of profits on platforms like Kalshi and Polymarket is concentrated among top accounts, leading to what Robinson characterizes as "95% leakage" of funds out of local economies.
Klas concluded the webinar by warning that the rise of prediction markets poses risks beyond just revenue losses for the gaming sector. He expressed concerns that the current model could ultimately lead to catastrophic collapses within the gaming and derivatives markets over the next decade, driven by consumer losses, integrity scandals, or failures among market-makers. He likened the risks to historical financial crises and emphasized the potential damage to public trust in both the gaming industry and legitimate derivatives markets when prediction markets are confused with sports betting.
"This is not something normal in the derivatives market," Klas asserted. "This kind of operation is fundamentally different and carries significant dangers of its own."
