While there was some talk of a potential beneficial agreement down the line, for now an expert panel's consensus on prediction markets is that the industry should protect itself through a unified approach, including litigation if necessary.
That panel of racing officials and wagering experts met for the opening session of the second day of the National Horsemen's Benevolent and Protective Association conference March 5 at Oaklawn Park.
In recent years, prediction markets have emerged as a competitor to state-regulated sports betting platforms and other gambling pursuits. Panelists noted that prediction markets developed over time but took off in popularity during the 2024 presidential election, when they saw a spike in wagers, or, as the sites call them, "contracts," on the outcome. Many of these sites have since expanded their offerings to include sports outcomes.
Prediction markets say they are regulated at the federal level by the Commodity Futures Trading Commission, an assessment backed by that commission's new chairman, Michael Selig. Thursday's panelists said a cursory review of that commission suggests there are not enough workers for effective oversight and said in many ways the industry is self-regulated, especially compared with sports betting, which is highly regulated at the state level.
The panel noted that courts currently are considering 60 lawsuits involving prediction markets, largely filed by states that offer sports gambling and tribes with gaming operations. Those operations figure to lose revenue if prediction markets such as Kalshi and Polymarket continue to soar. They're already seeing an impact.
"One of the big numbers that we track in (Las) Vegas every year is the handle on the Super Bowl," said panelist and gaming expert Peter "Holt" Gardiner, founder and managing partner of Seaforth Partners. "Two weeks before the Super Bowl, Kalshi took over the single largest electronic trading board on Las Vegas Boulevard, advertising sports prediction markets for the Super Bowl. And for the first time in 15 years, regulated sportsbook handle for the Super Bowl was substantially down.
"That is largely attributable to that liquidity going to the prediction markets."
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Panel members said these sites have moved into offering action on horse racing, including $1.2 million on last year's Kentucky Derby (G1).
Panel member Dennis Drazin, chairman and CEO of Monmouth Park operator Darby Development, said for now he would oppose prediction market sites allowing wagers on horse racing but added that in the future he could be open to negotiating a proper rate of return with the sites. But he noted that racing first has to defend itself against these sites.
"If they try to take a bet on Monmouth, the Haskell (Stakes) or any other Monmouth race, I'm a lawyer, I'll be in court," said Drazin, who noted he was contacted by a prediction market site last year that wanted to offer "Will the favorite win the Haskell Stakes (G1)?" as a proposition. He denied the request, threatening legal action if they ignored the denial.
Drazin said he'll defend Monmouth, but the industry needs to consider if it wants to form a class action defense.
Plenty familiar with sports betting as well, Drazin's successful effort to bring sports betting to Monmouth ultimately would open such wagering to states throughout the country following a 2018 Supreme Court decision. He noted that racing operations that benefit from sports wagering also could feel an impact as prediction markets take hold.
Later in the discussion, Drazin said it would make the most sense for the industry to create a committee on prediction markets to speak as one voice. He noted a disaster scenario would be if one track were to cut a deal with prediction markets for some return on handle, as that could open a door without fully vetting the best business approach—the proper rate of return—if the industry at some point wishes to go in that direction.
While states regulating sports gambling and tribes make their legal cases against prediction markets, Drazin believes horse racing has an extra layer of defense not available to those entities. The Interstate Horseracing Act, which outlines how interstate wagers on horse racing can be conducted, provides the industry with a hammer. The IHA is federal legislation, which counters a prediction market argument claiming federal oversight trumps state oversight.
In a conference call last month with analysts and investors, Churchill Downs Inc. officials made the same point as Drazin, who applauded the CDI stance. While states regulate pari-mutuel wagering, the sport's interstate wagering falls under federal legislation.
"Horse racing has a different legal paradigm than other sports offerings in the United States," CDI CEO Bill Carstanjen said. "Pari-mutuel wagering on horse racing is conducted under the Interstate Horseracing Act, which is a federal umbrella statute that essentially gives us a series of rights—call them intellectual property rights in our content."
For whatever direction the industry decides to move, panelist Jason Johnston, sportsbook manager for WarHorse Gaming, said it's important to move quickly because prediction markets are expanding and evolving at a rapid pace. Drazin noted that beyond that expansion, he believes they are here to stay.
The industry is quickly getting up to speed on prediction markets. A bill introduced in Kentucky that would allow fixed-odds wagering on horse racing includes a prohibition on any licensed track, sports wagering, or fantasy sports entity having an affiliation with or benefiting from a company offering prediction market contracts.
Dave Basler, executive director of the Ohio HBPA, said that based on how prediction markets have acted to date, he believes litigation will need to be an option for the industry.
"Ultimately, what we have to consider is litigation because I think prediction markets have made it very clear that they don't believe that they need approvals," Basler said. "I assure you that the Interstate Horseracing Act is something that they don't believe they need an approval on.
"Once they ultimately start taking bets, I think the industry players have to decide if they're willing to be 61st in court. If they're not willing to do that, I think (prediction markets) are going to take racing bets and we're not going to get paid."
Drazin did note that while he's currently opposed to such prediction markets taking action on horse racing, if the sites wanted to negotiate a pricing structure that works for the industry, he'd be willing to consider that as it would put racing in front of a new audience, and likely a younger audience. New Jersey is one of the few states that allows fixed-odds wagering on horse racing.
He noted that prediction markets would be well-positioned to handle certain types of wagers such as an over-under number for pari-mutuel dollars wagered on a big day, Eclipse Award winners, and Breeders' Cup starters.
In theory, Basler also would not oppose such a structure, but questioned the realistic chances of that happening. He recalled previous negotiations in which exchange wagering sites were only willing to offer small returns to racing that most states did not believe were enough of a return.
Specifically addressing the audience of horsemen, Basler encouraged them to put specific protections in place regarding prediction markets to ensure that tracks would not cut their own deals with these sites and that money from such deals would not be included in purse accounts.
