What You Need to Know About Sports Event Contracts
Turn on your television, computer, tablet, or mobile device to watch a sporting event these days, and you can’t help but see advertisements for sports gambling websites almost more frequently than you do for any other product. What used to be a hush-hush industry is now completely mainstream following the legalization of regulated sports gambling in the United States in 2018. A relatively new player in the game, challenging traditional sports betting, are sports event contracts. But are these platforms actually new, or have they simply come into the public eye more recently?
Understanding Sports Event Contracts
Sports event contracts differ from traditional sports betting because they act more like financial derivatives. On services that offer this form of gambling, customers wager in a peer-to-peer format, or in some cases against the platform itself, on the outcome of a sports event. Unlike at a traditional sportsbook, bettors can buy and sell their position on a game both before it begins and while it’s in progress. In this format, they purchase a contract instead of placing a bet with an actual sportsbook. If the matchup in question is a football game and the New England Patriots are favored over the San Francisco 49ers, users could see a scenario where they risk $0.70 to win $1 on New England, or risk $0.30 to win $1 on San Francisco. These numbers represent the implied probability of each outcome; the $0.70 on New England implies a 70% probability of winning, while the $0.30 on the 49ers implies a 30% probability of winning. Using this system has changed how participants view traditional betting. Instead of just focusing on who will win or lose, they could look at probabilities and find value. If a customer believes a team has a better chance of winning than the price implies, it becomes an attractive bet.
What Makes Sports Event Contracts Different
A big appeal of sports event contracts is that, while the game is going on, the prices of contracts available for both New England and San Francisco will change depending on the game’s score. Users of these platforms can purchase more contracts on either team while it’s in progress, and they can also sell their position during the event at any time. The ability to do this differentiates sports event contracts from traditional sportsbooks, offering users more flexibility. At a traditional sportsbook, bettors place a wager before the game and wait until the event finishes to cash their winning bet. Also, at a sportsbook, the bookmaker taking the bet sets a line to balance action and make a profit. At traditional sportsbooks, customers will see a pick ‘em game listed at -110 for both teams. In a matchup like this, the customer bets $110 to profit $100 if they are correct. In return, they will receive $210: their original $110 plus their $100 profit. So, if one person bets $110 on one side of a game and another person risks $110 on the other team to win, the sportsbook collects $220 but only pays $210 to the winner. In a sports event contract, the platform usually charges a much lower fee when users sell their contracts. That is also another reason why bettors enjoy using companies that offer this.
Why Bettors Prefer Sports Event Contracts
This flexibility allows customers to avoid being locked into a bet before a match and instead adjust their wager before the final outcome. Having this feature in real time allows consumers to react to their initial bet and sell their position to profit if their team is winning and the projected outcome has changed. Users no longer have to be all-or-nothing on a team at the start of a game; they can adjust their position at any point as the game progresses.
Where Sports Event Contracts Began
While sports event contracts are just now gaining popularity in the U.S., they aren’t a novel idea. With the launch of Betfair in 2000, wagering on events using contracts brought a new way to bet to the public. The betting exchange allowed customers to place bets against each other. The company, based in London, England, began by allowing its clients to bet on horse racing and has since grown to offer thousands of events on which people traditionally bet.
Why Betfair Felt Like a Stock Market
With Betfair offering sports event contracts, the chance to wager against other individuals became a key innovation in sports betting. It began attracting a clientele that preferred better odds and lower fees than those offered by traditional sportsbooks. The resemblance to the stock market, where users could see the value of their bet rise and fall during a game in progress, started to attract new users to sports betting who had never participated in sports gambling but found the process easy to digest.
Why Sports Event Contracts Appeal to Casual Bettors
To the casual bettor, sports event contracts are much easier to understand, given the simplicity with which they are offered compared to a traditional sportsbook. Having odds displayed as the probability that an event outcome will occur makes it easier to digest and see who other bettors think will win, rather than a sportsbook hoping to take action on both sides of a game. Not only would casual bettors find this more interactive, but the process of placing their bets would become less stressful and much easier to form an opinion on who to pick to win. For users, this removes the need to analyze a whole bunch of information, allowing them to just look at the odds to see who the public expects to win or lose.
How Traditional Sportsbooks Adapted
In an effort not to lose customers or to regain those who left for prediction-market-style platforms, traditional sportsbooks have adapted. They began offering live betting and cash-out features, introducing a new way of gambling to what had long been the norm. While these features added a new way for traditional sportsbooks to operate, they didn’t offer the peer-to-peer aspect that users of prediction markets prefer. While odds would fluctuate during a game, it was still the sportsbook setting those lines, which is one of the reasons why users who enjoy sports event contracts are less likely to return to traditional sports gambling through a sportsbook. Adding these features helped sportsbooks remain competitive with prediction market platforms, and they are now standard across the major online sports betting platforms. These features give bettors more control of their wagers, rather than betting at the beginning of a game and having to wait for the final result.
Legal Challenges Facing Sports Event Contracts
The biggest risk associated with sports event contracts is their legality, given their operations across the United States. Each state has its own gambling laws, and those that do offer sports betting have regulatory frameworks governing their operations. This format is challenging these laws, and the big debate across the country is whether prediction markets should fall under the Commodity Futures Trading Commission (CFTC) or state-regulated gambling laws. However, regulators may view these platforms differently. This means that companies that offer sports event contracts must be careful about what they can legally offer customers, creating uncertainty for users.
Risks and Concerns of Sports Event Contracts
There is a long list of risks associated with platforms offering sports event contracts in the United States. Additionally, a key issue remains: which jurisdiction they should fall under. As of now, prediction markets operate for the most part without clear, defined regulations. Not only are there constant concerns about match-fixing on these platforms, where users with inside information can place bets that are hard to monitor, but there are also age-verification issues and a lack of problem-gambling support, both of which are required when using traditional state-regulated sportsbooks. Know-your-customer protections are not always in place, which can easily raise transparency and integrity concerns for players who use their services. These platforms also lack other safeguards, such as addictive gambling help services, which can lead to not only financial problems for users but mental health concerns as well.
Are Sports Event Contracts Here to Stay?
It does appear that sports event contracts are here to stay, but the biggest stumbling block for them remains which rules and regulations they will adhere to. That is, whether it’s the CFTC’s or state-to-state regulated sportsbooks’ guidelines, they will fall under. This will likely be determined in court, as many states with regulated sportsbooks are currently questioning their legality.
The Future of Sports Betting and Event Contracts
While they certainly aren’t new, sports event contracts have become a major part of the conversation about the future of sports betting. Originating in the UK, it took almost a quarter of a century to reach the American gambling scene. By offering peer-to-peer betting in a stock-market-style system, they are attracting a whole new audience of gamblers. What used to be an industry that attracted die-hard sports fans has now evolved into an area that attracts those who play are familiar with the stock market, as well as casual bettors who easily understand how these contracts work.
The biggest obstacle remains determining which jurisdiction sports event contracts fall under, and how that plays out could take years as the situation remains unresolved. When these platforms eventually become regulated, they could evolve into something much larger than they appear at the moment, potentially attracting more attention and a larger group of users to enjoy this style of sports betting. How this plays out will be worth watching as sports gambling continues to grow in the United States.
