Dan Primack on Kalshi: prediction markets headed to the Supreme Court, 70% of volume is sports betting

Speaker 8: do come to prediction markets. This is where the value prop is strongest because prediction markets do reward them for being right.

Speaker 1: Well, we have Dan Primak here

Speaker 9: with us today. Dan, how are you doing? Doing well, guys. Not as well probably as you are, but I'm doing well. Thanks for being here. Good to see you. So,

Speaker 1: give us an update on, this interview, what you were looking to learn from it, what you think the conversation where you think the conversation around prediction markets will go from here?

Speaker 9: I think it was interesting. The day we did this, we did this on Monday in New York City, and it was really maybe an hour or two after, New Jersey, a judge in New Jersey, and basically an appeals court judge. So kind of the highest judge so far that's dealt with this. Basically gave Calshie the green light to go forward. I mean, I think ultimately prediction markets are gonna go to the supreme court. I think both polymarket and Calshie thinks that. Yeah. I also think they're probably gonna win in the supreme court. The law really is on Kalshi's side. They have done a pretty good job, kind of being in step with regulators, and granted they were it was a little more complicated with the Biden administration, but they sued the CFTC. They won that lawsuit. It's the reason why they have elections on the platform. I think if something is going to stop or change the way prediction markets work, that's gonna have to come out of congress.

Speaker 1: So, yeah, what's the next step

Speaker 2: benefit from having their their adversary are are casinos and sports books, which are not exactly the kind of groups that Americans want to stand up to defend, you know. In March, it's time to hit the streets and march for the legacy sports I

Speaker 9: mean, that's some of it. Right? So obviously, in Nevada, is one of the few places where CalSheet is actually banned because the judge has upheld an injunction. Yeah. That's the casinos. That's maybe some regulatory capture. The other folks who are against this though are folks who are just anti gambling in general, and I and I do think you are seeing a bit of a groundswell of that politically, and I think it's bipartisan. You know, some of the bills that have actually come out have been coming from Democrats. But for example, the state of Utah doesn't want this, and they don't want it to protect casinos. They don't want it because they don't want people betting, period. And they sure don't want it on phones where it's so easy to do. And and we did in this interview on the Axios show, which drops tomorrow, we did talk about the addiction piece of this and kind of the broader societal issues, which isn't to say what Calci is doing illegal. There are questions about is it promoting not immorality, but is it enabling addiction?

Speaker 1: And what are the proposals for because this is not regulated as gambling, and it seems like it will continue on that path, is there any motion to bring some of the restrictions that apply to traditional gambling over into this new regime?

Speaker 9: No. No. And I mean, that that's the the the complicated thing here, and I did ask them, you know, is this basically a loophole? For example, in California, in Texas, the two biggest states in the country in terms of people. Right? You can't know, try to open DraftKings or FanDuel. It doesn't work for you because the because it's not allowed there. Yeah. Al Shida will allow you to bet. And, you know, I think Tarek or Luana said about 70% of their volume last month in March was sports betting, which is lower than it had been in February, but you're still talking about $13,000,000,000 of volume last month. Mhmm. So it's a big number. You know, it's a loophole. They have figured out a way to basically get around sports betting laws, and and I appreciate that the back end is different. They make a very compelling argument for why legally they're allowed to do it, and I agree with them. But the reality in the end is if I'm betting on the Celtics Knicks game tonight Yeah. I don't really care what the back end looks like. Yeah. I care about the, you know, my my money if I win and the fact that I'm able to do it.

Speaker 1: So is is federal preemption, like, sort of baked in at this point? Or is there some sort of hybrid rule set where this could go back to the states and states could make their own rules? Because it does feel like there's a pretty wide set of opinions state by state on how different communities want to engage with this particular product.

Speaker 9: Right now, it it appears federal preemption is gonna win the day. For starters, the Trump administration, the CFTC, which is what regulates this. Mhmm. This is regulated by the SEC. It's the CFTC. Yeah. They are all in on prediction markets. Mike Selleck, who is the current commissioner, he he is on the side of Calci. I assume will be on the side of Polymarket when they eventually really come to The US. And and and it does make a certain amount of sense, and there is some historical precedence here. A lot of commodities which are traded, and that's kind of what they're arguing that these are kind of commodities in in a different name. There were lawsuits a hundred years ago arguing the same thing. This is crazy speculation. Yep. The reason why I say this could go to congress, there are two carve outs to that. One is a weird one. It is onion futures. Onions. Not pork bellies or or something else. Onions. Because at one point, a long time ago, there was a ridiculous, speculatory, like Bubble. A lot of people lost a lot of money on onions. So congress passed a law saying you can't trade onion futures, and I think I'm right in saying the other one is related to box office returns, which is why if you're on a cash sheet, you won't you can't bet that a movie is gonna make $20,000,000,

Speaker 1: but you can bet on its Rotten Tomatoes. That's so funny because I've never been like a sports bettor at all, but I did I did participate in a fantasy movie league for a while that had no financial incentive whatsoever but you would construct a hypothetical movie theater pick, okay, project hail Mary is going in the first slot and then they would have the box off returns but it was all just for for fun with a bunch of Well, the old and maybe it still exists but back in the early, you know, February, there was something called the Hollywood Stock Exchange, which again wasn't for real money, but people did that. They they it looked like a stock market. Yeah. Yeah. Do you so so other other countries

Speaker 2: have created rules like, you know, you can't advertise gambling during, you know, these hours and there's a bunch of different kind of rule sets around it even in places where gambling is legal. Do you expect any states to pass laws that say you can't advertise commodities trading platforms Yeah. During More like FCC as opposed to CFBC Yeah. Basically like not targeting like sports trading Yeah. Which you know the cow cheese and the poly markets are doing. But effectively saying like, hey, we know these are going to be the biggest spenders Sure. And we don't want to tolerate

Speaker 9: or encourage this type of Yeah. Activity I mean, you you may see that and then that gets fought out in court. You know, I obviously, again, you know, you on the federal side, you it's know, interesting. It it's not just Calshi fighting back against these lawsuits. The CFTC itself, there's three states, Arizona I'm gonna mess up the other two. I think Connecticut is one. There were three states who have tried to ban Calshi, and the CFTC itself has come in to sue. So I could see the FCC coming in to try to sue if such laws were passed. It would be interesting. I mean, I do think part of well, part of a lot of betting despite what we saw several years ago with DraftKings and FanDuel, you know, on every billboard and every advertisement, an enormous amount of this is still word-of-mouth. You know, people talking about it. People I I will tell you, when we were doing this interview, most of the crew, you know, the camera folks and the and the sound folks hadn't heard of Kalshi before we did this. Interesting. And when it was over, I I was in the corner kind of packing some stuff up, and I heard them at the table having lunch. They were all not making bets, but they were flipping through the app, and they were talking about different bets that were on there, and they were fascinated by it. It's I I don't even forget addiction. It definitely fascinates people because people have always, you know, in our lifetimes been able to buy stocks. You can trade on, you know, the price of oil. Not on, you know, not on who's gonna win an award or or really events, you know, non

Speaker 1: non securities related events. Yeah. How do you think about that bifurcation between securities related events, non securities related events? Has there been robust enough research on how much of prediction market activity is sports related or sort of less like positive some or zero some situations? Because I would have to imagine that the level of engagement varies by category. Like, there were a lot of people that were interested in tracking the presidential election, but that's not something that someone's doing every single day whereas there's always a sports game somewhere.

Speaker 9: There is. So they said us again about said during the interview, they said about 70% of their volume last month was sports. Mhmm. In February, that number was higher. There was obviously a Super Bowl in February. That changed. So it was March Madness last month, but not as big a deal as the Super Bowl. 70%. That's a lot. Right? That that's close to the volume. They make the argument in the interview, you know, that one of the reasons why mean, I obviously, for CaliSheet, that's good. Right? That's more users. That's more fees because that's how they do it. They also argued that the sports volume creates more liquidity on the platform for the more esoteric bets, and and thus you need sports in order to have the other stuff. I I will tell you, I do get the sense that if they could have the same valuation and the same revenue and have no sports, they'd be fine with that and probably thrilled with it. But it's not how it works. The last thing I'd say about this, the problem or where sports could become a little legally complicated for them is this issue of entertainment. Right? The Mike Selig, the CFTC commissioner, and I mentioned this during the interview. He on CNBC the other day made a comment about how well this is different than a casino because a casino is providing entertainment, you know, and and it was in that clip. Right? There's shows and all the stuff. Well, there's not a huge but a sporting event is by definition just entertainment. Right? Whoever wins that basketball game tonight, except for the players and the gamblers, it doesn't mean anything. No no Goldman Sachs isn't making trades based on if the Celtics win tonight. Yes. You know, nobody's Wait. I I I think, doesn't point seventy two have a desk? Or there's there's some hedge fund that I think does have a sports betting desk. Right. And that's kind of part of the argument they make. But in terms of this idea that that that Kalshi will put forth, which I agree with, that understanding events and events market shake can chain can help people better understand the world. Yeah. Oh, there's what? There's gonna be fifteen, eighteen baseball games tonight? None of those are gonna change the world even in a tiny way except for the people who are in the ballpark maybe be happier, sadder Yeah. By a couple more dunks. Yeah. At at at the same time

Speaker 1: yeah. I mean, I completely I I completely agree with you. But there is something about when you're about to turn on the Super Bowl and you want just a really clear read on who's more likely to win. Like, it is easier to understand just a straight percentage than like a line and points and all of that. Like, just for a complete novice. But that's a different

Speaker 9: It is. And and they'll make the and they make the argument correctly that they are not they're just taking a piece of all the action. Right? They're not betting against you. They don't care if you win Calci doesn't care if you win or lose. Yeah. They just care that you play.

Speaker 2: Sportsbooks obviously want you to lose. Yeah. Yeah. Yeah. I I had a very eye opening conversation conversation with with the the the CEO of a unicorn company who I of course will not name. Mhmm. But I was shocked at how how invested they were in sports gambling broadly. Like at like, we just had dinner, we were hanging out and they had like tons of different parlays across every different app. Sure. And they and they would show me like, well, when I'm in this state, I use this app and when I'm in this state, I do this app and this app. I have to take my funds off the platform every night because I don't trust that it's not gonna get, you know They win money doing this parlays. Don't know. I was just like was just like, wow, I'm bearish on this company because the CEO is spending all their time, you know, doing, you know, 10 leg parlays on all these different apps and you guys haven't raised a round in in Years. Years. Yep. What's going on? The business.

Speaker 9: Can can I say though, one one thing I I learned in the research for this and we talked about it a bit and and I should have probably known this. One kind of user difference between the prediction markets and and the sports books is that parlay issue. And and specifically, every bet on CalSheet goes to the CFTC and has to get approved, and CFTC has twenty four hours to approve it. What that means practically is while you can take a bet on the game tonight, cause you know there's going to be a game tonight Yeah. You can't do what you can do on DraftKings, say, the next pitch is gonna be a ball. The next pitch is gonna be a strike. Yep. Because there's obviously you have that twenty four hour. They don't know there'll be a next pitch necessarily. Sure. So there's a little less real time sports betting than than there is on on the sports books. But but they are because they know the Super Bowl is going to happen and they get that contract approved in advance, you can live trade that contract

Speaker 1: up till the last second of the game. And so that that does satisfy a little bit of that, which is again much higher frequency than, oh, I want to gamble on the Super Bowl. I'm going to fly to Las Vegas, place a bet at a counter, wait in line, sit down, watch the game, go and collect my winnings. It's a very, very different equation. How have you processed? Just so it feels like we all just agree that gambling is addictive and I think that's reasonable. I don't know where that comes from whether that comes from like science or law but it all feels reasonable. But we're going through this again with social media, whether social media is addictive. How have you processed the social media addiction trials and then the the new gambling app addiction question?

Speaker 9: Like are these linked at all in your mind or how have you processing the social media question? I I mean, I I'm I'm obviously not a doctor. I don't think you guys are doctor. I mean, there's definitely you we've all, I think, read about kind of the dopamine hits and look Totally. That you get from not posting on social media, but when you get a like or when you get a reply social media. Yeah. Gambling, I mean, there's obviously a dopamine hit when you gamble. Right? You know, your person hits the basket, you win the game, you get excited. I mean, obviously, if you have a lot of money on it, you get excited for different reasons. But just even you know, I I'll admit, I use some of these sports betting apps sometimes when I if I'm watching like my hometown team play Dirty done. Dirty day. Dirty Dirty day.

Speaker 1: May maybe a few times. But the

Speaker 9: leagues the leagues knew what they were doing. Right? They knew that if there's a blowout, you generally turn it off. If But you're waiting for your guy to get 20 points Oh. Well, you might stick it out a little bit didn't realize that. I didn't realize that. But so back to the social media question. Have you been tracking any of that and what that means for

Speaker 1: the venture community or startups or really any knock on effects that you've tied to the trial because there was that decision in Los Angeles. The actual fines for YouTube and Meta seemed very low but it was the whole chain of of more cases coming. And it just feel it just felt like the first time we actually had a full decision that that the judge said, yes Yeah. This is addictive. Right.

Speaker 9: So right. The the the lack of money is notable. Right? Because it was also a single plaintiff. Right? So I mean, for theory, that's a lot of money for one person. The big the big question going forward is, can an attorney or can a group of attorneys get a class together? And you've seen a bunch of advertisements. I've seen a bunch of advertisements all over the place. You know, were you armed? Were you under 18? They're clearly trying to put a class together. A judge would have to certify that class. Mhmm. That's I think what Meta, YouTube, etcetera are worried about, understandably worried about because it's one thing to have a single plaintiff, but that sets a little bit of a precedent. If you can have that same case with a 100 plaintiffs or a thousand plaintiffs or 10,000 plaintiffs, that money then starts to become real. And and I think that's kind of the next step here, and we have to see if if lawyers can get that class together, if a judge will certify them, and then whether another jury and judge will will go along with what we just saw. What are you tracking in the venture markets broadly? We were going back and forth on the impact of Yeah. Last year we were Yeah. On

Speaker 2: We were we were asking you about potential impacts to Fundraising. Fundraising

Speaker 1: outside of in in The Middle East even then. You said Yeah. Believe like, well We're in sort of a new cycle of like the AI is not a bubble thing, but how are how are venture funds processing and how are LPs thinking about it? Like, what are you tracking?

Speaker 9: Yeah. On on the Middle Eastern side, it does not seem that money flows have really stopped. May the it's been explained to me is calls sometimes take a few more days to come back than than they were. Things aren't quite as instant, but but there's been nobody who said, you know what? We're shutting off the spigots for a while. Call us call us in June. Like, that hasn't happened. And to be honest, even the last week or two, you've seen some deals and agreements that have come, like, with Saudi PIF, not just limited partners into venture capital funds. There was a big private credit partnership that got announced yesterday, I think, with Saudi PIF. So clearly, deals are still happening. Venture fundraising as a whole, though, has become it's not even become. It is still really bifurcated. Right? You still have the haves and the have nots and and these massive multistage firms that are gobbling up most of the money. And and on the AI bubble side, I mean, every it it's funny. Almost every venture capitalist and and certainly the industry as a whole is just looking at three things. Right? The IPOs of SpaceX, Anthropica, and OpenAI this year. Right? Because that can the those, if successful, can solve all the problems that they've had for the last several years. Yep. And and SpaceX goes first Angler's mindset. Make it all make it all back in one trade. Well, it used to be VCs used to talk about home runs. This is now like the grand slam in the bottom of the ninth to win the World Series. Right? And then everything else. And that and that's what they're banking on. And and and there's not a huge IPO pipeline, for example, other than that. I you know, we had a story meeting this morning and somebody asked me, you know, well, with with the ceasefire, does that mean companies that were prepping IPOs are gonna, you know, start back up again? I didn't see a huge number of companies that were prepping IPOs. There were some, but it's not like there was it's not like from Liberation Day last year when you had five or six companies that were ready to price and then stopped. Yeah. There's not that much out there right now. Again, outside of those big three. Yeah. Yeah. Yeah. I mean, with the the ones that I can think of that

Speaker 2: that are maybe more at the Figma scale are just looking at at at Figma's track record in the public markets and thinking like, I'm not as good of a business as Figma Yeah. And I don't expect to be treated any differently.

Speaker 9: And when the stock popped, a lot of founders were thinking, oh, if I can get that multiple, I should be public today. Yeah. I think being like the the rippling Yeah. And the deal. Yeah. All those companies looking at these. All those deals got its own issues, think, which might be separate. But like but it by the way, this isn't just a venture issue though. Yeah. Private equity firms, which, you know, more mature, slower growth, but more mature companies, they haven't been taking their stuff out either. And and though and and they don't have anywhere else to go except sell to other private equity firms. It it's just this broader non IPO issue right now. Yeah.

Speaker 2: That How much how much are you spending are you spending time tracking the the data center ban that that Sanders has sort of proposed?

Speaker 9: It's also a bunch of different states. Yeah. It's a bunch of different states. We had a we had a big AI event in DC two weeks ago. Yeah. And I wrote about this a little bit. And on the sidelines, I spoke to the CEO of Constellation, which is one of the big electricity providers, the data centers. And I and I asked him this was, you know, whatever, three weeks into the war, and I and oil prices were spiking. And I said, how much you know, what's this doing to energy deal making in The United States right now? Just the the rise in oil prices. He said, it's having a little impact. He said, it's the data center ban proposals that are having the really big impact. That's what has people freaked out. I mean, Sanders on the national level, you're you're not going to get anywhere nationally on this. But on a state by state level, you you don't need much. You need a couple states to do it. It is it is something that that opponents have done a really good job on the PR, and the industry has done a very bad job on the PR on this. Yeah. And and it doesn't help that everybody's gas prices and home heating oil prices in places where that's relevant, and electricity prices are all going up. Iran is obviously exacerbating it. So but, you know, if you're looking at your bill, and this is something that is top of mind, the bills are only getting getting higher.

Speaker 1: What do you think the impact of the war in Iran will be on defense tech investing?

Speaker 9: I wrote about this today. I mean, we we have to see what happens. Right? It's a pretty fragile piece. It's unclear whether Hormuz is even open or not. Now it was. Maybe it's not. You know, what I wrote this morning was I mean, I I thought a lot yesterday after Trump's civilization tweet. Right? That that if he really went through with what he said and I know some people are making some odd arguments that, oh, you know, well, it's either a nuke or not a nuke. No. There there's a lot in between. Right? You you bomb some major power plants that are for civilians or desalination plants or the power to desalination plants, and people don't get water anymore, let alone can't do crops or or feed or or feed animals, etcetera. I you know, defense tech has boomed in terms of venture capital, which is such there was almost none of it, you know, seven or eight years ago, and there's so much of it now. I think it could have turned Silicon Valley again back against defense tech if The United States had done something that a lot of people viewed as a war crime or or at least as inhumane. Sure. I think the fact that we have a ceasefire and Trump didn't go through with that, I I think is probably a bit of a save for defense tech in in the midst of a boom. I I think you've got this this huge upsurge in all sorts of defense companies that could have actually come to a halt pretty quickly. Not all firms and recent still would have invested, founders funds still would have. But that that broader swath of venture capital that fills out those rounds, I think, might have slowed down if the military had done something or the Pentagon had done something that that a lot of people viewed as as morally indefensible. Yeah. Something I thought was notable is that the the American version of the Shahed was a government program and they used some private, you know, contractors

Speaker 2: for it. But smartest defense tech play three years ago was just to make the Shehad Copy the Shehad. And make a lot of them. And it seems like no company actually had the had the foresight to to do that, and it ultimately had to be led, from,

Speaker 9: from the I guess. Yeah. Yeah. Interesting. Well And by the way, I I haven't looked to see what's happened with the stocks, but I mean, something that is gonna have to happen no matter what happens in Iran, ceasefire, no ceasefire. The the standard munitions stockpiles are gonna have to get refilled. Right? Where you're using a lot of bombs and a and a lot of a lot of stuff, that's gonna have to all get refilled. And I know, you know, Palmer, Lucky, and all others have talked about how we don't have enough of that prior to all of this happening. And and that, you know, that that, you know, that stuff has to get done, and there's gonna be people who sell that. Yeah. Yeah. That makes a lot of sense. Well, thank you so much for taking the time to come chat with us. The Axio show is live and available everywhere, I'm sure. Go check it out and we will talk to you soon, Dan. Yeah. Have a great rest your day. Rest of the scoop. Great to see you. Thank you.