The Truth About Prediction Markets | My First Million

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Okay. Sports betting and the consequences. This is a trend that is in plain sight, but I think people underestimate how big and how bad this is going to be. >> I'm shocked to hear you say that. And also, I'm very happy to hear you say that. So, basically, I think there was an article in The Economist and they talked about the uh how sophisticated sports betting companies are. And basically the headline is whenever you make your first bet, they know to a high degree of certainty what type of customer you're going to be. And they manipulate you and the rest of their customers down to like an amazing science in order to get the most amount of dollars from you. >> Right? One gambling consultant told the economist, "By the time a customer places his first bet, first bet on the sports book, they are 80 to 90% certain they know the lifetime value. They know how big of a sucker you are from the first bet and they mathematically monitor players, create new risk score every 6 to 8 hours. Basically, they're trying to figure out is this customer going to become profitable on us? How do we monitor keep the keep the profitable players out, keep the unprofitable players in? And okay, so what what else is interesting about this? There was new data about um like Kali and Poly Market. >> How are those two different by the way? So, they're both in the same category, prediction markets, right? Prediction market basically just says you're able to wager what you think the outcome of an event is. And they're markets, meaning unlike a sports book where there's a house that defines the rules of sorry, defines the odds. The way a market works is the question is posed and then you take the yes or no side and based on the volume of dollars that go into the yes or no side, you're basically competing in a free market against each other. And there's been some incredible things that have come from this, right? Like um it is more accurate than the news, right? So a lot of people go to the news to try to get a sense of what's happening or what's going to happen, but the news is far less accurate than just going and looking at with skin in the game what the poly market says of what is actually going to happen. Um what are the odds say is going to happen. And the odds change in real time as new information goes in. And so you here you know let's just take the incentives as an example the incentives of a journalist who's writing for the New York Times or the Wall Street Journal these extremely prestigious you know supposed truth seeeking uh uh platforms. Well their incentive is how do I get as many clicks as possible on this headline? Um how do I make sure that nobody unsubscribes because I said something that they don't like? Right? Uh that they canceled their their subscription because I told them an unpopular truth. And so those that you know fundamentally my incentive loop is that now you take the incentives of poly market. Somebody who's betting yes is saying I'm going to I'm going to win or lose money by being right or wrong. And so you know and the high the more conviction I have the more money I would place on this wager. And the conviction if I'm taking if I have conviction based on you know gut and superstition over time I'm going to lose all my money. I'll be out of the market. But if I have conviction based off of research or insider information or you know um uh in-depth analysis, I will make money and I'll have more capital to bring to this market over time. So that's what that's the category. Okay. Now what's interesting, they're now doing over two billion a week in just sports betting volume. >> Poly market >> the common both of them um both of them together. >> And what percentage of the revenue do they get? they're taking I don't know it's less than like a it's like a point whatever percent.12 I don't know what it is some very very small vig that they take um on on the transaction >> and how much are they doing in a week >> two billion on just sports and so like what's happened is that these things started where they were doing you know like who's going to win the election and are we going to end up in a war in Ukraine and that those were very likeformational things in order to inform like you know it's in some ways it's a it's a signal or a hedge against uh you know your maybe a stock market performance or whatnot. But sports betting is just so popular that like as a percentage share of action is just taking over these platforms and they're essentially becoming sports betting apps that are just like in this like loophole of regulation where you can't make you can't do sports betting but you can do prediction markets about sports >> and this is uh legal in all 50 states. >> Yeah. Um or sorry I I I shouldn't say that. I'm not I'm not as well versed in it. Kelshi based on the way they're regulated cuz like prediction markets are regulated by like commodities or something like that the commodities market and so they are and that's why if you open up the Robin Hood app you could just bet on any game right now and it's powered by Khi. Uh and I think they're going to switch off off of KHI at some point cuz why are they giving Khi so much volume? >> If you were a politician and you could if you were the dictator uh what would you do? >> Oh god that's a lot of power. What would I do? >> Yeah. I'd have people feeding me grapes and I'd about this. Um, you know, this is pretty dangerous. Like there's like my, you know, I'm coaching this high school basketball team and like, you know, it's interesting cuz you're around teenagers. You get to see like what are they interested in? What do they do? >> Do they talk about it all the time? >> They're talking about it all the time. They're like overunders. >> That's crazy. >> You know, they don't just watch the games. They bet on the games. They're probably betting very small amounts maybe on their dad's account. I don't even know how they're doing it exactly, but it's definitely something that they love to do and that they're doing a lot of. And the problem is it's one sports betting and I take it this take this as somebody who's wasted far too much of their life gambling whether it's poker or sports betting. Sports betting is one of these things that it's dumb to do but it's easy to look smart. So like it's a dumb activity to do but if you cherrypick a good bet you can share it, you can tell people about it and you get to look smart for a moment. And like the real gains in life come from things that look dumb to do but are actually smart to do. Those are like that's where all the real alpha of life is. And of course there's the obvious things, things that are smart to do that look smart to do. And you should do those too. That's like you know the sort of highly competitive things that that people do like going to college or you know like trying to get a good job right like sounds smart is smart and then you know and so I think that the problem is sports betting falls in this one. It's obviously super addictive. Obviously, there's going to be a lot of people who, you know, lose a lot of money, waste a lot of time, get addicted to this stuff. There's NBA players that get death threats constantly because like some guys got a $200 parlay on them getting 11 rebounds instead of nine. And um you know, in his DM, every day he goes home and from basketball, if you talk to any player, like their DMs are just filled with angry voice notes and death threats from a guy who needed them to get an extra rebound for their parlay. And you could do this for college sports, too. >> You could do this for college, which is toxic now at the younger level, right? Um it's crazy. Like I put this in my 52 Tuesday. Like some guy's rooting for World War II because he's going to win $390 on Poly Market, right? Like I think it's um so I I tend to I would say I'm a very moderate person politically. Um I I disagree and agree with people on both sides and also uh I would say I'm very pro- capitalist. And this is one of the free time, one of the few times where I'm like, "No, I'm I'm definitely not in favor of the market just doing what it wants to do in this case. I definitely think that regulation would be nice. I don't exactly I don't I'm an idiot. I don't know how it needs to be done, but this seems very dangerous." I think what will happen is I think that like a college or professional sports uh sports player is going to uh be murdered or uh there's going to be like something crazy that happens in politics where the person made the decision just to get the payout on the bet. >> Yeah. And there's there's already been players who have lost their whether it's college scholarships. There's NBA players that are getting fined or banned from the league permanently um because they they told their homies, "Hey, I'm out today. It's not reported yet." Or worse, right? There's been guys who like owe people money in the mafia from their poker losses in the poker games. They're like, "Hey, to make it back, I'm gonna pull a hammy in the first quarter. Just bet my under. You'll make it back." But it's too obvious cuz somebody suddenly slams $50,000 on this obscure players under and then you know the NBA bans that player, they lose their $30 million contract. >> I remember when we were younger there was this one player. He was like uh the superstar quarterback for I think Ohio, what's his last name? Like Owens uh and he got in trouble for um getting free tattoos from a tattoo shop in and in in exchange for like uh some jerseys or something like that and he was banned. >> Oh yeah. Yeah. He was like signing he like signed a jersey. >> I think he got kicked out or he it was huge. It was a huge deal. It was national news and he signed jerseys and gave it to a I think a tattoo parlor in exchange for free tattoos. Do you remember that? >> Known as Tattoo Gate. Uh let's see. Yeah, it was it was Terrell Prior. >> This was years ago and this was a huge deal and I think he was like the hottest guy going and he did this and that was like the biggest scandal I remember in years. It's going to get way worse. It's going to get way worse. Dude, this is where they're what they're doing instead of drinking alcohol. I'd rather people drink, by the way, than than do this