A new phenomenon
Prediction sites like Kalshi, Polymarket, and PredictIt have dominated headlines in the US over recent months. Every day, it seems like another state is taking action against them, as they blur the line between investment platforms and gambling.
they allow you to place wagers on obscure markets
More and more people are using these event-based contract sites as they allow you to place wagers on obscure markets, such as what price Bitcoin will hit by the end of August or the number of views Taylor Swift’s appearance on the New Heights podcast will get.
The problem is that they’ve exploded in popularity without protective measures in place. One particular social media post from Polymarket Sports highlighted this cause for concern:
Language like “chasing losses” is a warning sign for problematic behavior, which is why it’s surprising to see it used on a site offering glorified betting markets. Pointing out the losing bets of a specific user crossed the line for many X users and began to raise questions regarding the protection of these bettors.
Why are they so popular?
Prediction markets go beyond sports betting. You can wager on everything from politics to the weather. Things especially started heating up in the lead-up to last year’s US presidential election between Donald Trump and Kamala Harris. Polymarket users wagered more than $3.3bn on the 2024 US election markets.
Gen Zers are among the biggest adopters of these easy-to-understand binary markets. They like having skin in the game regarding real-world events that aren’t available to bet on at traditional sportsbooks.
Different regulatory frameworks
30 US states currently regulate online sports betting. While the exact rules vary by jurisdiction, licensed operators must follow strict rules regarding the language they use in their marketing messages and how they approach problem gambling.
Prediction sites are currently classified as event-contract trading platforms rather than gambling sites, which is where the difference lies.
CFTC doesn’t monitor people exhibiting signs of problematic expenditure
For example, Kalshi has a license with the US Commodity Futures Trading Commission (CFTC), which protects the derivatives market from fraud, manipulation, and other manipulative actions. However, the CFTC doesn’t monitor people exhibiting signs of problematic expenditure.
If someone is betting erratically at a regulated sportsbook, the operator is expected to interact with the customer to ensure everything is okay. They might request source-of-funds checks to ensure they have the financial means to afford the level of losses they’ve accumulated or restrict their account.
The CFTC assumes licensed site users are investors or speculators who can manage their own risk, similar to people trading options, crypto, or futures. This means that users of prediction sites have free reign and could potentially spiral out of control without anyone keeping a watchful eye over them.
One positive is that prediction sites don’t currently offer margin trading or leverage, so people can’t go into debt to place wagers or post collateral.
Lack of restrictions
Prediction sites don’t currently offer any responsible gambling tools such as deposit limits, reality checks, and self-exclusion – tools that are commonplace on regulated sportsbooks.
users might spiral out of control without having any failsafes or safety net
Their marketing messages also aren’t subject to the same scrutiny, as shown by Polymarket Sports’ X post. The concern is that users might spiral out of control without having any failsafes or safety net in place. The core audience is a younger demographic, who are more vulnerable to gambling addiction.
Ongoing legal battles
As more people start using prediction sites, this issue can’t be ignored much longer. Without proper safeguards in place, a serious trend could arise.
allege that Kalshi should have to adhere to state gaming laws
Gambling regulators and other lawmakers have attempted to step in and call for tighter oversight. The likes of New Jersey, Nevada, and Maryland have issued cease and desist orders to Kalshi, claiming that its contracts are a form of unlicensed sports betting. They allege that Kalshi should have to adhere to state gaming laws rather than having federal oversight from the CFTC.
Kalshi has fought back, scoring wins in Nevada and New Jersey by securing preliminary injunctions against state regulators. It also won a major legal battle last year against the CFTC which had blocked its election-focused contracts. A federal appeals court sided with Kalshi, which was a landmark win for the sector.
An uncertain future
Sportsbook operators have sat up and taken notice of prediction sites, which don’t look like disappearing any time soon.
assessing whether it might create its own predictions product
Flutter Entertainment CEO Peter Jackson said in a recent quarterly earnings call that the company, which owns FanDuel, is closely monitoring developments in the US and assessing whether it might create its own predictions product.
DraftKings CEO Jason Robins similarly said the operator is “actively exploring” the sector. It previously had tried filing the name “DraftKings Predict” with the National Futures Association before withdrawing it in April over regulatory concerns. It has also reportedly been in discussions about acquiring the federally regulated prediction market platform Railbird.
Whether prediction sites eventually fall under trading or gambling regulation, it’s clear that their popularity isn’t slowing down. With billions wagered already and big players like DraftKings and Flutter circling the space, they’re here to stay. Until then, it seems to be up to users to navigate a world that is as risky as it is exciting, with innovation outpacing oversight.
