CHICAGO — Sports have become a big part of prediction markets. So big that even sportsbooks have moved into the business.
The rapid growth of sports offerings on prediction markets — called event contracts — has captured the attention of the four major North American sports, along with the NCAA and other organizations. Kalshi and Polymarket are the two biggest platforms, but they have plenty of company. More are on the way, too.
Some leagues have jumped on another revenue opportunity, while others have expressed concern about the regulation of prediction markets. But the money keeps rolling in. Kalshi reported a daily record high of more than $1 billion in total trading volume on Super Bowl Sunday, an increase of more than 2,700% compared to last year.
Almost eight years after a Supreme Court ruling cleared the way for legalized sports gambling across the country, the rise of prediction markets in sports has received a mixed response.
“I think (teams and leagues) had to some extent a seat at the table in terms of how states were going to legalize sport betting,” said Stephen Shapiro, a sports and entertainment management professor at the University of South Carolina, "how they’re going to be regulated, who is going to able to get licensed to bet.
“I think they have much less of a feeling or understanding towards prediction markets.”
Learning more about prediction markets
Prediction markets provide an opportunity to trade — or wager — on the result of future events. They rose to prominence in politics, but the array of typically yes-or-no questions includes everything from the weather to the Oscar for best picture.
When the U.S. captured Venezuelan President Nicolás Maduro last month, an anonymous trader made more than $400,000 after betting that Maduro would soon be out of office — raising suspicions of potential insider trading because of the timing of the wagers and the trader's narrow activity on Polymarket.
Cardi B's appearance during Bad Bunny's Super Bowl halftime show, specifically whether it constituted a performance, turned into a headache for both Polymarket and Kalshi.
Prediction markets are comprised of event contracts, with the prices connected to what traders are willing to pay, which theoretically indicates the perceived probability of an event occurring. The buy-in for each contract ranges from $0 to $1 each, reflecting a 0% to 100% chance of what traders think could happen. This differs from legal sportsbooks, which set odds and pay out the winners themselves.
Matthew Bakowicz, a former sportsbook executive who serves as the program director of the sports business management track at American University, said it works like the options market.
“You have found a partner on the other side that is willing to trade you that contract or that offer. They are a market maker," Bakowicz said. "They’ve said I will trade you those 100 contracts at 70 cents just like a brokerage house. ... It’s a person-to-person kind of environment which is a little bit different than the standard sports bet that you would see."
Prediction markets are overseen by the Commodity Futures Trading Commission, while sports gambling falls under the jurisdiction of state governments. According to the American Gaming Association, a trade group that represents casinos and sportsbooks, 39 states and the District of Columbia have at least some form of legalized sports betting.
In most states with legal sports gambling, it is limited to ages 21 and older, while prediction markets are open for 18- to 20-year-olds with some exceptions. Prediction markets also have a presence in states where sports betting is illegal, including Texas and California.
There are multiple active court cases involving issues such as state law versus federal oversight and the definition of the word “gaming.” At stake is how prediction markets are regulated and where they are allowed to operate.
The situation is expected to make its way to the Supreme Court at some point.
“The way that these prediction market companies have differentiated sports betting from prediction markets is by casting themselves as an exchange that hosts a peer-to-peer platform whereas sports betting traditionally is conducted in a house-banked system of wagering, where the gambling company is on the other side of the wager,” said Daniel Wallach, a prominent sports gaming attorney.
“But that's a distinction without a difference here, because I think it’s commonly recognized within the gambling world that exchange wagering is one way in which gambling can occur.”
Kalshi has argued in court that the CFTC has “exclusive jurisdiction” over its sports event contracts because the agency is responsible for regulating derivative markets under the Commodity Exchange Act. The CFTC has a regulation that prohibits an event contract “that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any state or federal law,” but Kalshi has asserted it's up to the federal agency to enforce its regulations.
“A focal point of this entire thing, it is one word and is the word gaming and it is how this organization, you know, the CFTC defines it,” Bakowicz said.
Looking at the sports landscape for prediction markets
Major sports organizations have responded to the growing popularity of prediction markets in a variety of ways.
The NHL announced multiyear partnership agreements with Kalshi and Polymarket in October. Under the deal, the league has the right to reject specific event contracts, and Kalshi and Polymarket agreed to integrity provisions similar to the NHL's approved sportsbooks.
The Chicago Blackhawks announced a deal with Kalshi in December, becoming the first professional sports franchise to partner with a prediction market.
Bill Miller, the president and CEO of the AGA, called the NHL's partnership with Kalshi and Polymarket “deeply troubling.” The AGA has accused prediction market platforms of using sports event contracts “to evade state regulations and ignore the voice of voters and elected leaders at the state level.”
Major League Soccer announced a partnership with Polymarket on Jan. 26. The deal “includes safeguards designed to protect the integrity of MLS and Leagues Cup matches,” according to the league.
The NFL, NBA and Major League Baseball have expressed concern about the regulation of sports event contracts. But there has been some movement on multiple fronts.
Giannis Antetokounmpo, one of the NBA's biggest stars, has become a shareholder in Kalshi. The league had a panel on prediction markets on the schedule for its All-Star technology summit on Friday in Los Angeles.
The NBA has not responded to repeated requests for comment on Antetokounmpo's deal.
MLB had a presentation on prediction markets during its owners' meetings this week in Florida.
“The interesting thing about the prediction markets is there’s an opportunity to work with the Commodities Futures Trading Commission,” MLB Commissioner Rob Manfred said. “If you got where you wanted to be, you’d have a nice federal regulation to be the same everywhere.”
In written testimony submitted to the House Committee on Agriculture in December, NFL executive vice president Jeff Miller said the league has no plans to participate in prediction markets.
The NCAA has asked the CFTC to pause event contracts for college sports “until the agency implements appropriate regulations,” it said in a Jan. 14 release.
“The answer cannot be the status quo. We need one set of fair, transparent standards,” NCAA President Charlie Baker said.
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