Prediction markets offer new alternative to traditional sports betting

Prediction markets have begun disrupting the over $16 billion sportsbook gambling industry in the last two years.

A prediction market is an online platform where people can buy and sell contracts tied to outcomes of future events. The process is similar to how stocks are bought and sold in the stock market.

According to a report by Dune and Keyrock, the monthly trading volumes on prediction markets have grown by about 130 times since the beginning of 2024. People can trade on outcomes for almost anything, from who will win the next presidential election to when Drake will release a new album.

Sports contracts make up a majority of trading activity on Kalshi, the biggest prediction market in the U.S., making it a hotspot for those who would otherwise participate on online sportsbook platforms like FanDuel and DraftKings.

One major advantage of prediction for market users is the ability to sell a contract to secure a profit or avoid further losses. In contrast, sportsbook users aren’t always given the option to cash out a bet before an event.

Colorado State University student Quin Ewy said he started betting on Kalshi half a year ago. He says he was drawn to prediction markets instead of sportsbooks because of this perk.

“I started with prediction markets because it seemed more fair,” Ewy said. “I could sell before the game is over and (still) make money.”

Online sportsbooks make money by setting the odds before an event in a way that ensures they make a profit by taking a cut built into the odds. Prediction markets make money through charging a small fee on each trade, while the buyers and sellers determine the odds through their trading activity.

Another key difference between the two is that prediction markets are easier to access. Sportsbooks are classified as gambling platforms by state gambling regulators, while prediction market platforms like Kalshi are regulated federally under the Commodity Futures Trading Commission.

“The ambiguous and forgiving regulatory space these markets currently operate in allows for nationwide penetration of these platforms,” said Matthew Hitt, associate professor of political science. “Generally, technology races ahead while regulation and law lag behind, which is certainly the case for these prediction markets right now.”

The explosion of activity on prediction markets has caused political leaders and states to challenge the current regulatory framework for these markets, with some even demanding that they be treated like gambling, their sportsbook competitors.

Utah is just one of the states that are pushing back against prediction markets such as Kalshi. Governor Spencer Cox of Utah said he would sign legislation targeting betting-style contracts. In response, Kalshi filed a preemptive lawsuit against the state, arguing that the state cannot enforce its gambling laws on the platform.

“We are putting a casino in the pocket of every single American and they are targeting especially young people,” said Cox in an interview with the Associated Press. “It is really awful what they are doing, and we are going to make sure this doesn’t happen in our state.”

Legal victories and changes in presidential administrations have aided the success of prediction markets in recent years.

One crucial legal victory that helped to put prediction markets on the map was Kalshi’s lawsuit win against the CFTC in October of 2024. The decision gave prediction markets the ability to list election-related contracts for traders to buy and sell just in time for the presidential election.

As a result, over 3.3 billion was wagered on the 2024 election alone. Political contracts make up a significant portion of trades on prediction markets, mainly during election cycles.

“Social media already changed the game in terms of how people pay attention to and participate in politics, and it’s interesting to see prediction markets take a similar approach,” said Erin Fitz, a CSU Ph.D. candidate. “Platforms like Polymarket and Kalshi mirror the same sort of gamified, real-time qualities of social media, which likely contributes to their broader use and appeal.”

Additionally, prediction markets continue to thrive as the Trump administration continues to back Kalshi and Polymarket while states try to ban them. Donald Trump Jr. is also a strategic adviser for Kalshi and has invested in Polymarket through his venture capital firm.

Hitt said that the current administration’s support of these platforms will most likely raise their visibility, especially among supporters of the president. He also warned of conflict of interest concerns regarding the future of prediction market regulation.

“If Mr. Trump Jr. were to invest in Kalshi while his father’s administration proposes new rules for regulating the platform that might enhance its profitability, then that would naturally raise enormous ethical problems,” Hitt said. “How could the American people possibly trust that these regulations were being developed for the benefit of American society and not the Trump family’s stock portfolios?”

Despite uncertainty surrounding their regulation, DraftKings, one of the U.S.’s biggest sportsbooks, has attempted to cash in on the emergence of prediction markets. The company said it will add the prediction market it launched in December of last year to its main app to directly compete with Kalshi.

This move will allow the company to expand its prediction product to states where DraftKings isn’t a licensed betting operator. Chief Executive Officer Jason Robins estimated in an interview with the Wall Street Journal that adding prediction markets to their app has the possibility to generate $10 billion in revenue for the company.

“We will now have a sports product everywhere for customers across the country,” Robins said..