You’ve probably seen the ads now for Kalshi. Kalshi and similar sites like Polymarket, Crypto.com, Robinhood, and many others—including sports betting giants DraftKings and FanDuel—are a relatively new development when it comes to sports betting. They’re called “predication markets,” and they are “legal” in most states in the U.S. because they contend that they are not gambling, they are simply an investment; a contract—a financial instrument—that is bought and sold. But of course, this is gambling. You’re risking money on the hope that you make the right “prediction,” which, of course, is the very definition of gambling.
But prediction markets are nothing new. They are simply betting exchanges. These sites work on the principle of pitting bettors against bettors. They make their money by charging fees on each “contract.” The fees are very confusing and convoluted, but you are certain to get the best “true” odds at a betting exchange. Betting exchanges are very popular in the U.K., and the BetFair site in the U.S. has also gained traction as a betting exchange. BetFair, however, is legal in states where sports betting is accepted. Predictions market sites are not.
Elections & More
Predictions markets aren’t just limited to sports betting. Before adding sports betting to their menu, prediction markets were most noted for writing contracts—actually taking bets—on elections and other events. In fact, in the presidential election of 2024, prediction markets had Donald Trump winning consistently, while traditional polling was mixed. And we all know the results of that election.
These sites also allow contracts on simple yes or no questions, such as “Will the U.S. take over Greenland this year?” or “Who will win the Oscar for Best Picture?”
But questions arose when Nicolas Maduro was overthrown as president of Venezuela by the U.S. government. Was there insider knowledge of what was to come? Did the predictions market profit from this event? We may never know because the prediction market is largely unregulated.
Payout Possibilities
So, if you get true odds at prediction market sites, do you get paid the same way?
In prediction markets, prices directly represent probabilities. A contract trading at 70¢ implies a 70 percent chance of occurring, and that price is determined by what traders (bettors) are willing to pay or sell for. There’s no embedded house edge, just the opaque fees. Sports betting odds, on the other hand, include built-in margins. A -110 line isn’t a fair 50/50 bet. It’s set by handicappers and is structured so the sportsbook collects a cut regardless of outcome. This means sports betting odds often diverge from true probabilities, especially in less efficient or highly recreational markets.
Predictions markets, however, are usually binary, meaning you can only bet yes/no on any event. “Live” betting—wagering when the game is actually occurring—is just getting started in prediction markets, and parlay betting is also a bit difficult.
Legal Challenges
While prediction market sites claim to be legal, there are many challenges to the legality of these organizations. Kalshi is aggressively defending its rights to accept “contracts” by proactively suing states that may consider it illegal. Unlike legal sports books that are prohibited from taking bets in states where sports betting isn’t legal, prediction market sites take “wagers” in states like California and Texas, where any kind of online betting is illegal, and in Florida, where the Seminole tribe has a monopoly, as well as states where sports betting is legal for regulated sports betting sites.
This is the crux of the matter. Predictions markets are federally regulated by the Commodity Futures Trading Commission (CFTC). But the CFTC isn’t set up to regulate sports betting, and there is actual wording in the CFTC charter that says “gaming” is not allowed.
And the CFTC is supposed to have five commissioners appointed by the president and approved by the Senate. It currently only has the chairman, Michael Selig, who was confirmed late last year.
States where sports betting is legal are insisting that the prediction market sites undergo the same regulatory licensing and scrutiny at the state level as do the companies conducting sports betting in those states. Companies like Kalshi refuse to do that. They also refuse to geo-fence players in those states from betting on their websites.
Also largely absent on prediction market sites are know-your-customer (KYC) steps, anti-money laundering (AML) protections, and help for people with gambling problems.
Bottom Line
Should you switch from your trusted, legal, and regulated online sports book to one of the prediction market sites? Because they lack mandatory KYC and AML protections, unregulated prediction markets operate in a legal gray area that offers no guarantee of professional standards or financial security. Unlike licensed sportsbooks, these platforms treat participants as “players” rather than investors, leaving your funds vulnerable to a total lack of oversight and accountability. You will never know when one of these illegal sites will close down or simply refuse to allow you to cash out. What’s the alternative? Complain to the federal CFTC? How’s that going to go?
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