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Prediction markets are no longer a fringe curiosity. They have officially crashed the party, and for sports betting executives, the immediate question is no longer “What are they?” but “Are they a threat or an opportunity?”
The most pressing development isn’t just their growth—it’s the blurring of regulatory lines and the aggressive move by market-makers into your territory. Companies such as federally-regulated exchanges like Kalshi, alongside crypto-native platforms like Polymarket, are rapidly expanding their sports-related “event contracts.” These companies operate as both regulated exchanges and innovative platforms in the prediction market space. This approach, leveraging the U.S. Commodity Futures Trading Commission (CFTC)—the regulatory agency involved in overseeing these exchanges—rather than state gaming commissions, is challenging the established state-by-state licensing model. Recently, these companies have announced new partnerships and product launches, further accelerating the expansion of event contracts.
This legal gray area—where a sports outcome is framed as a “financial contract”—creates a massive point of friction. States view it as a clear evasion of their licensed sports betting framework, leading to ongoing legal battles with regulators in New York, New Jersey, and Nevada. Courts have been involved in these disputes, including cases where requests for a preliminary injunction were denied. The legal debate centers on whether event contracts fall under the Commodity Exchange Act, which is enforced by the CFTC as the relevant agency.
Yet, this exact regulatory arbitrage is also the source of their disruptive power. DraftKings, for instance, has publicly acknowledged that “DraftKings Predictions” (leveraging its acquisition of a CFTC-regulated entity) could unlock new customer bases and revenue streams in states that still prohibit traditional online sports betting. Evolving regulations and varying levels of support from different states and courts continue to shape the industry.
This is the heart of the conversation:
Threat: Prediction markets offer lower fees and no sharp-bettor restrictions, often perceived as a purer peer-to-peer (P2P) model compared to a house-banked sportsbook. In this model, users and participants directly interact with each other, trading contracts and providing liquidity with real money at stake. Winning contracts are always paid out in full, and the value of these contracts reflects the collective beliefs of the market. They are already cannibalizing liquidity on certain micro-outcomes.
Opportunity: The most sophisticated response is not to fight them, but to integrate and adapt. By embracing the exchange model, either through direct acquisition (like DraftKings) or by building P2P features internally, operators can:
Expand Market Access: Legally operate sports-adjacent products in restricted states, expanding the total addressable market (TAM). Prediction markets have the advantage of broader accessibility for retail traders and the ability to attract more funds and interest from diverse participants.
Enhance Price Discovery: Use the market’s collective intelligence (implied probability from trading prices) to inform your own odds-making, especially on niche or novel prop bets.
Modernize the User Experience: The ability to “trade out” of a position (selling a contract mid-game) fundamentally changes the betting experience, mirroring the flexibility of financial markets.
The success of these markets depends on the volume of deals completed and the engagement of users with a financial interest in the outcomes.
The industry needs to move past simply labeling prediction markets as “illegal betting.”
Prediction markets have existed for decades in various forms around the world, including political and election markets, and are now used across multiple industries to predict the outcomes of real-world events. These markets aggregate data from participants to generate probabilities for different outcomes, often providing more accurate forecasts than traditional polls. For example, political prediction markets have been used to predict election results and political outcomes, sometimes outperforming polls in accuracy. However, there is always a risk of manipulation or the potential for these markets to be classified as gambling, which raises regulatory challenges. As prediction markets continue to evolve, their future form may expand into new industries and event types, with ongoing debates about their regulation and operational structure.
The executives who figure out how to leverage this “financial market” model—or who successfully push for a harmonized regulatory framework—will define the next era of sports wagering.
