Prediction markets began in the 1980s as an academic research tool at the University of Iowa. The aim was to see if collective wisdom could predict political outcomes more accurately than traditional polling. This idea appears to have merit: While polls viewed the 2024 U.S. election as a coin toss, prediction markets saw a clear Donald Trump victory, which turned out to be true.
However, prediction markets have since become highly profitable tech companies with little to no social utility. Services like Kalshi and Polymarket offer truly outlandish bets, such as which month U.S. forces might enter Iran. These markets also offer bets that resemble traditional sports betting, such as outright winners of sporting events, or spread betting. Sports dominate wager volume on prediction markets, accounting for nearly 35 per cent of Polymarket volume and nearly 80 per cent of Kalshi volume.
Despite similarities to traditional sports betting, prediction markets argue that they are not a gambling product but rather a financial marketplace to trade futures contracts on events with meaningful economic consequences. They make this argument to avoid the expensive and lengthy process of setting up a gambling product state by state, instead opting for federal regulation. Their success in skirting regulation as a gambling product has essentially created legalized sports betting in all 50 states at a time when roughly 10 per cent of men report gambling-related problems.
Despite this, sports leagues are jumping at the opportunity to partner with prediction markets. Major League Baseball (MLB) just announced an exclusive deal with Polymarket in what commissioner Rob Manfred called “proactively managing the new and rapidly growing prediction market space.”
National Basketball Association (NBA) commissioner Adam Silver said of prediction markets: “I don’t think it’s one where you can necessarily turn the clock back,” acknowledging they are part of the mainstream now. Silver still noted that prediction markets pose risks beyond traditional sports betting. While nothing is truly predictable in traditional sports betting, every sporting event still has randomness and events beyond any one person’s control.
Prediction markets allow bets to be placed on knowable outcomes, as demonstrated by the recent Giannis Antetokounmpo controversy. Leading up to the NBA trade deadline, Antetokounmpo repeatedly made remarks to the media suggesting he no longer wanted to be a Milwaukee Buck. Antetokounmpo’s words led to $23 million USD in futures being traded on Kalshi about whether he would stay in Milwaukee. The day after the trade deadline passed, it was announced that Antetokounmpo was a shareholder in Kalshi, meaning he stood to gain from the bets his own comments prompted. Antetokounmpo had the power to manipulate market volume, and those closest to him likely knew the final outcome, creating an opportunity for insider trading. Chris Murphy, a U.S. senator from Connecticut, cited this example in an interview with journalist Pablo Torre, where he raised concerns about prediction markets. Murphy is seeking to pass legislation that will ban all knowable events from being offered on prediction markets.
Murphy spoke about sports leagues embracing these prediction markets and the threats they bring: “The leagues know exactly what they’re doing here. They are knowingly corrupting the game in order to make more money.”
Murphy added that leagues may not realize prediction markets now have more sway in Washington than the leagues themselves, as they curry favour through hiring Trump family members as advisors and setting up free grocery stores.
Beyond legal and ethical concerns, Murphy expressed a frustration with the over-financialization of culture. Sports are a sacred part of society that provide people with purpose, a sense of connection—when your favourite team is doing well, you are doing well without any personal financial implication. There are parts of society that ought to serve no purpose other than joy or human connection, and those seeking to financialize them ought to feel immense shame. Unfortunately, as Murphy tells it, “shame is a market inefficiency,” and something the robber barons of the prediction markets do not feel as they continue to prioritize money over humanity.