“Prediction markets are gambling,” Utah Governor Spencer Cox recently posted on X. He paired the claim with a slickly produced video that showed him labeling the industry as “gambling companies that are pretending to be something else, making billions off of trying to destroy our kids.”
Unsurprisingly, Kalshi—the largest prediction-market platform operating with federal approval—pushed back. A company representative responded to Cox’s post, asserting that Kalshi is “a neutral exchange” that doesn’t “win when our customers lose,” and that “while speculation exist[s] in all financial markets, Kalshi’s product rewards being right, self-calibration, and doing research.” The implicit message is that Kalshi is a platform for predicting the future, not a casino.
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The thorny reality, though, is that Kalshi and its peers have the potential to be both. Prediction markets, as I’ve argued before, have significant potential social value, and it would be foolish to smother them in the crib. But Cox’s frustrations reflect a social and legal backlash against these markets stemming in part from legitimate concerns about where they’ve veered into gambling, and in part from a sense that companies like Kalshi are using a friendly federal regulator to sidestep state authority. That situation isn’t sustainable, and the markets need to address those social concerns before more hostile policymakers do it for them.
The profit motive is a powerful tool, one that we use to produce enormous wealth and provide for everyone’s needs. The idea behind prediction markets is that the profit motive can also help us see the future.
Prediction markets offer participants the opportunity to put money on the outcome of future events. As of this writing, for example, Kalshi users have bet nearly $3 million on who President Donald Trump will choose as his next attorney general. (The smart money is apparently on EPA Administrator Lee Zeldin.)
As it turns out, these markets do a decent job of forecasting. They are generally well calibrated, meaning events predicted to happen 50 percent of the time usually happen about 50 percent of the time. And academic research suggests that prediction markets do a better job of forecasting the outcomes of elections than do polls.
That makes prediction markets extremely useful for those of us who make day-to-day decisions based on how big social or political events are likely to shake out. If your business depends on who the next attorney general is, then having a bunch of people betting on that outcome probably benefits you, and society by extension.
The idea is less novel than it sounds. Futures contracts—financial instruments representing a promise to buy or sell an asset at a predetermined price at some point in the future—have long been used to forecast the prices of all kinds of commodities (though not onions!). That’s part of the reason why firms like Kalshi have sought to be overseen by the Commodity Futures Trading Commission (CFTC), the federal regulator that oversees derivatives markets. The argument is that predictions markets are selling legitimate “event contracts”—and, therefore, they are not federally illegal gambling.
That all may sound good when it comes to betting on the outcomes of elections, or even on things like what the unemployment rate will be this month. (Though even these have generated controversy, as in recent high-profile instances of alleged insider trading). But the bee in Cox’s bonnet probably has something to do with the firms’ biggest business: sports gambling.
Sports contracts make up something like 90 percent of Kalshi’s trading volume. It would not be wholly unfair to say that the prediction markets are mostly involved with the sports-betting business. They are clearly happy to use many of the same tricks common to the sports books: earlier this month, for example, market-focused journalist Dustin Gouker reported that Kalshi was offering users a 30-leg parlay. Maybe that’s not technically gambling, but if it walks like a duck and talks like a duck . . .
The federal ban on sports gambling, readers may recall, was voided by a 2018 Supreme Court ruling. In the near-decade since, 40 states have legalized sports betting—but Utah isn’t one of them. All kinds of gambling remain illegal in the Beehive State, consistent with its socially conservative culture.
That hasn’t stopped the prediction markets from operating in the state—after all, if it’s legal to buy an event contract in Utah, it must be legal to run a prediction market there. Sportsbooks like DraftKings have even moved to set up their own prediction markets to end-run state-level bans. Utah has passed legislation trying to keep prediction markets out, but it has found itself in a legal standoff, as the markets claim federal regulation preempts state-level control.
Utah isn’t the only state suing, or being sued, over the situation. A number of states where sports gambling is legal have sued the prediction markets, arguing that they are operating in flagrant violation of the states’ regulatory authority. The states have won many of these cases, though they lost their first federal appellate case last week. The CFTC has also in turn sued the states, as chairman Mike Selig presents himself as safeguarding users from a “patchwork” of insufficient state-level oversight.
If all of this sounds confusing, here’s the bottom line: prediction markets may not necessarily be gambling, but they sure are making a lot of money off a product (namely, sports betting) that almost everyone agrees is gambling. And they’re doing so against the wishes of states that want to reserve the right to regulate or prohibit a product that’s ruining the lives of countless young men.
Maybe this state of affairs is working for firms like Kalshi right now, but it’s unlikely that prediction markets will have the benefit of a sympathetic CFTC chairman forever. Rep. Alexandria Ocasio-Cortez, often feted as a 2028 presidential nominee for the Democrats, has publicly condemned “pervasive gambling.” You could make easy money predicting that a hypothetical AOC administration will be less friendly to the prediction markets than the Trump administration.
For that matter, we might see federal action even sooner. Prediction market contracts on sports gambling already operate in a legal gray area. The Commodities Exchange Act, which the CFTC enforces, says that event contracts in “gaming” are contrary to the “public interest” and therefore prohibited. A bipartisan bill released last month by Senators John Curtis and Adam Schiff would make that exception even clearer, explicitly prohibiting events contracts in sports and “casino-style” games. While Curtis and Schiff’s bill may not end up as the vehicle for action, reporting indicates that there’s growing bipartisan interest in doing something about the situation.
Which brings us back to Cox, himself often mentioned as a 2028 presidential contender. His bet, it seems, is to make prediction markets into his political enemy—a move that would also position him against the Trump administration and its friendly relationship with the industry. (Among other connections, the president’s son Donald Trump Jr. serves as an advisor to both Kalshi and competitor Polymarket.) Cox is a politician, and it’s reasonable to surmise that he thinks all of this is good politics, part of a 2028 campaign built on a defense of moral character and opposition to big tech.
Maybe he’s wrong. But the idea that prediction markets can be both socially useful and potentially gambling—that they have costs and benefits that need to be carefully weighed—is a hard one for the public to keep straight. In politics, people tend to prefer simple ideas. In the public mind, either prediction markets are incredible new technology, or they’re merchants of sin. And if the markets don’t even try to avoid getting a bad rap, then Cox will surely profit from giving them one.
When I first wrote about prediction markets in the run-up to the 2024 election, I argued that we shouldn’t let concerns about their misuse undermine a potentially valuable technology. I still think that’s true, even as an outspoken opponent of legalized sports gambling. But I also think failing to address these concerns will inevitably lead to trouble. As I wrote, “unlike other forms of gambling, prediction markets have the potential for huge social value. But that doesn’t mean they have social trust—that has to be earned.”
That’s still the case. Pivoting to sports gambling, picking up some of the sports books’ worst practices, end-running state bans, then playing legal hardball—none of that is a way to earn social trust. If prediction-market firms don’t recognize that fact, sooner or later the regulatory hammer is going to come down.
When it does, it will probably materialize in a way far blunter and more destructive than if prediction markets had played ball with the states in the first place, or if they’d stuck to selling contracts on information with actual social value. So why, exactly, are they making this bet?