One of the biggest changes in online gambling in recent years has been the emergence of prediction markets as a rival to traditional sports betting. Although many of these operators would hesitate to call themselves gambling, they overlap in customer base and other areas.
They’re also big business, with the total sector valued at $18 billion in 2024 and growing. Platforms like Polymarket and Kalshi have been pulling in hundreds of millions of revenue a month in the past few years. But what is this new model exactly? Is it a real challenge to sports betting, and what might the future market look like? This, is how prediction markets are, right now, reshaping online gambling forever.
The Established Model and Its Challenges
Sports betting, as it has been known for hundreds of years at least, is a game between a bookmaker and a bettor. The sportsbook, or the house, sets the odds of a sporting event occurring and players choose which markets to bet on.
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The bookmakers job is to balance the bets by offering odds that enable them to make a profit whichever result occurs. To this end, as well as adjusting the odds behind the scenes, they usually take a vig – or a commission – from each bet placed.
Although the house always wins, sports betting can be a volatile market – especially for smaller operators. One big upset result, or one significantly under or overpriced market, can swing a whole month’s profit or loss for some sportsbooks.
Prediction Markets Arise as a Challenger
Prediction markets flip traditional betting on its head, by having bettors wager against each other in financial market-style system. Gamblers buy “shares” in “event contracts” at a certain price, which is reflected by the market opinion.
These are yes/no or two option questions. Each answer is put on a graph between $0 and $1 and bettors picks move the line between the two depending on which has more votes.
Once a bettor has a share locked in and the question is answered, bettors are paid out on the value of the shares.
Buy in before the market goes towards your prediction – for example by anticipating a major update or trend – and you could make a big profit. But buy in with the market and things change while you’re still holding, and you could lose a lot.
This dynamic adds an extra layer of financial-trading style timing to the sports betting market. Which was sort of already there, as bookmakers adjust odds when more information comes to light, but now the odds are updated live for everyone to see in one place.
Bettors can also sell their shares, if they predict a swing and want to cash out on a rise or fall in one direction/
Line Goes Up: Prediction Markets Take Over
One of the key selling points of prediction markets, and what enabled they’re massive growth, is that they aren’t covered by traditional sports betting laws. Which is not to say some local and national governments aren’t already challenging this interpretation of what prediction markets offer.
For the moment at least, this means that prediction markets can:
- Operate internationally across borders
- Offer betting on obscure or controversial markets
- Offer trading/betting on big-ticket, high interest events sportsbooks can’t or won’t offer
- Attract people both interested in sports betting and general predictions, data analysis and financial trading
Some analysts predict this enticing combination could mean a total market value of some $100 billion in the next decade. One of the key players, Polymarket, recently passed $300 million in trading in a single day.
Polymarket and Kalshi both saw huge spikes in trading during the November 2024 US Presidential election. Polymarket made international headlines after a French trader made tens of millions of dollars after the victory of Donald Trump.
Big financial trading platforms like Robinhood have also got in the on the game, bringing even more potential customers into the fold.
Predicting the Market’s Future Through Hurdles and Obstacles
While the market is booming, a prediction market on the success of prediction markets would likely be highly fluctuating (depending on the question).
In the US, financial regulator the Commodity Futures Trading Commission (CFTC) has taken legal action against Polymarket, and hasn’t been keen on Kalshi either.
Several states including Nevada, Maryland and New Jersey, as well as some Native American reservations, have filed legal proceedings against Kalshi as well. More have recently issued cease and desists against Robinhood’s recently opened prediction market.
On the flipside, President Trump has nominated former Kalshi board member Brian Quintenz to head up the CFTC – suggesting a potential softening of regulatory attitudes under the new administration. However, the appointment has been stalled by a public spat with fellow prominent Trump backers and crypto billionaires the Winklevoss twins.
Although millions are made on prediction markets in Europe and elsewhere, without easy access to the huge American market it’s hard to see prediction markets continuing their incredible growth streak. So whatever happens in America could make or break the market.
