Prediction Markets: Backdoor Sports Gambling
Why states and tribes are fighting back against this blatantly illegal form of gambling
The expansion of prediction markets offering backdoor sports gambling continues to present significant concerns, for consumer safety as well as state and tribal sovereignty and the tribes’ rights to oversee gaming.
At this year’s Global Gaming Expo, I participated in two discussions examining what these platforms are doing and how they impact the legal gaming industry, consumers and communities alike.
A Question of Oversight
The first panel, called “Prediction Markets, Regulatory Oversight and Integrity,” dove into how and why so-called prediction markets are able to operate illegally, and how they are clearly sports betting minus the safeguards and oversight of legal sports betting through licensed sportsbooks.
The panelists and I discussed the prediction markets’ blatant disregard of congressional intent and state gaming law as well as the hundreds of millions of dollars they’re spending on targeted advertising to minors that would never be allowed at the state level.
The state- and tribal-regulated market has developed rigorous and responsible frameworks on advertising restrictions and more, with 8,400 regulators across the country overseeing the legal commercial and tribal gaming industry. Meanwhile, the “federal regulator” that is supposed to be overseeing prediction markets is staffed by fewer than 600 people—and those people are meant to be overseeing wheat futures, not sports gambling.
Prediction markets can lie with the best of them. On the panel, I mentioned what Kalshi said in a federal court less than two years ago: that Congress never intended for sports betting to be on CFTC-regulated exchanges; shortly afterward, it asserted in a Reddit Ask Me Anything forum that it would actually be illegal to do so.
Yet here they are, paving the way for illegal gambling operations. To our courts, prediction markets claim they aren’t sports gambling. But to consumers, they readily admit that they are.
Consumer Protection & Integrity
The following day, I moderated a session called “From Casino Floors to Prediction Markets: Comparing Compliance, Oversight and Risk.” I asked panelists to examine how the regulated gaming industry and these platforms measure up against each other. The contrast was stark.
Licensed operators verify age and identity, bar prohibited bettors, invest in responsible gaming programs and answer directly to state regulators. Prediction markets, by contrast, have been accused of deceptive practices and of targeting young and vulnerable consumers.
Panelists raised particular concern about young adults aged 18 to 20, the majority of whom cannot legally bet at a licensed sportsbook in their state. Yet those young people are being aggressively marketed to by prediction market platforms that present gambling as “investing.” In fact, the AGA’s Teen-Twenty Tracker estimates that this age group has driven more than $7.5 billion in sports gambling volume this year on Kalshi alone.
We discussed how prediction markets claim to be innovative, though nothing that they’re doing is new—they just have an incompetent regulator allowing them to offer the same thing state regulated sports betting operators do. The chairman of the Nevada Gaming Control Board, Mike Dreitzer, noted that the only thing “innovative” about sports gambling through prediction markets is them advertising to teenagers, paying college students to recruit other students, and marketing gambling as some form of investing.
Chairman Dreitzer concluded that crime and deception is not innovation, while attorney Dan Wallach said nothing is too big to fail if it’s illegal and built on quicksand.
Forty-seven state attorneys general have challenged the prediction markets’ argument that they are a financial tool regulated by the federal government, taking enforcement actions to defend their authority over sports wagering. Those efforts have secured important court victories, and litigation continues. With the appeals process moving forward, the full panel agreed that this issue is headed to the U.S. Supreme Court.
Continuing the Work
Across both sessions at G2E, the overarching theme was that prediction markets are, indeed, gambling, but lack the safeguards and oversight that the legal industry has developed.
The stakes extend well beyond any single court case. Sports gambling through prediction markets puts consumers at risk, threatens the integrity of the games themselves, and diverts critical tax revenue from states.
The AGA will continue working alongside regulators, state attorneys general, policymakers and our members to ensure that every sports wager in America, whatever it’s called, comes with the protections Americans deserve.
Tres York is vice president of government relations for the American Gaming Association.
