Opinion: Everybody Loses (Except Prediction Markets) When Betting Masquerades as Investing

Whether you’re a critic or proponent of prediction markets, there’s no denying the deep division they have created in America’s sports betting industry.

The biggest bone of contention shouldn’t be whether prediction markets offer sports betting with their event contracts, either. Platforms, including Kalshi, have already said as much in previous ads to the marketplace.

In this recent CBS interview with Kalshi co-founder Luana Lopes Lara, the interviewers notably made several references to betting or wagering that weren’t refuted. Nor should they be.

The 2024 US Presidential Election served as a catalyst for prediction markets, which ultimately used it as a jumping-off point to offer contracts on sports events.

“People began to bet on the election, and the volume skyrocketed,” Charles Schwab CEO Rick Wurster said. “And I think these firms that had launched prediction markets thought to themselves, ‘Well, isn’t this great? Look at this volume and this engagement we’re getting around this election. Wouldn’t it be nice if we had that kind of interest all the time?’”

Fast forward to today, and sports dominate trading volume. In the last month, users have traded over $9 billion on Kalshi, with more than 80% of that volume coming from sports markets.

As March Madness nears, college basketball is king, with almost $2 billion traded on NCAA games. That came after Kalshi produced more than $1 billion in trading volume for Super Bowl 60, including traditional football betting markets and the halftime show.

Did you make a solid addition to your investment portfolio by betting on Bad Bunny’s first song? Kidding aside, there’s an important distinction to make between gambling and investing. Especially when you consider that the minimum legal age for U.S. users of prediction markets is 18.

Gambling Is Not Investing

Former White House Chief of Staff Mick Mulvaney’s new coalition – Gambling Is Not Investing – aims to help clarify the line between betting and investing. Mulvaney told CNBC that the Commodities Futures Trading Commission is “set up to regulate markets,” but it “is not set up to protect consumers.”

“I used to be a federal regulator,” Mulvaney said. “I ran the Consumer Financial Protection Bureau. Have nothing but the highest respect for the CFTC, but they’re not in the same business as regulating, say, sports gambling.”

The Supreme Court is likely to be the ultimate arbiter of sports prediction markets. CasinoBeats previously asked attorney Stephen Piepgrass how long that might take.

“If I knew that, I should enter the prediction market myself,” Piepgrass said. “Best guess? A year and a half, maybe two years for these cases to work their way through the courts, for a circuit split to develop, and then for the Supreme Court to decide to take it. So, easily two years — maybe more. We’re going to have a significant period of time where operators, investors, and the public are operating in the gray.”

Meanwhile, Schwab’s Wurster more recently said that his company is open to offering prediction markets as long as they’re related to investing, not gambling. His position on that last point has remained firm.

“To me, prediction markets in the way they started were about being able to forecast like employment or inflation and being able to take a point of view or position on those,” Wurster said. “And that could somehow hedge or accentuate the positions in your investment portfolio.”

He added, “If you look at 95% of the volume of what people call prediction markets, it’s actually just sports gambling.”

The bottom line?

“Our mission as a firm is to make clients better off in their financial life,” Wurster said. “Less than 5% of people who go on to one of these gambling apps take out more money than they put in in the first place. That’s the complete antithesis of what we do at Schwab.”

And of investing in general.