Ask ten people about prediction markets, and you’ll likely get ten different answers.
To some, they’re nothing more than sportsbooks dressed up in financial clothing. To others, they’re sophisticated tools for hedging real-world risk.
However, for the average user, the experience is much less abstract. For them, it’s simply this: put your money on an uncertain outcome, cross your fingers, and hope for the best.
Prediction markets have experienced rapid growth over the last year, with Kalshi and Polymarket reaching multibillion-dollar valuations.
As they continue to expand into sports and other consumer-facing categories, the debate over what prediction markets really are, and what protections they owe their users, is becoming harder to ignore.
As it stands, prediction markets are regulated as financial products under federal law, placing them outside the consumer-protection framework that governs state-regulated sportsbooks.
It’s that regulatory divide that’s now being tested in the courts, as states push back against prediction markets offering event contracts that they argue are nothing more than sports betting.
It comes down to who has the authority to regulate these products, the Commodity Futures Trading Commission (CFTC) or state gambling authorities, and where the line between trading and betting should be drawn.
What’s at stake is more than which agency gets to say it’s in charge; ultimately, how the courts decide will determine which set of protections applies.
State-regulated sportsbooks must offer tools like self-exclusion programs, deposit limits, and responsible gambling safeguards. Federal commodities regulation, on the other hand, has historically focused on integrity and fraud, not retail-style consumer protections.
To understand why that fight has taken on such significance, it helps to start with a basic question: how different are prediction markets from sportsbooks in the first place?
What’s the Difference Between Prediction Markets & Sportsbooks?
While there’s no question they have many things in common, on a structural level, prediction markets and sportsbooks don’t work the same way.
“A bookmaker takes positions against customers, builds margin into every price, and profits when bettors lose,” Jon Russell, senior advisor at BetTrust Solutions and a former trading executive at Betway, told CasinoBeats.
He added, “A prediction market exchange has a completely different commercial incentive — liquidity is the priority, not outcomes. It matches buyers and sellers, charges a fee on the transaction, and is indifferent to who wins.”
It’s that structural distinction that is central to the argument that prediction markets aren’t simply sportsbooks in disguise.
Koleman Strumpf, a professor of economics at Wake Forest University who has studied prediction markets extensively, told CasinoBeats that they’re “very broadly similar” to sports betting, but not identical.
“Most people, not all, are taking positions on the direction that an asset will move, whether that’s a team winning a game or a stock going up,” he explained. “You can win, and you can lose.”
While they may not be the majority, Strumpf said that prediction markets can also attract people who aren’t simply wagering on a single outcome. Some participants, such as market makers, are focused on price differences and liquidity, not the result itself.
He also compared prediction market contracts to financial derivatives, arguing that their payoff structures can resemble those of options, where traders take positions on whether an asset will hit a specific price by a set date.
“You can make a bet in a financial derivatives market on whether Johnson & Johnson stock will finish above a certain price on a certain day,” he said. “If you’re right, you make a lot of money. If you’re wrong, you lose everything. So, in that sense, they’re almost exactly the same thing as a prediction market.”
As Strumpf pointed out, unlike a typical stock investment, prediction market contracts can be much more all-or-nothing if held to resolution.
However, it’s important to keep in mind that most users don’t necessarily experience these platforms that way. While prediction markets can be used for things like hedging real-world risk, the highest-profile and most heavily traded contracts tend to mirror traditional betting markets, especially in sports.
Why Prediction Markets Look Like Gambling
When a user is staring at a yes-or-no contract on a prediction market or at odds on a sportsbook, the structural differences between the two don’t matter all that much. Get it right, you make money. Get it wrong, you don’t.
In practice, for many users, the experience of using a prediction market and a sportsbook is almost the same. And that perception is reinforced by what drives most activity on major prediction market platforms, namely sports.
Jonathan Cohen, who leads gambling policy at the American Institute for Boys and Men (AIBM) and is the author of Losing Big: America’s Reckless Bet on Sports Gambling, told CasinoBeats:
“People are routinely astonished when I tell them that trading volume on Kalshi is 90% on sports, because they hear about the bets on elections or Trump press conferences or whatever.”
Cohen doesn’t think public perception of prediction markets is misplaced: “The simple answer is that prediction markets are closer to gambling than investing,” he said. “The public is seeing them for what they are.”
He points to what he calls a “Mother-in-Law Test.”
“Could I explain what a prediction market is and how it works to my mother-in-law, without making it sound like a gambling platform. In my experience, the answer is no, and the public attitudes clearly reflect that. But my mother-in-law is not, as far as I know, a judge on the Ninth Circuit….”
Young people make the problem even more pressing. According to polling from AIBM, young men are less likely than any other group to view prediction markets as purely gambling.
Cohen explains:
“Young men have a well-documented appetite for risk, one greater than young women, and one that diminishes over time. This is true across the globe, not just the U.S., and it explains so much about their behavior, including when it comes to gambling,” he said.
“Because their tolerance for risk and their appetite for action is so much greater, it’s probably not surprising that what to most people looks like gambling to young men looks like a safe, prudent way to make money. And compared to some of the other things young men do with their money—crypto, same-day options, video game skins—they might actually be right.”
That’s where the “trading” label can become more than a branding choice. When financial terminology is used to describe the activity on prediction markets in terms of contracts, positions, and event-driven price discovery, it doesn’t change what the average user is actually doing on those platforms.
What it can do is make something rooted in uncertainty feel more like a test of skill.
As Russell explained, “Framing an activity as skilled trading rather than wagering measurably changes how participants perceive and manage risk. Whether that framing is intentional or incidental on the part of prediction market operators, it has real consequences for vulnerable users.”
Cohen builds on that point when he talks about the integration of prediction markets with brokerage apps saying:
“The presence of prediction markets on investment platforms like Robinhood completely blurs any semblance of a line between gambling and investing and is just completely preposterous.”
As prediction markets continue to move into consumer financial spaces, that point will come up again, as people move beyond asking what they are according to the law and look at how they’re understood in practice.
What Protections Prediction Market Users Get
While prediction markets can look like both trading and gambling, they’re regulated like financial products. That means the consumer protections required in state-regulated sports betting don’t apply.
As Cohen told CasinoBeats, “At the moment, prediction markets are ‘regulated’ by basically being allowed to do whatever they want,” adding that the CFTC “was not founded to deal with a retail-focused product.”
The easiest way to see the difference is to look at the guardrails: self-exclusion, deposit or time limits, warnings, and responsible gambling messaging. Prediction markets don’t have to provide them, and if they do, it’s completely voluntary and platform-by-platform.
That’s because prediction markets operate under a different system and are regulated as event contract derivatives under the CFTC. Historically, the CFTC has focused on market integrity, fraud, manipulation, and surveillance, rather than on the kind of retail protections found in the state-regulated gambling industry.
In March, the CFTC published an Advance Notice of Proposed Rulemaking on prediction markets. The agency is seeking public input on a number of issues, including whether measures such as self-exclusion, monetary or time limits, warnings, and advertising restrictions should be factored into its analysis.
How the CFTC will address this issue is still up in the air. In the meantime, prediction markets can decide for themselves what consumer protection tools, if any, they want to offer.
For example, Kalshi recently introduced a suite of consumer protection tools, including trading breaks, voluntary self-exclusion, deposit limits, mental health support, and educational guides. The platform will also launch parental controls, Kalshi CEO Tarek Mansour announced at the Semafor World Economy in Washington, D.C.
Strumpf says he disagrees with the assertion that by offering these tools, Kalshi is admitting its products are gambling. Instead, he views it as a good-faith effort by the platform to act responsibly.
“I think that’s a platform behaving as a good agent, as a regulated entity that’s trying to do what’s right,” he said, adding that “they’ll be damned if they do, and they’d be damned if they don’t.”
Still, voluntary tools are one thing; requiring them by law is another. While Kalshi has taken a proactive approach to consumer protection, other CFTC-regulated prediction markets aren’t currently required to do the same.
Can Prediction Markets Do More Than Sports Betting?
The current fight over prediction markets is largely about sports betting. However, one argument you’ll often hear from proponents of these platforms is that focusing solely on sports risks missing out on what they could become.
In theory, these markets can serve as tools for managing uncertainty rather than just speculating on it.
During our conversation, Strumpf used hedging as an example of one way prediction markets can solve economic problems that sportsbooks cannot, pointing to contracts Polymarket has offered based on a basket of real estate prices in a metro area.
“Imagine it’s April and you want to sell your house, but the market high point is June,” he said. “You could buy a contract that would pay you money if housing prices go down. If the market tanks, the contract pays out to help offset the loss on your house sale. That has real economic value to regular consumers that has nothing to do with betting.”
And that’s one reason some people argue that prediction markets are more than gambling. At least in principle, unlike sportsbooks, which are built around entertainment and wagering, prediction markets could become part of how individuals and institutions manage real-world exposure to uncertain events.
For now, that use case is more theoretical than practical. There’s no getting around the fact that the most popular contracts on these platforms look almost exactly like sports betting markets.
And as long as that’s the case, the user experience will remain much closer to gambling than to financial hedging.
Whatever prediction markets may become in the future, the more immediate question is whether these platforms have adequate guardrails in place to protect the people using them now.
As Cohen put it, “The consumer protections don’t have to come from the regulator, but they are needed desperately, one way or another.”
