Prediction markets such as Polymarket and Kalshi are offering sports-based prediction contracts. Gaming regulators in states like Pennsylvania are sharing their concerns over these prediction markets.
Regulation of prediction markets
The financially traded contracts in prediction markets fall under federal regulation by the Commodity Futures Trading Commission (CFTC). They aren’t like traditional sports wagers but are futures contracts that users can buy and sell.
The companies that provide them say that they aren’t offering gambling per se. The CFTC regulates them through a self-certification system. It presumes that trades are compliant unless challenged.
This doesn’t offer the type of protection players experience at a Pennsylvania online casino, which is regulated by the Pennsylvania Gaming Control Board (PGCB). The PGCB doesn’t have any jurisdiction over prediction markets.
It can’t conduct tests for safety and fairness as it does in online casinos. The fact that these markets aren’t subject to compliance tests is a major concern for regulators.
Lack of responsible gambling measures
Strong home internet and other modern technology give people more access to online gambling. With more access to online gambling comes more concern about gambling addiction, especially among vulnerable young people.
Responsible gambling measures, such as self-exclusion programs, aren’t available in prediction markets. Someone who has legally acknowledged a gambling problem and joined a self-exclusion list can still use an app like Kalshi to trade on a sports outcome.
Federal programs may offer voluntary opt-outs, but they lack the statutory force of the PGCB and can’t block players across operators.
Age limit concerns
The current popularity of prediction markets means many younger individuals are showing an interest in them. Individuals in U.S. states must be 21 years or older to place legal sports wagers. However, prediction markets allow players ages 18 and up to buy contracts.
Helpline operators are seeing higher numbers of gamblers between the ages of 18 and 24, and this rise can be attributed in part to the growth of prediction market apps.
Other concerns
Insider trading is another concern in prediction markets. Many news reports have pointed out obvious examples of insider trading in these markets.
Prediction markets don’t contribute any tax revenue to state coffers in the way that regulated online casinos and sportsbooks do. Most casinos in Pennsylvania partner with sportsbook sites, and the revenue is taxed at 36%.
The tax goes to support programs that fight gambling addiction and other social services, including a rent rebate program for senior citizens. Prediction apps are siphoning users away from sports betting apps, resulting in less tax revenue for the state.
Operators wanting to enter prediction markets
Operators such as FanDuel and DraftKings are planning to operate prediction markets. They plan to do so mainly in states where sports wagering is still illegal. DraftKings has already launched its DraftKings Predictions platform. Operators with concerns about declining market share see entering prediction markets as a way to combat this.
Kevin O’Toole, executive director of the PGCB, says that while online gambling is highly regulated, prediction markets are like the Wild West. The PGCB sent a letter to the congressional delegation of Pennsylvania stressing the need to create a tighter regulatory framework for the CFTC or to allow states to do it themselves.
Regulators have warned licensed casino operators that if they start offering prediction markets in Pennsylvania, they will lose their licenses.
What will happen in the future is likely to be decided in court. Several court cases are currently ongoing, such as one between Kalshi and New Jersey. A decision in these cases could provide direction in Pennsylvania when it comes to dealing with prediction markets.