The growing popularity and importance of prediction markets have changed the entertainment scene in the US and further afield recently. To fully understand how this activity is being integrated into American and global markets, we need to see exactly what these markets include and how they work.
How Prediction Markets Work
While many people compare prediction markets to online betting, there are some crucial differences between them. Rather than betting on the odds provided by a central operator like a sportsbook, a prediction platform lets the participants trade contracts among themselves.
These contracts are based on the future outcomes of real-world events like sporting events, awards ceremonies, cryptocurrency markets, and so on. Each contract settles at a price of $1 each if the predicted outcome offers, and $0 if it doesn’t. Imagine you enjoyed a movie like Lee Cronin’s The Mummy, you could immediately look for the current contract price on it winning an Oscar or any other contracts that interest you.
This means that the current price can be viewed as an estimated probability of that outcome, based on the wisdom of the crowd, which is an idea explored here by Stanford University. The idea is that participants add information in such a way that the probability is calculated efficiently as new details come to light.
It means this is a highly efficient way to predict the outcomes of a wide variety of events, with easy access for Americans in many states. The way that real-time data is added ensures that this market shows us the current collective opinion and wisdom on a wide range of subjects.
Their Presence in the US
The initial hurdle to the adoption of prediction markets in the US came from the fact that betting here has traditionally been subject to strict regulations at the state level. The emergence of leading prediction market operators like Kalshi and Polymarket created a significant debate over whether these platforms offer a form of gambling or if they should be viewed as event contracts that would fall under federal rules.
The path to federal oversight was cleared when Kalshi successfully challenged the Commodity Futures Trading Commission (CFTC) in court. A landmark decision in 2024 ruled that the CFTC was wrong in calling these contracts a form of gambling or gaming, meaning that prediction platforms can be run under federal oversight, even in states where gambling is prohibited by state laws. This has been confirmed by more recent rulings like the New Jersey decision reported here by Lowenstein Sandler.
Polymarket is a relatively new entrant in the US market, and SDS covers this in detail when looking at the platform’s welcome bonus. New users who deposit $20 get a $50 trading bonus. This applies to anyone over the age of 18 who lives in any of the states where Polymarket now operates. The bonus can then be used in markets like entertainment and sports, allowing getting started with extra funds.
The Rest of the World
The global approach remains fragmented, with some countries classifying these platforms as offering unregulated gambling. Across Europe and Asia, these platforms are mainly blocked or heavily restricted. Many of the countries that have regulatory bodies for the gambling industries have stated that these platforms can’t operate without a gambling license that ensures they meet the regulatory standards.
This highlights one of the major potential issues with these sites, which is that they lack the regulatory compliance that has made betting safer in many parts of the world. With a lack of responsible gambling measures like identity verification and self-exclusion mechanisms, there’s a risk that these platforms fail to offer the level of protection that fully-regulated sportsbooks and casinos have in place.
Taking all of this into account, the global predictions market seems set to be just as heavily discussed in 2206 as it has been in the last couple of years.
Alexa Domash
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