Be Careful What You Wish For
If Kalshi wins in court, it still could lose, as opening the prediction markets floodgates would lead to chaos not seen since the Poker Boom.
In his latest podcast at The Closing Line, Dustin Gouker concluded with why he thinks everyone involved in sports betting should jump into the prediction market space and why an inundation of sports betting across the country that would put the last five years to shame is the best path forward:
“The only way I see out of the chaos is more chaos. The rapture some people were forecasting for yesterday didn’t happen, so it’s up to prediction markets to get us one step closer to the end times.”
Regular readers of my Around the Watercooler section have likely noticed many entries on prediction markets that are posted without much context or commentary, because, like Dustin’s desire for more chaos, I see where this is heading and how the gambling sector, as it is wont to do, views market access as the be-all and end-all on the road to riches… which will lead to the same amount of chaos, but over a much more extended period of time.
Basically, without putting too many words in Dustin’s mouth, prediction markets could be the shock to the system that affects rapid change, not the controlled chaos we have grown accustomed to.
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My Ode to Prediction Markets
Truth be told, I love the idea of prediction markets for elections and even major tentpole sporting events. I was covering PredictIt’s fight with the CFTC and Kalshi’s election betting case before practically anyone in the gambling industry. It’s a fascinating product, and as a pro-regulation advocate, I think they have a place in the pantheon of legal gambling options.
Where you start to lose me is full-on sports betting (props, parlays, and vanity markets).
I just feel like day-to-day sports betting is better left to sportsbooks and state gambling regulatory bodies. I’m happy to be proven wrong on this, but currently, I don’t see the CFTC as being as capable as the current state structure (I discussed my misgivings here), which has its own flaws, to oversee sports betting. Nor do I see prediction markets tapping into or caring about the institutional knowledge that has been built up over decades.
As long as we can offer these things, despite the legal headwinds we are facing, let's offer them (at 100 miles an hour), is a point of view, but it isn’t exactly instilling confidence in me.
Perspective
Let’s take a step back for a moment and put prediction markets and sports betting into perspective. The US gambling scene was thriving before the legalization of sports betting. Sports betting is a piece of the overall gambling pie (roughly $150 billion in trackable revenue), and a small piece at that, based on the following estimates from 2024 (emphasis on estimates):
Land-Based Casinos (commercial and tribal): $92.5 billion (60%)
Lottery: $27.5 billion (17.9%)
Sports Betting: $13.7 billion (8.9%)
Daily Fantasy Sports (includes all fantasy sports): $10.3 billion (6.7%)
Online Casino: $8.4 billion (legal in just eight states): (5.5%)
Poker, Horse Racing, Bingo, and other forms of gambling: $2 billion (1%)
Even if sports betting doubles to $25 billion with legalization in states like California and Texas, it’s still a small player in the grand scheme. Online casino revenue could hit $50 billion if legal nationwide, but that’s a big “if.”
So what’s the prediction market opportunity? They’re fighting for a sliver of that $150 billion, which will be divided up between dozens of entities.
It’s a lucrative opportunity, but the way people are talking about it, you would think it was a battle for who will control the gambling industry.
Some people will win, while others will miss out, and the gambling world will continue to spin on its axis as it has always done.
Three Worlds for Prediction Markets
There are three possible futures for prediction markets in the US.
First, there’s a world where they lose in court, get their wrists slapped for offering sports contracts, and are relegated to a niche product — think quirky election betting platform that is the talk of the town every four years, that also offers worthwhile entertainment and economic forecasts. This would keep them on the fringes, a curiosity for the crypto crowd but not much else.
Then there’s the dream scenario for platforms like Kalshi: they’re cleared for takeoff, exploiting gaps in the US market — states that haven’t legalized sports betting or are strangling licensed operators with high taxes and regulatory restrictions. In this world, prediction markets could come to be a dominant player in the sports betting industry, offering a peer-to-peer alternative to traditional sportsbooks’ house edge while sidestepping state-level prohibitions.
But the most likely outcome? Prediction markets win in court, continue offering sports contracts, and become, as I’ve said before, “just another product in a crowded marketplace.” They’ll compete not only with traditional sportsbooks but also with daily fantasy sports (DFS), sweepstakes, and every other gambling-adjacent product vying for your wallet.
Sound familiar? It’s the same story we’ve seen play out time and time again in this industry. And as the title of this article suggests, Kalshi getting what it wants may not be in its best interest.
Here’s why.
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