WASHINGTON EXAMINER: On prediction markets, let’s take it to court
The NFL told the Supreme Court last Thursday that it’s “well established — that regulating gambling is among states’ sovereign police powers — What constitutional power allows Congress to override states’ traditional police powers to regulate intrastate gambling?”
The NFL is making the argument that because sports outcomes are listed on the likes of Kalshi, trading on them is equivalent to a bet you’d place with DraftKings or BetMGM. The last time I glanced at a sportsbook, I didn’t see anything about markets for inflation, unemployment rates, or Federal Reserve decisions. That’s because prediction markets are doing something different, both in what they cover and in how they work.
It’s not lost on me why critics equate prediction markets with gambling. Anyone over 18 can use them, and that means you’ll have get-rich-quick types on there trading recklessly and losing money. Risk is a tricky thing. I’ve lost money in the market, but I’ve lost money at flea markets hoarding useless junk. When SpaceX went public at $135 per share, buying into Elon Musk’s Mars aspirations was a bet, sure. But it wasn’t a “bet” like staking the New England Patriots with odds set by ‘the house,’ where the sportsbook’s margin is baked into the price, and a customer who wins might barely break even or get banned from playing if they win too much.
On a prediction market, you trade against other people, and the exchange takes a fee. Nobody gets cut off for being right, absent illegal insider trading.
The NFL and the sportsbooks are right to be worried about this. If you’re the type who finds it fun to stake $50 on the World Cup (I am not), you’re better off doing it on an exchange where your knowledge of Argentina’s players on the field actually pays. I don’t begrudge people who loathe gambling. It’s not the best way to spend money, but neither are most of the things I spend money on every month.
Yes, sports dominate the volume. An analysis of Kalshi’s public trade data found that at least 61 percent of its August volume rode on sports, while economic contracts made up 0.6 percent. But judging a financial market by its busiest aisle is like judging the internet for its cat videos and cringe dance trends.
A Federal Reserve study found that Kalshi’s markets beat the Bloomberg consensus on headline inflation and were never significantly worse on any metric tested. That is Friedrich Hayek’s insight about dispersed knowledge transformed into a mobile app, and it may be the case that football keeps the lights on so macro-econ wonks can have their 10Y Treasury yield contracts.
Without supernatural foresight, every action you take that isn’t guaranteed to turn out well is a gamble. That doesn’t make what you’re doing “gambling.” As for game integrity, the NFL’s concern would be more convincing if the league hadn’t re-signed DraftKings and FanDuel as official betting partners in August. The NFL isn’t against you betting on the Eagles. It’s against you doing it outside their money-making system.
The states have their own motive. Sportsbook advocates accuse Kalshi of finding "a legal backdoor to grow sports betting without paying state gaming taxes." It's a turf war, plain and simple. We don’t allow fifty states to each decide whether a futures contract is legal, and we shouldn't start now.
SCOTUS involvement on the questions posed by prediction markets is inevitable—let’s get a move on, and while we’re at it, stop pretending that the NFL and state gaming commissions are driven by saintly motives.
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