It’s been a long time since prediction markets were just a quiet experiment on the periphery of financial trading. 

In what seems like no time at all, the once niche trading concept has moved to the centre of regulatory, commercial and strategic debates throughout the globe.

Readers who remember the early days of online sports betting will no doubt see the similarities.

On the latest episode of the iGaming podcast, SBC News Editor Ted Orme-Claye and SBC Media Director Martyn Elliott, join host Fernando Noodt to unpack the current state of play.

A Lucrative Niche

Despite dominating headlines, prediction markets are still a niche product.

This is especially true when measured against the mainstream appeal of licensed sports betting.

But this hasn’t stopped them from being extremely lucrative.

“They’re clearly a very lucrative niche” said Ted Orme-Claye, “but for the average person who wants to put a bet on a football match at the weekend, they’re probably still going to be leaning towards a classic sportsbook.”

Martyn Elliot echoes this view, “With $50 on a sportsbook, you can do all sorts of things. Prediction markets are a bit limited. This is more for people with serious money who are invested in what’s going on in financial markets.”

Where prediction markets are really excelling is in locations – particularly in the US – where legal sportsbetting is still unavailable.

Platforms like Kalshi and Polymarket are able to operate in states like California and Texas, where legal sportsbooks cannot yet operate. 

Who Gets To Call The Shots?

Arguably the most defining issue for prediction market platforms right now is questions over regulation.

In the US, for example, the Commodities Futures Trading Commission (CFTC) is framing prediction markets as derivative products – rather than gambling.

However, this position is currently being challenged by courts in individual states like Arizona, Nevada and Kentucky.

Meanwhile, Senators in Congress have been busy trying to introduce legislation that would ban prediction markets outright.

In Europe, the approach has been more assertive.

The Dutch KSA has initiated action against Polymarket, Portugal has effectively expelled the platform from operating in the country, while the Ukraine and Romania has taken similarly restrictive stances.

The UK Gambling Commission, meanwhile, is indicating that prediction markets would need a UKGC license to operate – a requirement these platforms are unlikely to accept as it effectively undermines their position in the US.

In Latin America, Argentina has gone on the offensive, blocking Polymarket nationwide, while Brazil has just seen the launch of Kalshi in the country, with the Secretaria de Premios e Apostas (SPA) stating that no regulatory framework currently exists for prediction markets.

Operators Hedge Their Bets

Existing sportsbook operators in the US have reacted to this regulatory grey area by launching prediction market services of their own.

FanDuel and DraftKings now offer prediction products exclusively in states where they do not yet hold sports betting licenses.

Martyn Elliot pointed out how this could give these sportsbook operators a unique brand advantage, “Everyone in the US knows who DraftKings and FanDuel are. Only a smallish proportion of people know who Kalshi is. Does their additional advertising budget and national campaigns make life extremely difficult for Kalshi and Polymarket where they’re going head to head?”

The Future 

Both Martyn and Ted’s outlook on the regulatory situation was stark: fragmentation is already here.

Just like with early online gambling regulation, prediction market operators must wade through a patchwork of national responses making it structurally very difficult for any single operator to scale globally.

Ted continues, pointing out that the US political cycle might be the single biggest variable in this whole debate.

Under the current CTFC leadership, prediction markets have benefited from a permissive regulatory posture. 

While an administrative change could see new leaders clamping down on prediction market platforms.

“This could be the beginning of the end, at least for the sports prediction side,” said Ted Orme-Claye.

As more regulatory frameworks are ratified over the coming months, the future of prediction markets hangs in the balance.

Will they be grouped under the iGaming umbrella, with all its existing regulations, or something else entirely?