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Prediction markets expand beyond sports and elections
A Montana man, identified as Stew, 35, turned to the Kalshi app 18 months ago for sports betting but recently placed a $10 wager on whether Iran's Ayatollah Ali Khamenei would be removed from power by March 1. The bet highlighted the growing controversy around prediction markets, which have surged in popularity in the U.S., hosting over $44 billion in trades in the past year.
From sports to geopolitical gambles
Prediction markets, overseen by firms like Kalshi and Polymarket, allow users to bet on a wide range of outcomes, from election results to interest rate cuts and even the year of Jesus Christ's return. While sports betting dominated early activity, the platforms gained traction during the 2024 U.S. presidential campaign, with odds favoring Donald Trump.
However, recent attention has shifted to darker wagers tied to military conflicts involving Iran, Venezuela, and Israel. These bets, which include speculation on assassinations and war outcomes, have raised legal and ethical concerns.
Legal gray area and regulatory battles
U.S. financial regulations prohibit trading on contracts involving war, terrorism, assassination, or other illegal activities. Despite this, prediction markets have accepted millions in such bets. Critics argue these platforms enable war profiteering, national security risks, and insider trading opportunities.
"You have now opened up gambling on almost anything, and it has turned into this very gruesome type of thing-betting on the death of a head of state," said Craig Holman, a government affairs lobbyist at Public Citizen, which recently filed a complaint over the bets.
Craig Holman, Public Citizen
Polymarket, a New York-based firm operating on a limited basis in the U.S., removed a market on the likelihood of a nuclear detonation after public backlash but still allows bets on scenarios like U.S. military intervention in Iran. The company did not respond to requests for comment.
Kalshi canceled its Khamenei market, which had drawn $54 million in trades, citing regulations that bar U.S.-regulated entities from hosting markets tied to an individual's death. The firm also declined to comment.
Regulatory tug-of-war
Prediction markets operate differently from traditional sportsbooks, functioning more like stock exchanges where users bet against each other on future events. This design has allowed the Commodity Futures Trading Commission (CFTC) to claim oversight, arguing the platforms serve legitimate economic functions, such as hedging risks.
However, critics, including state regulators and advocacy groups, argue these platforms are gambling operations attempting to evade stricter rules and taxes imposed on traditional gaming firms. The debate has sparked legal battles across the U.S., with states asserting their right to regulate the companies as gambling entities.
Former Trump administration official Mick Mulvaney has lobbied on behalf of traditional gaming firms, while Democrats have introduced legislation to bar federal officials from trading event contracts. They point to suspicious bets, such as a Polymarket user profiting nearly $500,000 on Venezuela's president's capture just before it was announced.
Political and industry pushback
The Biden administration initially proposed banning sports and election-related event contracts but reversed course after a court defeat and Trump's 2024 election victory. Last month, the CFTC withdrew its proposed ban, siding with prediction market firms in legal disputes with states.
"It's clear that Americans like the product and want to participate," said Michael Selig, CFTC chairman under Trump, in a recent opinion piece. He argued that while platforms must follow rules, event contracts provide "legitimate economic functions."
Michael Selig, CFTC Chairman
In response to mounting pressure, Polymarket announced steps to police suspicious activity, while Kalshi, which markets itself as a "regulated exchange," has ramped up efforts to combat insider trading. The company reported opening 200 investigations in the past year and imposing penalties in two cases.
User backlash and industry growing pains
Kalshi's decision to cancel the Khamenei market drew criticism from users, including Stew, who called the firm's explanation disingenuous. He noted that the rules against death-related markets were initially buried and that there were few realistic ways for Khamenei to leave power other than death or removal.
"They call it contract trading, which I guess technically speaking, that's what it is. But if we're all being honest here, it's still betting," Stew said.
While Stew received a refund and remains uncertain about the need for regulation, he acknowledged the debate often revolves around semantics rather than substance.
