You know that cliché in movies when the camera zooms in on a character who says, “It’s coming,” before someone else dramatically replies, “It’s already here”? Prediction markets are a bit like that in the sporting world, both coming soon and already here.
Established sports betting companies like Fanatics, DraftKings and FanDuel launched prediction market products earlier this month. Meanwhile, companies like Kalshi and Polymarket have been in the space for several years but have become much more aggressive about marketing to consumers given what they see as a ripe opportunity with the current state of federal regulation.
So, what are prediction markets and why are they such a big deal in the sports betting space?
What are prediction markets?
Broadly, prediction markets are exchanges, like stock markets, where people bet on the outcomes of future events. Any event you can imagine could potentially be added to the market, including elections, economic indicators, sporting events, the Academy Awards, which coach a team will hire, etc.
How do they work?
They create binary “yes” or “no” contracts that can be bought and sold by users. An example could be “Will the Buffalo Bills win the Super Bowl?” with “Yes” or “No” as the options to buy. The price of each contract moves based on what people are willing to pay, reflecting the market’s collective belief about the probability of an event occurring, with $1 representing a 100 percent chance and $0 representing a 0 percent chance. For example, a contract selling for $0.20 indicates a 20 percent chance of that event happening — at least, according to what people are willing to pay for it.
Prices change regularly, depending on the action, news or speculation around a specific event.
Contracts that were correct as predicted (the Bills win the Super Bowl in our example above) will cash out for the full dollar amount, with resulting funds (your initial investment plus profit) credited to your balance. If the market price rises before the event, traders can sell their contracts for a profit, like a stock.
Who is involved?
In a prediction market, you are putting up money against another market participant on the other side, rather than betting against “the house” as in traditional sports betting. That other market participant could be a professional or an ordinary person. The exchanges provide a marketplace between buyers and sellers and, along with a clearing house, ensure the legitimacy of both parties and oversee the payout of the contract.
While the user won’t notice any major differences from sports betting on the front end, this means the marketplace itself (i.e., companies like Kalshi or Polymarket) is not on the other side of the contract. The companies make money via commissions and transaction fees, which means they are motivated to see a bigger volume of trades, but do not have a vested interest in the outcome of an event. Sportsbooks, on the other hand, can lose money on the outcome of an event.
Are these types of markets new?
This type of contract has been around for more than a century. Unlike state-regulated sports-betting services, prediction markets are regulated by the Commodity Futures Trading Commission (CFTC), a federal agency that oversees futures contracts. Futures have typically been in things like commodities, so an example could be: “Will the average price of a gallon of gas in the United States be above $3?”
Entrepreneurs like the founders of Kalshi and Polymarket recognized that any event, including sports, could be bought and sold in the same way and regulated by the CFTC. The two companies gained wider awareness for allowing people to put money down predicting presidential elections, but sports predictions have been critical to their growth and to the number of companies entering the space.
Kalshi was founded in 2018 and received CFTC approval in 2020 to operate as a regulated exchange. Polymarket was founded in 2020.
How are specific markets chosen?
Any contract listed on a prediction market has to be certified by the CFTC first. Let’s use Kalshi’s process as an example.
“The first step in the process is suggestions,” Jack Such, head of media at Kalshi, told The Athletic. “We source suggestions from a tool on the site called Market Builder, where people can suggest markets; we source them from our Discord channel; we source them from Twitter; we source them from employees. So we get a huge pool of suggested markets, and then we have a dedicated team called the Markets Team that takes this big pool of suggestions and evaluates what should go from suggestion to actual listed market.
“There are a couple of criteria we use for this. The first is just demand: Are people going to trade this? The second is kind of the utility of the information. Even if it’s not going to be the highest-volume market or highest revenue-producing market, if we think there is interesting or pertinent information to be gleaned from it, we’ll list it. For example, we have a market on ‘Will the world meet its climate goals by 2050?’ That’s pretty important, so we’ll go ahead and list that anyway.”
From there, each type of proposed market is submitted to the CFTC to be certified, and then once certified, the markets can go live.
It doesn’t always go through. Before Kalshi rose to prominence with election markets, it sued the CFTC for blocking election contracts.
How are prediction markets different from traditional sports betting?
Regulation and relationships
For consumers, you would be forgiven for noting that the essential user experience of prediction market platforms, with respect to sports contracts, bears a very strong resemblance to the sports gambling apps you are familiar with.
If you showed two screenshots to the average sports fan, they would have a hard time telling the difference. Some of that is by design.
It’s mentioned above, but an important difference is how they are regulated. Prediction markets are regulated at the federal level rather than on a state-by-state basis like sportsbooks.
That federal regulation has been essential to the sudden growth of prediction markets because that means they can go live in all states, including those where traditional mobile sports betting remains illegal, such as California and Texas.
People in states without legal sports betting can and have turned to prediction markets in growing numbers.
Sportsbooks have also had more time to develop relationships with state regulators and professional leagues. The NHL is currently the only major league with partnerships with Kalshi and Polymarket.
Where they’re available
Kalshi and Polymarket are available in all states. But for sportsbooks, getting into prediction markets means trying to carefully navigate their relationships with state regulators.
Fanatics, which, in addition to its massive sports merchandise business, owns a sportsbook, launched Fanatics Markets on Dec. 3 in 24 states, avoiding states where sports betting is legal.
“I think it’s an extension of the road that we’ve navigated with regulators for the last seven years,” Matt King, CEO of Fanatics Betting & Gaming, said. “You think about most gaming regulators when sports betting happened; they had never regulated an online product, they had never regulated sports betting. All of these things come with a collaborative conversation about where concerns are, how do we protect consumers, how do we protect the integrity of the state laws. I think it’s going to continue to be an ongoing conversation because obviously there are a lot of open legal questions and challenges.”
DraftKings chose a more complex approach. DraftKings Predictions launched on Dec. 19 in 39 states, but different states have different products available. All markets are available in 17 states, including California, Texas and Florida. Another 20 states have all markets except for sports. Pennsylvania and Connecticut can only trade financial markets. There are 11 states where no markets are available.
“Some states have engaged in some litigation,” Jeanine Hightower-Sellitto, SVP and general manager of predictions markets at DraftKings, said. “That’s really informed how we’ve decided this multi-colored map of where we’re going to offer sport products, where we’re going to offer all of our products, where we’re going to offer financial products or where we’re going to offer no products. Nevada is a good example of where we’re not going to offer any products.
“I expect that map may change over time as there are different views in terms of this business.”
FanDuel launched its prediction markets product, FanDuel Predicts, on Dec. 22 in five states (Alabama, Alaska, North Dakota, South Carolina, South Dakota) where FanDuel does not have a sports betting license. FanDuel Predicts is expected to expand to other states in 2026, but did say in a press release that “As new states legalize online sports betting, FanDuel will cease offering sports event contracts in those states.”
The mechanics on the back end
While the front-facing experience may be similar in many ways (you can put money down on the Eagles -2.5 or to win the Super Bowl at both), the mechanics of how that happens are very different.
As mentioned above, these exchanges pair people on both sides of a contract. In a sportsbook, if the Eagles are offered by the book as a 2.5-point favorite, you simply have to choose the bet, select the amount you want to wager and it is accepted. In a prediction market, someone has to take the Eagles’ opponent at +2.5 to make the contract happen. In popular markets, that should be seamless, but the fact that that is happening on the back end is very different.
Types of offerings
Prediction markets also have some limitations and some extra freedoms in their offerings compared to sportsbooks.
Prediction markets are mostly free to offer any type of contract as long as the answer is binary. Will the Milwaukee Bucks trade Giannis Antetokounmpo before the trade deadline? Yes or no. Will LeBron James announce his retirement this season? Yes or no. It’s rare to see that type of speculation on a sportsbook because of the risk (to the sportsbook) that someone will find out inside information while the bet is still live.
Because the companies running the prediction markets don’t care who wins, the companies aren’t exposed to the risk of users beating them to news and information. That responsibility falls to the user.
You won’t see bonus bets or profit boosts on prediction markets in the same way that sportsbooks offer them. Also, parlays aren’t as seamless or widely available as on sportsbooks, although Robinhood is trying to combat this with its upcoming launch of “combos.”
How prevalent are sports in prediction markets?
Kalshi reports that 90 percent of its volume is on sports.
“Sports make up more of our volume because there are just more sports events happening in the world,” Elisabeth Diana, head of communications at Kalshi, said.
But in terms of action on an individual event, Such said that the biggest events are financial ones, and entertainment is a growing area.
“The largest ever football game we’ve done was about $62 or $63 million in volume, and the most recent Federal Reserve decision was $90 million,” Such said. “The ‘Dancing with the Stars’ finale did about $6 million with almost zero advertising spend.”
What companies are involved in prediction markets?
Kalshi and Polymarket were the disruptors, but sports betting companies and even fantasy sports companies are joining in, as well as investment apps like Robinhood.
Beyond Fanatics, DraftKings and FanDuel from the sportsbook world, places like PrizePicks, Underdog and Sleeper, which are all in the fantasy sports space, are also making moves to get in on the prediction market craze.
BetMGM and Caesars, notable sportsbooks that are also under parent companies with massive brick-and-mortar casino businesses, have not yet entered prediction markets. Caesars CEO Tom Reeg explained why on a Q3 2025 earnings call.
“We will not put any of our licenses at risk,” Reeg said. “We believe what’s happening in prediction markets is sports gambling. If there’s a path that develops where we can participate in a way that doesn’t put licenses at risk, you should expect we would be prepared to go down that path, but we’re watching it the same as you are.”
FanDuel, DraftKings and Fanatics are far less vulnerable to the ire of state governments because they don’t rely on revenue from state-regulated brick-and-mortar casinos. All three left the American Gaming Association (AGA) late this year.
The AGA, which is the leading gambling industry association with membership spanning casinos, sportsbooks and tribal groups, has publicly argued against prediction markets, saying such markets threaten the integrity and regulation of sports betting.
“While prediction platforms have tried to characterize these contracts as financial investing, in practice, when it includes sports contests and outcomes, these markets are effectively gambling platforms with little oversight and regulation,” the AGA’s president and CEO Bill Miller said in a statement.
Why are so many companies trying to get into prediction markets?
The “why” is obvious: Money, addressable markets. The “why now” is about change in regulation.
The Biden administration had banned Polymarket in the United States in 2022, with that administration taking a narrower regulatory view of prediction markets than the Trump administration, which meant it was fraught for any company to launch too aggressively in the U.S.
Polymarket relaunched its app in the U.S. earlier this month. Donald Trump Jr. has been a strategic advisor for Kalshi since January 2025, and his VC firm invested in Polymarket in August. He also joined Polymarket’s advisory board.
With optimism that prediction markets will remain federally legal in their current form, plenty of companies are joining the space.
In short, the ability to reach more customers and thus make more money is why companies are making this push. They are all rushing to not be late to the party, while prediction markets are still new, or even unknown, to so many people.