Predicting Prediction Markets Is a Tough Call
The best prediction for 2025 would have been predicting the soaring growth of prediction markets. My prediction for 2026 is it will be a tough year for prediction markets.
My colleagues Sara Germano and Yueqi Yang chronicled the stunning rise of these markets last weekend. They focused on the dramatic growth in sports betting and the tumult this has caused in college and professional sports. That’s one piece of the story—there are plenty more.
Until this year, prediction markets mostly drew attention during big elections as an alternative to voter polls. The markets are dominated by Kalshi and Polymarket, which got the usual spikes in trading last fall followed by the usual post-election slowdown.
Prediction markets let people bet against each on everything from economic statistics to celebrity wedding dates. Whoever bets right gets the money.
This year, the prediction markets embraced sports betting. Instead of fading into the background, they boomed again. In one recent week, the two exchanges did more than $2.5 billion in sports trading volume, topping last year’s election. Now sports betting accounts for two-thirds of Kalshi’s spot trading and 40% of Polymarket’s.
However, sports betting put Kalshi and Polymarket in conflict with three powerful entities: state governments, which regulate sports betting and take in billions in tax revenue from it; the sports leagues, which are already facing several betting-related scandals, and the major sports betting companies themselves, FanDuel and DraftKings.
The business is growing fast. Last month Kalshi told investors it was on an annualized pace for between $600 million and $700 million in net revenue. That has attracted a range of new competitors, including Coinbase, digital brokerage Robinhood, President Donald Trump’s social media company, and the sports-betting companies themselves. Many of these are partnering with Kalshi and Polymarket to get going.
While the companies are excited about sports betting, Americans are not.
A Pew Research Center poll over the summer showed that 43% of Americans said sports betting is bad for society, up from 34% three years ago. Just 7% think sports betting is a good thing, while the remainder say it’s neither good nor bad. The biggest shifts against sports betting came in the industry’s two biggest demographics: men overall and people under 29. Democrats and Republicans actually agree on the issue, with 43% of each party’s supporters saying it’s a bad thing.
Now, let me say a little more about the prediction I mentioned at the beginning—because next year, the hottest market for predictions could be the fate of prediction markets themselves. States, which won the right to regulate sports betting in a 2018 Supreme Court decision, are already fighting against these markets. The markets say they are federally regulated, so they can take wagers even in states where sports betting is illegal. They also argue that what happens on their sites isn’t sports betting—rather, they’ve created markets for contracts tied to the outcome of events.
State regulators are not buying that argument. That’s not a surprise, given they take in billions in tax revenue from sports betting—and New York state alone does $1 billion a year. Prediction markets don’t pay state gambling taxes, so any shift from state-regulated betting to the prediction markets means lost revenue for the states.
The states also argue they have built serious regulatory structures around sports betting, including efforts to help problem gamblers. The federal markets regulator that oversees prediction markets hasn’t done any of that.
Another powerful force is states like California and Utah where sports betting is illegal, yet have been flooded by prediction markets offering just that.
The dispute between the states’ regulatory authority and the prediction markets seems headed for the Supreme Court, as the markets insist that federal oversight gives them latitude to take wagers nationwide.
Kalshi and Polymarket aren’t going to shrink from this fight, and they enjoy powerful allies with deep political connections too, including their venture capital backers as well as the crypto companies. (Cryptocurrencies are often used to fund bets.)
While the Trump family is creating its own prediction market, it also has close ties to the industry’s big players. Donald Trump Jr. is an adviser to both Kalshi and Polymarket. Earlier this year, 1789 Capital, an investment firm backed by the president’s family, put money into Polymarket. The prediction market in October also got an investment worth up to $2 billion from the Intercontinental Exchange, which owns the New York Stock Exchange. The wife of ICE’s chief executive is a member of the Trump administration.
There’s other excitement on tap. The NFL, the NBA and the NCAA have complained in different ways about the impact the prediction markets can have on sports and the regulation around prediction markets. The leagues are highly sensitive to sports betting, having faced some scandals tied to the incumbent sports betting companies. Both prediction markets say they don’t offer some of the bets that led to the sports scandals.
Not all leagues are fighting the prediction markets. The NHL has signed commercial partnerships with both Kalshi and Polymarket, saying the deals help it “promote consumer protection and integrity.”
There’s a bigger integrity issue facing prediction markets than sports scandals. These markets are vulnerable to manipulation by people who know the outcome of events that are being traded, or by people trying to drive up prices to make a profit or influence the outcome of events like elections. The creation of new prediction markets could spread out trading, potentially meaning fewer bets on each prediction. That will make it easier still to manipulate the markets.
Coinbase CEO Brian Armstrong effectively manipulated one market during his company’s earnings call in October. Before the call, bettors were predicting whether Armstrong would say words such as bitcoin, ethereum, blockchain, staking and web3. At the end of the call, Armstrong read out a list of all of the words, creating immediate winners and losers in that market. He said he had been watching the prediction markets during the call.
Earlier this month, Coinbase partnered with Kalshi to let its clients bet on sports and other events, potentially including what chief executives say on their earnings calls. Armstrong could have some fun on the next call.
Good luck predicting that outcome.
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