Prediction markets are increasingly recognized for their potential in investment analysis, consumer interaction, and risk evaluation. However, their rapid expansion is prompting discussions about sports trading, market integrity, and the fine line between event contracts and gambling, as highlighted during a recent Milken Institute session led by Axios Business Editor Dan Primack.
The panel included notable figures such as Stephanie Guild, Chief Investment Officer at Robinhood; Brian Quintenz, a former commissioner of the Commodity Futures Trading Commission and board member of Kalshi Exchange; and Paul Liberman, co-founder and President of Operations at DraftKings. They characterized prediction markets as tools that provide probability-based insights to aid decision-making, though they should not replace comprehensive analysis.
A significant topic of contention was the distinction between sports-event contracts in prediction markets and traditional sports betting. Primack pressed the panel on this issue, particularly since sports represent a substantial portion of prediction market activities.
Quintenz noted that Kalshi's sports trading volume has decreased from the high 80% range to around 70% of total volume, attributing this shift to the abundance of sporting events available for trading. He also anticipated that election-related activities might see an uptick as the midterm elections approach.
Liberman pointed out that sports are a unique category where fan loyalty can significantly impact behavior compared to other markets. Nevertheless, he acknowledged that sports markets can still provide valuable insights into probable outcomes. He emphasized that DraftKings finds prediction market data beneficial for both sportsbook operations and event contract offerings.
Liberman further suggested that prediction markets could enhance nationwide engagement, particularly in states where sports betting is not permitted, and could lead to the development of new products related to elections or cryptocurrency.
When asked which would be preferable if only one could be allowed in a state—sportsbooks or prediction markets—Liberman favored sportsbooks, citing their ability to offer a superior consumer experience through customer preferences, promotions, and reinvestment opportunities that are challenging to replicate in prediction markets.
The discussion also delved into regulatory and enforcement issues. Quintenz argued that derivatives markets are distinct from gambling as they facilitate price discovery and risk management. He mentioned that Congress established the current legal framework and that regulators should refrain from making subjective judgments regarding the value of different markets.
Quintenz highlighted the confusion between federally regulated exchanges and offshore platforms. He explained that regulated entities like Kalshi comply with rules concerning contract restrictions, surveillance, customer identification, wash trading, and insider activities. He cautioned that contracts related to sensitive topics like war or terrorism would likely be seen by the CFTC as contrary to public interest due to the potential for harm.
For investors, Guild emphasized that while prediction markets can provide valuable context, they should not be relied upon as standalone indicators. She noted that Robinhood incorporates them as part of a broader analysis when evaluating expectations around events such as Federal Reserve decisions or company-specific inquiries, like whether Palantir will exceed earnings expectations.
“Expectations are everything in investing,” Guild remarked, noting that even strong results can disappoint if investors have already anticipated more. She pointed out that faster information channels, including social media and podcasts, often outpace traditional institutional research.
The panel concluded by positioning prediction markets as one of many inputs rather than a definitive forecasting mechanism. Liberman suggested they should be seen as a data point, while Guild added that she would not solely depend on them for significant personal decisions but would consider them alongside other analyses.