Prediction markets are becoming increasingly popular in the United States, with traders using them to predict the outcomes of various real-world events, from election results to whether Donald Trump will say the word “tampon.”
Despite sharing some similarities with online sportsbooks, prediction markets don’t hold a sportsbook license, and for several reasons. For one, they’re not sportsbooks, so there’s no “house” setting odds for traders; trading activity determines the prices for all event contracts. Here are insights into why prediction markets don’t need sports betting licenses like most sportsbooks do.
How Do Prediction Markets Work?
Prediction markets, unlike sportsbooks, allow trading in event contracts on a wide range of topics, from economy predictions to who will win the next general elections.
When you open a prediction market website, you get a list of questions with the options to buy yes or no shares predicting the outcome of each. For example, a prediction may list: “Will Donald Trump place a tariff on the UK?” Then, you can either buy yes or no shares at different prices.
In most cases, prediction markets price shares under $1, with each share maturing to $1 if your predicted outcome matched the eventual outcome of the predicted event.
Differences Between Sportsbooks and Prediction Markets
On close inspection, you can easily notice a few differences between prediction markets and online sportsbooks. For example, prediction markets use shares instead of the traditional betting odds you get on a typical sports betting site.
Also, wagers at online sportsbooks are usually final, and trying to reverse or cash out your bet slip early often comes with a penalty. On the other hand, you can sell event contracts on a prediction market for even higher than you bought, provided there’s someone willing to buy on the other side.
Perhaps the most consequential difference is the licensing requirements. Online sportsbooks typically need a license from state-specific gaming authorities to operate, but prediction markets don’t, even if they offer contracts on sports-related events.
Why Prediction Markets Aren’t Licensed Like Sportsbooks
We’ve looked at some differences between sportsbooks and prediction markets, but here are some specific reasons why the former needs licensing from state gaming authorities but the latter doesn’t:
Legal Classification
Prediction markets trade event contracts, which they argue to be a derivative that place them under the jurisdiction of the Commodity Futures Trading Commission (CFTC). The idea is that the event contracts are like shares or contracts on a future outcome, not the kind of sports bets sportsbooks offer.
No House Edge
The prediction market structure has no “house,” so event contracts don’t use the odds system that comes with a house edge. Instead, prediction market sites make money by charging commissions on traders’ activity.
Offerings
One of the most tell-tale differences between sportsbooks and prediction markets is what events they cover. Sportsbooks typically focus on sports, as their names imply, with occasional pivots to non-sport markets. Prediction markets, on the other hand, deal in anything you can predict, including contracts on politics and the probability of a sovereign country failing.
Conclusion – Prediction Markets Don’t Require Sportsbook Licenses in the US
Prediction markets may allow you to predict the outcome of your favorite rugby team’s game, but they’re not considered sportsbooks. Their classification means prediction markets can generally operate without a license in the United States, unlike typical online sports betting sites. If you want a legit way to follow and predict sports outcomes, Kalshi is worth checking out. Click our page banners to start trading on Kalshi.
