US Industry Split Over the Rise of Prediction Markets and Their Impact on Traditional Play

Sports entertainment and gaming companies in the US have a growing business and regulatory schism concerning prediction markets and their overlap with traditional gambling activities. Since 2023, federally regulated platforms that allow consumers to legally trade on the outcomes of events have drawn the interest of regulators, media, and casino operators. The Commodity Futures Trading Commission noted an increase in the 2024 trading of short-duration event contracts, while numerous gaming sectors continue to dominate with record revenues. This article explores the origins of the schism, the divergence in perspectives, and the behavioral focus of consumers in the prediction market.

Prediction markets, once the purview of scholarly interest, have become a fixture of the US entertainment and information economy. Systems designed to trade on odds are now co-located with sportsbooks, fantasy gaming, and social gaming. This situation has triggered a demand for regulatory oversight and brought concerns about market dynamics to the forefront.

Established market components assert that the “trading” vs. “gambling” dichotomy is easily conflated. Advocates for the prediction market assert that the market is information-based and serves a more utilitarian function. The interplay of these opposing market forces determines the trajectory of prediction markets in association with traditional gambling.

What Prediction Markets Are and Why They Matter

In prediction markets, you can buy and sell contracts based on the results of future events, such as elections, economic outcomes, or sporting events. Users compete against each other to guess the result of events, and the price of the contracts goes up and down based on the predicted value of each outcome, which is mostly viewed by economists as a prediction of the event in question. This mechanism has been studied for decades, and in the United States, the attention it receives has seen a spike due to increased regulation and interest.

The CFTC has stated in their public filings that federally sanctioned event contract markets had increased their breadth and depth of contracts in the 2023-2024 period, with emphasis on large political events. The evidence to support them within academia as a forecasting method has no signs of stopping, with a 2023 study from the University of Iowa showing prediction markets were more accurate than traditional polling in the case of 70% of the elections in their study.

These mechanics appear to be entertainment formats. Social gaming products replicating casino play have also gained social and legal acceptance; best social casino apps are described as offering slots, table games, poker, and poker tournaments where players can win money from play. Even sweepstakes forms legally allow players to participate. Winning apps capture users' high demand in exchanging money for entertainment with gambling. This popularity explains demand for lost likely to win markets, even when the purpose diverges.

Old School Play Meets New Market Models

Gambling revenue from in-person play remains dominant. However, prediction markets alter the gaming structure. Sports books operate on fixed odds with determined risk margins. Casinos rely on the house edge. Predictive markets reverse.

The GOA predicts that the commercial gaming revenues will reach $66.5 billion, the third consecutive record year. The biggest part of the revenue comes from the casinos and sportsbooks, which are tightly regulated and taxed by the states. Many executives point out that there are prediction markets that are betting on the same things, but are not the same. They warn that this oversight will mislead consumers and will lead to competition with no rules.

The prediction markets, on the other hand, suggest that the products are not betting but are financial instruments. The CFTC predicts that event contracts are within the scope of derivative regulations and not state betting laws. This prediction provided the states with more federal powers and, more importantly, was met with heavy opposition from gaming interests at the state level. The dispute is no longer about popularity, but about jurisdiction.

The disparity is also observed in the design of the products. The old design focused on the loyalty programs, branding, and the visuals, but the Prediction markets are more focused on the information and movement of the prices. They both appeal to different motivations, but are more focused on keeping the consumers engaged.

Voices from the Industry Divided on Change

Responses from the sector reveal considerable divergence. Casino and sportsbook trade groups focus on consumer protection, responsible gambling, and tax equity issues. They contend that experiences that are the same should be governed by the same rules. Operators in the prediction markets focus on transparency, risk mitigation, and the valuable information users create by pricing and participating in the market.

This split is reflected in policy research as well. A 2024 survey by the Brookings Institution reported that 58 per cent of economists and policy analysts considered prediction markets as a useful adjunct to polling and forecasting. Only 27 per cent of them endorsed the idea of regulating prediction markets under the existing sports betting regime, while the rest suggested the adoption of a new regime.

Some media and data companies are trying to strike a middle ground. Some broadcasters display market-based probabilities, as well as traditional analyses of the game, without revealing a betting interface.

This attitude is one of caution, not endorsement. Labor advocates and consumer protection groups under pressure query the use and abuse of data, the resolution of disputes, and the understanding of the public when trading language is replaced with bets.