The rise of popularity in prediction markets was fueled by the recent Presidential elections in the United States. The offering of futures contracts gained significant speed ahead of the elections and in light of Kalshi’s legal case success against the Commodities Futures Trading Commission (CFTC), the federal regulator in charge of prediction markets.
Futures Trading Expands, Enters the Sports Vertical
Besides offering futures contracts, or placing wagers on the outcome of real-life events, prediction market companies such as Kalshi and Crypto.com expanded their offering with the addition of major sports events.
This was rather surprising, considering that the CFTC’s regulations do not permit sports betting. However, changes to the management of the agency following the elections and the milestone win of Kalshi likely contributed to the expansion of prediction markets.
Only recently, an expert spoke about the future of prediction markets, highlighting some of the pros and cons of such companies. That’s the case for Shaun Kelley, a Bank of America analyst, who was recently quoted by CDC Gaming. The expert acknowledged the entry of prediction markets into sports betting.
Expert Outlines the Pros and Cons of Prediction Markets
Kelley highlighted the benefits of futures contracts which include high limits and favorable pricing. Further benefits include the absence of taxes, which is not the case for bookmakers, as well as the presence on a national level. This means that residents of states such as Texas and California can place wagers on sports events through futures contracts, despite sports betting being illegal in those states.
However, unlike the positives, futures contracts have negative sides and those include lower promotions and limited depth of markets. According to Kelley, liquidity is also among the cons of futures contracts.
“At their best, we see prediction markets as a complimentary product that can drive new customers, expand the total area market of sports betting, and blur the line between sports betting and financial technology.“
Shaun Kelley, analyst at Bank of America
Focusing on the future of prediction markets, Kelley acknowledged their potential to complement sports betting and engage with new customers. At the same time, he highlighted the possibility of further blurring the line between fintech and sports wagering.
Kelley further predicted: “At their worst, they could be disruptive new entrants, with deepening products/markets, access to national scale and cost advantages that need to be closely monitored.”
Another key point by the Bank of America analyst focused on the demand for regulatory clarity when it comes to prediction markets. Per Kelley, the upcoming roundtable that is expected to meet futures contract companies and the CFTC either later this month or early in April may play a key role in that process.