Prediction markets vs sports betting: What you need to know
Prediction markets are a new and popular trend in the world of gambling and betting, but how exactly do they differ from traditional sports betting, and what should potential players know about those differences?
Sports betting is a massive industry that many platforms cater to and generate high revenues from. Prediction markets also include sports betting, but in a more dynamic model that can allow for greater freedom for players and for the types of markets being offered. But even with this newer form of gambling allowing players to bet on more markets beyond just sports, are prediction markets really any better than traditional sports gambling? And how are they regulated?
How prediction markets differ from sports betting
Sports betting typically involves players wagering on the outcome of competitive matches, such as which team will win or if a given team will score a set number of points. The wager is for a set outcome with pre-match odds that are set by bookmakers, with a certain wager made for or against those odds. Sports betting and esports betting are strictly regulated, and once a bet is locked in, there is typically no going back.
Prediction markets differ significantly from this model and also encompass a larger number of betting markets. They aren’t limited only to sports, as instead players can bet on crypto outcomes, varied forms of entertainment, weather, political elections, and even more beyond. While still betting, the model has players wager and buy a contract on the future probability of events.
Prediction markets work similarly to the crypto and stock markets, both financially and in terms of trading. The odds fluctuate based on market sentiment and players’ trading activities. Unlike in traditional sports betting, players are free to sell their contract if the market shifts in their favor. The operators earn from the resulting processing fee, regardless of players’ wins and losses.
Why prediction markets are trending up
Various elements involved can make prediction markets stand out from traditional betting, and are contributing to their continuing to trend up. Players having the option to adapt their bets and either cash in or cash out based on the market’s fluctuation is one advantage of prediction markets. This more dynamic betting model is preferred by some players who are used to accustomed to trading crypto or stocks and the flexibility that comes with those practices.
The market’s diversity also caters to more players, rather than just relying on one specific sector. Prediction markets including something that just about anyone could find interesting and worth betting on.
Image credit: Kalshi
Many major players are entering or planning to enter prediction markets to capitalize on the ongoing trend. Kalshi is among the operators who have made significant investments in the model while receiving financial backing from Sequoia Capital, and others are eager to join in. Financial services company Robinhood is an example of the companies reportedly keen on making the jump.
Prediction markets may also appeal to a younger player base compared to traditional sports betting, another potential boon for operators looking to grow their reach. Just as crypto betting has become an increasingly popular betting route for younger and more tech-savvy audiences, so too could predictions markets.
While sports betting practices continue to see both increased legality and regulatory oversight, regulations on prediction markets are blurry, with lawmakers still working to understand whether to classify such markets as traditional gambling or not. Such classifications can have a big impact on how companies are able to operate and advertise their services.
The increasing stability and legal understanding around traditional sports betting is one area that clearly makes it a safer and more predictable area to work in than predictions markets. Kalshi has already seen itself fined for operating without proper registration, while other platforms are adjusting their models to focus on non-financial markets as regulators decide on whether existing gambling laws will be enforced on prediction markets or if new regulations will be required.
Time will tell whether prediction markets are eventually classified as gambling or commodities trading, and how this classification will impact the practice moving forward.
Feature image credit: Canva
Khizar Mundia has been playing video games for as long as he can recall. Things have come a long way since the many days he spent playing the original NES, though. He now covers a variety of competitive games and esports, as well as the world of streaming, ranging from Twitch to Kick. If it’s of interest to gamers, it’s of interest to Khizar.
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