Prediction markets have become more prominent in the past few years, especially as they enlist sports stars to advertise their products, but greater scrutiny — including in Missouri and Illinois — is coming with the increased notoriety.
Many states contend companies like Kalshi are effectively gambling platforms that should be regulated similarly to sportsbooks like DraftKings or FanDuel. In Missouri, Attorney General Catherine Hanaway ordered Kalshi, PolyMarket, Underdog, Robin Hood, Crypto.com and Novig to cease and desist operations in Missouri, saying in a statement that "companies cannot repackage sports bets as 'event contracts' to avoid Missouri law."
"Any company that wants to offer sports wagering in Missouri must be licensed by the Missouri Gaming Commission, pay the required taxes and fees, and ensure no one under 21 can place a bet," Hanaway said in a statement last month.
During an interview on "The Politically Speaking Hour on St. Louis on the Air," Kalshi Head of Research Nicole Kagan said prediction markets are fundamentally different from sportsbooks.
For one thing, Kagan said that Kalshi doesn't make money when someone loses.
"And [a sports book's] incentive, of course, is for you to lose and to engage users on their platform that are losing over and over and over again, right? That's who they want to retain," Kagan said. "On our platform, what we're running is a peer-to-peer exchange. So we're not the house. We're not setting pricing. And what that means is when you're coming to our platform, you're actually just matching with somebody who has an opposing opinion to you."
For instance, Kagan said that if someone wanted to predict that the White Sox will get to the World Series, they would match with someone with "very high conviction that they're not going to make the World Series."
"And so, I think that fundamentally describes the difference between the two," Kagan said. "And at some underlying level, there's a customer protection element there. We don't go after people that are losing money the way that sports books are going after those people."
Prediction markets like Kalshi have become an increasingly popular way to gauge the viability of political candidates. Media organizations like CNN often cite Kalshi or Polymarket on whether traders expect a candidate to win an election.
Kagan said political prognosticators are taking prediction markets seriously, even though they work differently from opinion polls.
"It's giving you a good sense of what is actually happening in the world around you, and I think that's important because the political climate here is extremely noisy," Kagan said. "I think that there is a lot of noise that makes it difficult to sift through to fundamentally identify what the truth is, and I think that's exactly what prediction markets are cutting through."
There have been instances in which people with insider information have used that information to make money on a prediction market. A U.S. soldier used confidential information to make a wager on when the U.S. would invade Venezuela. And the person who used to run President Trump's teleprompter wagered on whether Trump would say a certain word.
Kagan said that Kalshi has safeguards in place to protect against this type of insider trading.
"If you're a campaign staffer, you can't trade on that campaign," Kagan said. "If you're part of a sports team, you can't trade on the sporting outcome. If you're a musician, you can't trade on that entertainment contract. And so, we go much further with our protections against insider trading than the corollary of the stock market."
"St. Louis on the Air" brings you the stories of St. Louis and the people who live, work and create in our region. The show is produced by Miya Norfleet, Emily Woodbury, Danny Wicentowski, Elaine Cha, Darrious Varner and Alex Heuer. Our production intern is Danny Osborn. The audio engineer is Aaron Doerr.
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