If you wanted to bet on the Super Bowl this past weekend, you had options. You may have bet with a friend. If you live in a state where it’s legal, you could have gone to a casino or used a casino’s app.
Or, starting last year, you could have entered into an event contract using a Designated Contract Market regulated by the Commodity Futures Trading Commission (CFTC). This is the same legal structure you would use to buy derivatives on the prices of traditional commodities like wheat, coffee, or pork bellies, now applied to trades like whether the Patriots will beat the Seahawks and what song will be played first at halftime.
This legal strategy was pioneered by Kalshi in January 2025 and is being used by a rapidly growing number of exchanges. The CFTC had previously proposed a rule to shut down markets it considered “gaming”, such as bets on politics and sports. More recently they gave up and withdrew the proposed rule—perhaps because they found comments from economists like me convincing, perhaps because of new leadership at the CFTC, and perhaps because the exchanges have poured resources into influencing regulation, for example by hiring very expensive lawyers and former CFTC leaders.
For these exchanges, the benefit for offering Commodity Sports markets is obvious: they get to enter a lucrative market that was previously restricted to a handful of companies with gaming licenses in states with legal sports betting. Users, to the extent we ever benefit from sports betting, see a number of advantages to trading on these exchanges as opposed to casinos. Fees tend to be lower; contracts can be sold before the end of games; exchanges don’t limit successful traders the way casinos limit successful bettors; and the exchanges can operate in the 11 states that don’t currently allow sports betting through casinos.
The winners of Commodity Sports are clear, but so are the losers: losing bettors who may go into debt; casinos facing new competition; state governments that thought they had banned sports betting and don’t like this commodity loophole; and state governments that put big taxes on legalized sports betting and feel they are now missing out on the cut of sports bets they expect. These groups have challenged the exchanges in court, with mixed success so far.
I have mixed feelings about Commodity Sports myself. The libertarian part of me is excited to see the government getting out of the way of voluntary exchanges between consenting adults. As a bettor, I’m happy to see alternatives to the high-fee monopoly casino.
As an economist, though, I worry.
I love that CFTC-regulated exchanges like Kalshi and Polymarket are bringing prediction markets to the mainstream. The true value of prediction markets is to aggregate information dispersed across the world into a single number that represents the most accurate forecast of the future. Those who trade in prediction markets aren’t the real winners, because betting is a zero-sum game—every dollar one trader wins comes at the expense of another. The real winners are the rest of us, the ones who can get access to more accurate forecasts without having to risk a dime. In a virtuous cycle, the more accurate forecasters win and accumulate bigger bankrolls that they use to move markets in more accurate directions, while the bad predictors lose out and learn to stay away. (As former EconLog author Bryan Caplan put it, “a bet is a tax on false ideas.”)
This is the dream that led economists like Robin Hanson to argue for prediction markets long before the latest wave of CFTC-regulated exchanges sprang up. Scott Sumner argued here for markets on future NGDP in order to better inform Fed policy. Arguments like this directly inspired prediction market founders like Polymarket’s Shayne Coplan.
“I remember reading Robin Hanson’s literature on prediction markets and thinking – man, this is too good of an idea to just exist in whitepapers. There were a million reasons why it shouldn’t work, countless arguments of why not to do it, and the odds were against us, but we had to try.” -Polymarket founder Shayne Coplan
And so, although I see huge value in prediction markets when they are offering more accurate forecasts on important issues that help policymakers, businesses, and individuals make more informed plans for our future (e.g., Which world leaders will leave office this year?, or Which countries will have a recession?), in addition to the social costs of sports betting, I see much less value in having a more accurate forecast of how many receptions Jaxon Smith-Njigba will have.
Like Robin Hanson, I worry that the legal battles against Commodity Sports and the brewing cultural backlash against sports betting risk taking the most informative prediction markets down along with it. I hope I’m wrong, and that the revenue from sports betting helps the exchanges support a wider range of valuable markets than ever. Certainly, their founders seem to have benefited from pushing the envelope so far (FBI raid aside).
At least for now, you are free to trade derivatives contracts regarding the achievements that the participants complete before expiration—that is, bet on sports through prediction markets.
