Prediction Markets vs. Sportsbooks: The Kalshi-Polymarket Debate and £395 Million in Lost Taxes
Available in US
Are Prediction Markets Sports Betting by Another Name?
The first time I placed a trade on a prediction market, it felt exactly like placing a sports bet. The interface was different — binary contracts instead of American odds, limit orders instead of one-click wagers — but the underlying activity was identical: I was risking money on an uncertain outcome in exchange for a potential payout. The prediction market called it an «event contract.» The sportsbook down the road would have called it a bet. The distinction matters enormously in regulatory terms and barely at all in practical ones, which is precisely why this debate has become one of the most contentious in the gambling industry.
Prediction markets like Kalshi and Polymarket have expanded rapidly into territory that overlaps directly with sports betting. The UK Gambling Commission estimates that these platforms have diverted more than £395 million in potential tax revenue from regulated sportsbooks over the past year. That figure represents money wagered on outcomes — including sporting events — through platforms that operate under commodity-trading or financial-exchange regulations rather than state gambling licences. The regulatory arbitrage is the entire business model, and the traditional sportsbook industry is not happy about it.
Structural Differences Between Event Contracts and Traditional Wagers
The legal argument for treating prediction markets differently from sportsbooks rests on structural distinctions. A traditional sports bet is placed with a sportsbook that sets the odds, takes the other side of the wager, and profits from the vig. The sportsbook is your counterparty. A prediction-market event contract, by contrast, is traded on an exchange. You buy or sell a contract — say, «Team X wins the World Series» priced at 35 pence — and your counterparty is another trader, not the exchange itself. The exchange takes a transaction fee rather than a vig on the outcome.
This distinction has regulatory consequences. Sportsbooks are regulated by gaming commissions under gambling statutes. Prediction markets like Kalshi have sought regulation under the Commodity Futures Trading Commission, arguing that event contracts are financial instruments rather than gambling products. The CFTC has partially approved this framing for certain categories of events, though its jurisdiction over sports-related contracts remains contested.
From a user perspective, the differences are more nuanced than the legal categories suggest. Both products allow you to risk money on the outcome of a sporting event. Both require you to deposit funds, select an outcome, and accept the risk of loss. The pricing mechanisms differ — odds versus contract prices — but the implied probabilities are equivalent. A contract trading at 60 pence implies a 60% probability, just as -150 odds imply approximately 60%. The user experience is converging even as the regulatory frameworks diverge.
There is one practical difference that matters for sophisticated bettors: exchange-based pricing is often sharper than sportsbook pricing because it reflects the aggregate view of all participants rather than the model of a single oddsmaker. Sharp bettors have migrated to prediction markets partly for this reason — the absence of a traditional vig and the efficiency of two-sided markets produce prices that can be more accurate than sportsbook lines on certain events.
The £395 Million Tax Revenue Gap
The AGA’s £395 million estimate captures the fiscal dimension of the dispute. When a bettor places a wager through a licensed sportsbook, the operator’s gross gaming revenue is subject to state tax at rates ranging from 6.75% to 51%. That tax revenue funds state services, and in 2025 it totalled £2.93 billion nationally. When the same bettor places an equivalent trade on a prediction market that is not licensed as a sportsbook, no state gambling tax applies. The economic activity is identical; the tax treatment is not.
Chris Christie, a strategic adviser to the AGA and the former governor of New Jersey who championed the PASPA challenge, framed the issue bluntly: if it walks like a duck and quacks like a duck, predictive market sites are offering sports gambling in violation of the laws of all fifty states. That characterisation is legally debatable — the CFTC’s involvement creates a genuine jurisdictional question — but it captures the industry’s frustration. Sportsbook operators have invested billions in licensing, compliance, and state-specific infrastructure. Prediction markets have entered the same functional space at a fraction of the regulatory cost.
The tax revenue gap is not just a sportsbook grievance. It has implications for every jurisdiction that depends on gambling tax revenue. If prediction markets continue to grow and capture market share from licensed sportsbooks, the state tax base erodes without any corresponding increase in alternative revenue. The £395 million estimate may be conservative if the current growth trajectory continues, and states that have built budget assumptions around stable or growing sports-betting tax receipts could face shortfalls.
Where Regulation Stands and Where It Is Heading
The regulatory landscape is in flux. The CFTC has issued guidance on certain types of event contracts but has not definitively resolved whether sports-outcome contracts fall within its jurisdiction or belong under state gambling regulation. Several state attorneys general have taken enforcement action against prediction markets operating in their states without gambling licences, while other jurisdictions have taken no position at all.
Congress is watching. The Senate Commerce Committee’s broader investigation into sports-betting integrity has touched on the prediction-market question, and several legislative proposals have included language that would either clarify prediction markets as gambling products subject to state regulation or establish a separate federal framework for event contracts. The AGA is lobbying hard for the gambling classification, which would subject prediction markets to the same licensing, tax, and integrity requirements that sportsbooks face.
My read is that the current ambiguity is unsustainable. The market is growing too fast and the tax implications are too significant for regulators to maintain a hands-off posture indefinitely. The most likely resolution is a hybrid framework that treats sports-outcome contracts as gambling products while preserving the prediction-market model for non-sports events like elections, economic indicators, and weather. That distinction would close the tax gap for sports-related activity while allowing prediction markets to continue operating in their original domain.
For baseball bettors, the practical implication is that another channel for wagering on MLB outcomes exists and is growing. Whether that channel survives regulatory scrutiny in its current form or is absorbed into the licensed sportsbook ecosystem will depend on legislative and judicial decisions that are still being made. The financial stakes — for operators, for states, and for the integrity infrastructure that depends on regulated data-sharing — are substantial enough to ensure this debate remains at the center of the sports-betting conversation. The full scope of how these market dynamics affect baseball is something I trace through the MLB betting market size analysis.
What is the difference between a prediction market and a sportsbook?
A sportsbook sets odds, takes the opposite side of your bet, and profits from the built-in margin. A prediction market operates as an exchange where you buy or sell event contracts, with another trader as your counterparty and the exchange collecting a transaction fee. Both allow you to risk money on uncertain outcomes, but they are regulated under different frameworks — sportsbooks under state gambling laws and prediction markets under commodity-trading regulations.
How much tax revenue have prediction markets potentially diverted from sports betting?
The UK Gambling Commission estimates that prediction markets have diverted more than £395 million in potential tax revenue from regulated sportsbooks over the past year. This occurs because event contracts on prediction markets are not subject to state gambling taxes, even when the underlying activity is functionally identical to placing a sports bet through a licensed sportsbook.
Escrito por los editores de «mlb Players Betting».
