The eyes of the iGaming world have been fixated on developments in the prediction market space, as the sector has embarked on growth on a quite monumental scale.
We spoke to Flip Pidot, Member of the Board of Directors at the Coalition for Political Forecasting, who urged the legacy industry against denying or battling the surge of prediction markets and the ‘mild-to-moderate carnage’ they are bringing to the party.
iGaming Expert: Firstly, from a political and PR standpoint, what is the landscape currently for prediction markets, and what does their role in the gambling ecosystem look like?
Regulatorily, we’ve seen the sensational and way overdue liberalisation at the federal level in the last 18 months. The CFTC has gone from our chief antagonist to our patron saint. As recently as late 2024, you couldn’t trade elections on a regulated exchange. But for once, the judicial, electoral, and regulatory gears have (mostly) started turning in harmony.
As a result, now we not only have elections, but sports and perps trading on DCMs. And rather than a single venue, there are dozens of platforms, either launched, licensed or in the regulatory pipeline. As a result, we’re in a period of blistering fundraising and heated competition. That means even more innovation and more dynamic growth, which is a hugely exciting stage for a new asset class, but in this case, it’s also meant encroaching on legacy gambling interests, particularly the business of sports betting, which includes the business of taxing sports betting.
That’s been the source (or at least one of the sources) of some of the PR blowback. Any industry that finds itself ruffling such large legacy feathers (and the attached political interests) had better be good at keeping its nose clean, because there are, needless to say, powerful interests that would like prediction markets knocked down a peg.
That’s where things get complicated, in light of the other sources of PR blowback: insider trading, whether real or imagined, net beneficial or harmful; sloppy rules writing or flawed adjudication of those rules; accusations of underhanded competitive practices… These self-inflicted wounds only serve to empower professional prediction market sceptics – whether philosophically, financially, or electorally motivated.
How important is the backing of Donald Trump for prediction markets as the CFTC and prediction market platforms prepare to take on legal hearings against state regulators?
If there’s anything we can agree on, it’s that federal jurists are above reproach and immune to partisan politics. In a world where they weren’t, this might indeed be a major factor.
And not one that always lines up with Trump’s preferences (which currently seem quite pro-prediction market, but with Trump, nothing’s permanent), but drawing a Biden judge could equally dim one’s prospects… in this hypothetical where we concede judicial fallibility.
Do you believe it is important that the CFTC holds the authority over prediction markets, and what damage could it do if this were to shift?
Unless Congress takes back the authority it expressly gave the CFTC to regulate commodity futures, including the purview to determine what are commodity futures, then it’s critical that the CFTC maintains that authority. For the most part, this isn’t controversial. It’s only as we’ve entered the era of ‘event futures’ that things have gotten sticky.
Even then, they weren’t all that sticky for the first decade or so after Congress amended the Commodity Exchange Act to explicitly codify event futures as a CFTC-regulated thing. As long as those events stayed dry and relatively unappealing to the broader public – interest rate policy, economic indices, relatively dry regulatory and legislative outcomes – there was little fuss.
But ultimately, there’s no obvious distinction between whether the FOMC choose to lower a benchmark interest rate and whether Congress taxes data centres, or Virginia redraws its Congressional maps. Or whether Trump is impeached or whether Democrats win back the Senate. These are all ‘events’ upon which we can build futures contracts, the trading of which creates economic value by virtue of the efficient reallocation of risk. And, as a positive externality, also provides a societal benefit through the public price discovery, consumable and actionable by market participants and non-participants alike.
One can certainly validly argue that the CFTC shouldn’t be choosing to include everything it’s lately been allowing into its realm of (to paraphrase their core principles) events which have a significant two-sided economic impact on natural hedgers. But that’s ultimately a question for its Senate-confirmed leadership. Unless Congress takes the power away from that agency, there’s little reasonable debate about where that discretion lives at the federal level.
And unless We the People amend Article VI, Clause 2 of the Constitution, there’s little reasonable debate about whether unhappy states can supersede that jurisdiction.
Is there a danger that once a new US government gets into power, the wave of momentum for prediction markets will end, and frameworks will change?
Yes, but for prediction market fans, that’s probably too far in the future to matter. With the dizzyingly accelerating pace at which the industry is growing and innovating, 30 more months might as well be half a century. There will simply be too much toothpaste to even contemplate putting it back in the tube.
Prediction markets aren’t just moving fast because markets inherently move fast – though that’s also true. But with so many of the leading innovators being not just fintech-native, but truly prediction market-native, the ecology that’s so wonderfully festering and evolving here is not just a new asset class, but without exaggeration a new set of financial primitives that will (to some extent are already beginning to) devour or at least subsume much of the traditional financial industry.
If we think we’re starting to see hackles going up as PMs perturb gaming, just wait until they come for Wall Street proper.
Not to mention the media complex
Why do you believe that using prediction markets to bet on political events can aid policymakers in improving democratic institutions and promoting economic stability?
Prediction markets are truth engines. They’re a tax on bullshit. They’re the antidote to fake media. They pay you to make them better. These are the things that PM maxis say, and it’s because these things are not only very true, but very important. Exchanges are one of the most elegant innovations of modern man, and one of the most enduringly misunderstood and unfairly maligned.
They create real-world value at an unfathomable scale, through almost trivially simple mechanics, all without (seemingly) doing or creating anything. All they do is reallocate. They move the pieces around the board. But because those pieces (which basically boil down to 1) capital and 2) risk) are worth very different amounts to different players in different places at different times, efficient reallocation is economic magic.
Part of that magic is that exchanges capably serve even those who don’t directly use them. Non-traders consult stock and bond prices every day, or other exchange-borne data like interest rates, exchange rates, oil prices, and so on, given their impact on retirement prospects, home purchase timing, vacation planning, business expansion, you name it.
So too can prediction markets empower everyone from a streetmeat vendor to a US Senator to use their price signals to make better informed decisions.
At TheSuper.Market, our slogan is ‘Foresight is the ultimate superpower’.
Prediction markets are the wellspring of that power.
Many argue prediction markets offer a better indication of voting intentions compared to opinion polls. What advantage do prediction markets have compared to opinion polls and traditional election betting markets in forecasting the outcome of elections?
Prediction markets are quicker, more nuanced, and capable of distilling trillions of data points into a single human-readable price signal. They don’t exist in a vacuum, though. Traders are aware of polls, so the extent to which there’s observable predictive value contained in a poll series or aggregate, it will be imputed into prediction market prices. Nate Silver used to discount that admittedly obvious but important characteristic, as a way of dismissing the usefulness of prediction markets.
But the same logic would find the NYSE and NASDAQ superfluous since we have no shortage of credentialed equity analysts at our disposal who happily tell us once a quarter what each company’s stock is worth.
It’s already true (and frankly, has been since at least the 2016 Trump-Clinton matchup) that prediction markets do this better than black box forecasters, pollsters, or other nicely credentialed folks. Yes, in part because they have the benefit of those inputs to their pricing. For that, prediction market operators and traders should be humble and gracious and thank pollsters and forecasters for the data, but we should probably stop shy of pretending that the markets (when functioning well, I’ll allow) aren’t demonstrably more predictive and better calibrated than any form of non-market forecasting.
What do you say to those who have concerns around wider integrity issues involving prediction markets – do you believe that more needs to be done on this front?
Without a doubt. I mentioned that I think the policy impact of a big electoral shift alone is likely to be too late to kill prediction markets before they’ve hit a critical maturity threshold.
But there are various potential self-inflicted paths to ruin. Almost all of them involve market integrity. And market integrity is a several-headed beast. It’s not just about preventing, detecting, and punishing insider trading. And here, critically, I’m talking about real insider information – trading on material, non-public information obtained via a breach of trust, not merely trading by someone who knows better than you. But beyond insider trading, integrity requires – and this industry deserves – a much higher standard of rules writing and settlement adjudication.
This is one of the nascent asset class’s ugliest and least necessary warts. If not dealt with, it will eventually lead to blow-ups that not only scare off the real institutional interest that’s poised to drive the next 100x volume growth, but can also invite popular and bipartisan backlash.
This is a fun party. The cops may shut it down at some point (or at least ask the music be turned down), but in the meantime, let’s not poop the party for stupid reasons.
Do you believe fear from legacy operators around prediction markets is misplaced? And how would you calm fears around the sector?
It’s not misplaced. Prediction markets pose a major threat to legacy operators.
But anyone whose livelihood or business interests are potentially threatened by prediction markets should consider how to re-align their business interests. I don’t think sports will stay on prediction markets forever. I think the eventual regulatory equilibrium between the feds and the states is one that codifies a broader CFTC remit, while reaffirming the economic purpose test of CFTC-regulated products, meaning much of or even most sports volume will come off those exchanges. But then again, I didn’t expect sports contracts to appear on DCMs in the first place, so I could be wrong about that.
But either way, there will be mild-to-moderate carnage along the way for anyone in prediction markets’ rather girthy blast radius. If history’s any guide, the right way for legacy interests to deal with that carnage is to neither deny nor battle it, but to find a way to make friends with it.
