For those who decided to place a wager on the Super Bowl this past weekend, a smorgasbord of options awaited. You could have engaged in friendly banter with a pal, ventured to a casino (if your state permits such indulgences), or utilized a casino app to facilitate your bets.
However, since last year, a novel approach has emerged: entering into an event contract via a Designated Contract Market, all under the watchful eye of the Commodity Futures Trading Commission (CFTC). This regulatory framework, typically reserved for traditional commodities like wheat and coffee, is now being harnessed for trades as whimsical as which team will triumph in the showdown and what tune will grace the halftime show first.
This innovative legal maneuver was spearheaded by Kalshi in January 2025 and is gaining traction among a burgeoning number of exchanges. Initially, the CFTC had proposed shutting down markets they deemed “gaming,” particularly those involving politics and sports. Yet, in a surprising twist, they recently withdrew this proposal, possibly swayed by compelling arguments from economists like myself, the new leadership at the CFTC, and the robust lobbying efforts from exchanges who’ve invested heavily in legal representation, including hiring some very expensive lawyers and former CFTC officials.
For these exchanges, the allure of offering Commodity Sports markets is abundantly clear: they tap into a lucrative arena previously monopolized by a select few companies with gaming licenses in states where sports betting is sanctioned. For users, the appeal of trading on these exchanges rather than in traditional casinos includes lower fees, the ability to sell contracts before games conclude, and a lack of restrictions on successful traders—unlike the punitive measures often imposed by casinos. Additionally, these exchanges can operate in the 11 states that have yet to embrace sports betting through casinos.
While the beneficiaries of Commodity Sports are obvious, the casualties are equally clear: bettors who may spiral into debt, casinos grappling with increased competition, state governments that believed they had effectively banned sports betting, and those expecting sizable tax revenues from legalized sports betting—all feeling the pinch from this commodity loophole. Legal challenges have arisen against the exchanges, with varying degrees of success thus far.
I find myself grappling with mixed emotions regarding Commodity Sports. The libertarian in me cheers at the thought of the government stepping aside to allow voluntary exchanges between consenting adults. As a bettor, I relish the alternatives to the exorbitant fees associated with casino monopolies.
Yet, as an economist, I harbor concerns.
I appreciate that CFTC-regulated exchanges like Kalshi and Polymarket are thrusting prediction markets into the limelight. The true merit of prediction markets lies in their ability to synthesize fragmented information into a single, reliable forecast of future events. However, the traders engaged in these markets aren’t the real victors; the betting process is inherently a zero-sum game—every dollar one trader claims is a dollar lost by another. The real beneficiaries are those of us who can access these more accurate forecasts without risking our own money. In a virtuous cycle, adept forecasters accrue greater funds to influence markets toward accuracy, while less savvy predictors learn to bow out. (As former EconLog author Bryan Caplan eloquently put it, “a bet is a tax on false ideas.”)
This vision motivated economists like Robin Hanson to champion prediction markets long before the emergence of the current wave of CFTC-regulated exchanges. Scott Sumner has advocated for markets predicting future NGDP to better inform Federal Reserve policy. Such discussions have inspired founders of prediction markets 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
Thus, while I recognize the immense potential of prediction markets to provide clearer forecasts on significant issues that empower policymakers, businesses, and individuals to make informed decisions for the future (e.g., Which world leaders will vacate their posts this year or Which nations will face a recession?), I perceive far less value in acquiring precise forecasts on trivial matters like the number of receptions Jaxon Smith-Njigba will make.
Echoing Robin Hanson, I worry that ongoing legal disputes surrounding Commodity Sports and the emerging cultural backlash against sports betting could jeopardize the most informative prediction markets as collateral damage. I hope I’m mistaken, and that the revenues from sports betting will enable these exchanges to support a broader array of valuable markets than ever before. After all, their founders seem to have thrived by challenging the status quo (FBI raid notwithstanding).
For the moment, bettors can still engage in trading derivatives contracts concerning the performances of athletes before their contracts expire—essentially, betting on sports through prediction markets.
