Author: The Editorial Board, Bloomberg Opinion

Translation: Shen Chao TechFlow

Shen Chao Introduction: Bloomberg's editorial board rarely names Kalshi and Polymarket, directly stating that these two are gambling companies circumventing regulation—90% of their revenue comes from sports betting, and their user age threshold is three years lower than legal casinos, and there may also be insider trading involved.

At a time when the monthly trading volume of prediction markets has surpassed ten billion dollars and Nasdaq has begun to enter the market, the regulatory pressure represented by this article deserves serious attention.

Full text as follows:

There is an old saying about ducks: If it looks like a duck, swims like a duck, and quacks like a duck, then it is probably a duck. Currently, American regulators are ignoring this principle—they are accepting the claims of certain gambling companies that "we are not a gambling company, we are a prediction market." Congress should intervene before this charade causes greater harm.

Over the past year, platforms like Kalshi and Polymarket have thrived, allowing users to predict the outcomes of sports events, political developments, and various event results. These platforms have a preferred euphemistic description: they are not brokers of bets but are "prediction markets"; placing money on the outcome of a football match is not called a bet, it is called an "event contract."

This is not just a semantic dispute; behind it is a genuine regulatory arbitrage.

Traditional sports gambling companies like FanDuel and DraftKings obtain licenses state by state and must comply with age restrictions, geographical restrictions, and responsible gambling protections. In contrast, prediction market platforms claim that their products are governed by the federal Commodity Exchange Act (CEA) and should not be bound by the aforementioned state rules. They register with the Commodity Futures Trading Commission (CFTC) and seek regulatory endorsement for their gambling operations.

The CFTC has shown a willingness to cooperate—last month, it withdrew a proposal to ban sports and political contracts. Several states have filed lawsuits to defend their gambling regulatory authority; the dispute over who has the right to regulate these companies may ultimately escalate to the Supreme Court. But the core facts are clear.

First, these companies are engaged in sports betting and other gambling activities, which have almost nothing in common with traditional commodity market transactions.

Second, they have a significant advantage over competitors who comply with state laws. About 90% of Kalshi's commission income comes from sports events. Meanwhile, the stock prices of traditional sports gambling companies have taken a hit.

Third, Kalshi and Polymarket open markets to users over 18, while the legal age in most states is 21. This exposes younger users to risks such as debt, financial instability, addiction, and crime. Some applications are also applying to offer margin trading (i.e., credit operations), which could further exacerbate the issues.

Fourth, Kalshi has established a partnership with Robinhood, indicating that the boundary between brokers and sportsbooks is blurring, which may have catastrophic consequences for many investment accounts.

Aside from the above issues, there is also the risk of corruption. Just before Iran's Supreme Leader Khamenei was killed by an Israeli airstrike on February 28, there were a large number of contracts bought on Polymarket betting on "he will soon lose power"—suggesting that some traders may have had insider information. The total trading amount surrounding this airstrike exceeded 500 million dollars.

When Congress enacted the Commodity Exchange Act in 1936, it clearly did not foresee the creation of large-scale national gambling companies, nor did it anticipate the emergence of such easily manipulable public affairs prediction markets. Congress should take the initiative to intervene, rather than waiting for years of litigation to drag on, leaving a large number of users in financial ruin during this period.

As a starting point, Congress should amend the CEA to clearly define "event contracts"—distinguishing between contracts that have reasonable market logic and those that are purely gambling in nature (such as sports bets), while also restricting gambling on political events; ensuring that prediction markets follow clear rules rather than CFTC's arbitrary discretion; setting basic consumer protection standards for all gambling companies in reference to the SAFE Betting Act, while allowing states to implement stricter regulations.

Ideally, lawmakers might take this opportunity to re-examine the "anytime, anywhere gambling" experiment implemented in the smartphone era in the U.S.—this experiment has led to increasing debt, overdue payments, and other social issues. For now, simply establishing order for these chaotic markets and imposing common-sense limitations would already be a significant improvement.