Prediction Markets Turn to the News Media to Seek Legitimacy
Today's forecast calls for a 100% chance of percentages
Kalshi has announced Fox News as its latest media partner, as Polymarket launches new tools for journalists.
Most journalists are suckers for a good statistic, and the leading prediction market operators are banking on the value of such citations as a marketing strategy.
Kalshi struck its first news media deals in December, with CNN and CNBC. The integration has been limited, so far. However, the new partnership with Fox News appears more ambitious, spanning Fox News, Fox Business Network, Fox Weather, and the Fox One streaming service.
Ironically, it appears that the deal won’t include electoral odds, as Fox is committed to its own polling apparatus. Political forecasting is arguably the one area in which prediction markets have proven their usefulness, frequently outperforming traditional polls.
Meanwhile, Polymarket is attempting to engage with journalists and bloggers at an individual level. Its new tools include, for instance, the option to upload a draft article and let the algorithm suggest appropriate markets to cite for context. Another one will check a market for sudden movements and correlate those with the timing of relevant headlines to quantify the impact of those stories. You can even embed live Polymarket odds in your Substack newsletter.
If successful, these attempts to gain a foothold in the traditional news media will be much more than just a marketing asset for the prediction markets. It could be a game-changer for public relations.
Aside from the prediction markets themselves, one of the biggest challenges facing the U.S. sports betting industry is a hostile press. Even with the sportsbook boom years now behind us, hardly a month goes by without a hit piece appearing in some major publication, with the New York Times being one of the most habitual antagonists.
An Industry in Search of Legitimacy
This courting of mainstream media comes at a critical juncture for the prediction market industry. Event contracts are a novel product for most Americans, so the public may not have yet figured out how it collectively feels about them.
However, prediction markets’ self-conflation with sports betting may backfire, due to the latter’s ongoing PR crisis. Companies like Kalshi and Polymarket have attempted to stress that they are peer-to-peer exchanges and aren’t “the house,” yet it’s unclear how much that resonates with any but the most sophisticated segment of consumers.
Meanwhile, it’s at the center of a multilateral legal case that seems inexorably bound for the Supreme Court. New rulings come in on a weekly basis, split between wins and losses for the prediction markets. The federal government has now waded in, with the Commodity Futures Trading Commission suing certain states, but not others, to thwart their attempts to shut down sports contract trading.
The CFTC’s choice of states to sue — all Democrat-controlled — leads us to the final facet of the prediction markets’ tenous position: their association with the Trump administration.
Under Biden, the CFTC had been investigating prediction markets and opposed the idea of event contracts on sports. Under Trump, it made an abrupt about-face. Meanwhile, the Trump family has financial connections to most of the major players in the space, including both Kalshi and Polymarket. It’s also widely suspected that at least some members of government are using foreknowledge of political decision-making to profit on the exchanges.
If public attitudes toward prediction markets become polarized on partisan lines, that’s another factor contributing to an unstable future. In the short term, however, it makes the Fox News partnership all the more appealing, given how heavily Republican-skewing its viewership is.
Is the Social Value in Foresight, Hedging, or Both?
Regulated prediction markets in the U.S. today are the union of two historically separate products with different rationales for existing.
The legal framework under which they operate is that of a derivatives exchange. The traditional rationale for event contracts as a financial product is as a way for businesses to hedge risks.
Yet, the more obvious precursor to Kalshi and Polymarket from a product design standpoint is PredictIt, an academic project with a different goal in mind. That platform began as a research project in partnership with the Victoria University of Wellington, in New Zealand. The idea was to test whether groups of humans with financial “skin in the game” could predict political outcomes more reliably than individual experts, who might suffer from biases or limited visibility into the mood “on the street.”
PredictIt began operating in the U.S. in 2014 with the CFTC offering its blessing so long as PredictIt remained small in scale and academic in focus. However, after Kalshi and Polymarket appeared in 2020, seeking to commercialize a similar business model, the Biden-era CFTC unsuccessfully tried to withdraw that permission from PredictIt. (The technology provider, Aristotle International, is now also providing a commercial platform for Underdog, although PredictIt continues to operate as a not-for-profit.)
In fighting their legal battles, the prediction markets will need to rely heavily on the first rationale — that is, their utility as a hedging tool. Yet the general public may not understand or care about that explanation, as it concerns the world of finance. The argument that prediction markets provide insight into world events may be more important when it comes to public relations.
Normalizing the inclusion of prediction market lines in news broadcasts would advance that goal considerably.
Prediction Markets and the Observer Paradox
Prediction markets have proven that, in some circumstances, they fulfill PredictIt’s promise of crowdsourced foresight. In particular, they have forecast some elections, including Trump’s, better than polls.
And yet, they suffer from a fundamental problem, which is the observer paradox. We’re all familiar with the physics trope of Schrödinger’s Cat, whose status depends on whether or not someone opens the box to check on him. The same principle exists in sociology, psychology, and economics, in which people behave differently when they’re being watched. That goes double if they know what the observer is expecting them to do.
There is a risk that prediction markets begin to occupy a gray area between predicting outcomes and shaping them. That risk grows in proportion with the size of the prediction markets and becomes almost inevitable when those with the power to affect outcomes are connected to those with money on the markets.
Of course, slightly different but conceptually similar accusations are often leveled against the media itself. In the current climate of mistrust, virtually everyone believes that at least some news outlets deliberately distort the truth and “brainwash” their audiences. Generally speaking, the only difference of opinion is on which ones, if any, don’t do that.
So, although it makes sense for prediction markets to seek legitimacy through the news media, it’s a plan that carries risks for both parties. It could help both to mutually legitimize themselves. But it could equally become — in reality or in public belief — a sort of turducken of mass control.
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