Athletes ‘Trading’ on Kalshi Raises Uncomfortable Questions about Prediction Markets
Credit: Department of Defense
Two Mississippi State football players were caught and disciplined after placing sports “trades” on Kalshi. The case is just the latest example of how problematic the blurry line is between sports betting and trading on prediction markets.
In one sense, it’s obvious these players did something wrong. They bet on sports, which the NCAA prohibits. Therefore, their punishment seems to be a natural consequence of that rule-breaking.
On the other hand, the eventual classification of prediction markets looms as a major inflection point in cases like these. If courts eventually rule in favor of the prediction markets, will that open the door for athletes to begin, er, “trading” on sports? Or, more likely, create the need for new policies that bar them from prediction markets separately from the existing ban on bets?
What the Mississippi State Football Players Traded on Kalshi
Let’s start with the particulars of this case. The facts look pretty benign, generally.
The Clarion Ledger reported that two players, whose names it redacted, made prediction market bets on Kalshi. Kalshi is legal in Mississippi, which has in-person retail betting but not legal online sports betting. One player bought $50 worth of contracts on the Patriots to win the Super Bowl and lost. The other bought $10 worth of contracts on Damian Lillard to win the 3-point contest at NBA All-Star Weekend. He won that one, but lost another $10 on All-Star Game mention markets (“Will person X say Y during…”).
The players didn’t engage in insider trading. They didn’t manipulate any markets.
State regulators see the markets as betting. Commodity Futures Trading Commission Chair Michael Selig disagrees vehemently and maintains that it’s critical for Americans to have access to these markets, notwithstanding state attempts to shut them down.
In fact, it’s fascinating to read the Clarion Ledger’s report and note the language used: “sports gambling, wager, betting.” The compliance company that identified and flagged their activity is called “Prohibet.”
If Kalshi and prediction market industry advocates have their way, none of these terms is appropriate. They maintain that prediction markets are financial instruments. So, buying contracts on the Patriots to beat the Seahawks, foolish as it might be, is a form of financial hedging and not a bet.
Early returns from the courts have signaled skepticism on these claims. More often than not, the courts seem to have a hard time discerning why these contracts aren’t sports bets. Of course, that’s because functionally, they are sports bets.
But the prediction markets could still prevail in court. A Supreme Court hearing seems inevitable, and if the prediction markets win, things could get really weird.
What if Prediction Markets are Ruled to be Financial Instruments?
I’ll start with the obvious statement that I’m not a lawyer, so I don’t know the exact extent of the NCAA’s powers. My understanding is that functionally, its authority has waned in recent years, as the name, image, and likeness (NIL) era has taken over college sports.
If the NCAA has its way, there won’t be any contracts revolving around college sports.
Of course, the prediction markets will never voluntarily let that happen, since these markets generate billions of dollars in trades. Some prediction platforms have been about as brazen as it gets in building what amounts to exchange-style sportsbooks.
So, imagine a future where the courts ultimately rule that prediction markets are, in fact, financial instruments that can legally offer contracts on sporting events. On what grounds could the NCAA or anyone else stop the athletes from trading on them? It would be no different than telling the athletes they couldn’t buy Apple stock, so long as they aren’t trading on games that they can influence or upon which they possess insider knowledge.
The blurred lines between sports betting and financial instruments have thus far been a boon for the prediction market industry. It can offer sports bets, classify them as something else, and reap the rewards of stratospheric valuations.
But eventually, a clearer distinction will emerge, one way or the other. And the chance remains that Mississippi State football players buying $10 of NBA contracts will be looked back on as a quaint reminder of a bygone era, when guardrails were in place to stop athletes from betting.
Players trust our reporting due to our commitment to unbiased and professional evaluations of the iGaming sector. We track hundreds of platforms and industry updates daily to ensure our news feed and leaderboards reflect the most recent market shifts. With nearly two decades of experience within iGaming, our team provides a wealth of expert knowledge. This long-standing expertise enables us to deliver thorough, reliable news and guidance to our readers.
Latest News
