Prediction Market Growth
Truist analysts suggest that 18- to 20-year-olds, who are often too young for legal sports gambling in most states, may be a significant factor in the increasing popularity of prediction markets. Data from HoldCrunch indicates that the prediction platform Kalshi processes more trades on college football than on NFL and NBA. During the week ending January 4, college football constituted 32% of Kalshi's total handle, with the NFL at 24% and the NBA at 22%. This trend has been observed since October.
Regulatory Landscape and Demographics
Prediction markets, which allow users to bet on various event outcomes, are accessible to individuals aged 18 or older, with some state and trade-specific exceptions. They are expanding rapidly, particularly in states where online sports betting is not legal or is restricted to those 21 and older. NCAA President Charlie Baker has formally requested the Commodities and Futures Trading Commission (CFTC) to remove college sports from prediction market trading options until additional safeguards are in place.
State-Specific Trends and Betting Behavior
Juice Reel, an application for tracking sports wagers, found a higher adoption of prediction markets in states lacking legal sports betting. For example, 9% of its California customers and over 6% of its Texas customers have linked prediction accounts. Curiously, New York, which has legal online sports betting, ranks second with 6.8% of Juice Reel customers connecting prediction accounts, possibly due to a high concentration of financial traders or the involvement of 18- to 20-year-olds.
In New York, where regulated sportsbooks face a 51% tax, alternative platforms, including sweeps, daily fantasy, bookie accounts, and offshore sportsbooks, capture 40% of the total money wagered by Juice Reel customers.
Some experienced bettors are reportedly using prediction markets because regulated sportsbooks often limit their bet sizes. Juice Reel data indicates that while regulated sportsbooks account for 70% of the number of bets, they represent only 38% of the overall handle. Conversely, prediction markets make up 1% of the total bets but contribute 13% to the handle. Truist's analyst Barry Jonas noted that prediction markets enhance bettor skill and variance, leading to potentially larger losses for low-wallet users and greater gains for high-wallet users.