Kalshi and other prediction markets can be understood as Democratic and Natural Sports Markets. Unlike traditional sportsbooks, which are predominantly rent-seeking operations explicitly designed to condition and extract maximum value from profiled customers, prediction markets operate with a more profit-seeking orientation.Their structure is structurally superior and more ethical in key ways. This makes them genuinely more democratic and more natural in reflecting collective judgment/utility rather than engineered exploitation. That said, prediction markets are not free of rent-seeking themselves. They still depend on a steady supply of net losers to generate sustainable volume and fees, and they profit from the same variable reinforcement psychology that drives gambling behavior. The difference lies in degree and design: while both models ultimately rely on wealth redistribution from losers to winners plus the platform, prediction markets represent a meaningfully less extractive and more meritocratic version of sports-related risk markets.
I agree with your framing, but not necessarily the conclusion. I see sportsbooks as NYC medallion taxis and prediction markets as Uber.
Uber won early because it was cheaper, cleaner, and more convenient, aided in part by regulatory arbitrage. But once it became dominant, it raised platform fees, squeezed drivers, and layered in pricing tiers to squeeze customers. Over time, the total economic extraction between medallion owners and platform owners converged toward a similar equilibrium. If you get in a cab versus getting in an Uber today, you are going to pay the same. If Uber knows you are a business account, you’ll pay more.
Where prediction markets may differ is expansion. Uber made car service viable almost everywhere. Kalshi and Polymarket can make markets around almost anything, vastly expanding what becomes tradable.
Big fan of your work but I think this misses the mark.
1. Prediction markets are way different than sportsbooks at a fundamental level. Sportsbooks are monopolies where the price for a game is offered by one party so they will offer the highest price a user will take (-110 and even worse for parlays) and profit is when the the user loses. On prediction markets it is a free market on who can offer the price, so ANY user can offer a price for the game which means if a Market Maker is offering too high of a price, then another market market or user can offer a better price which is better for the user that is taking. A free market > Monopoly in any market structure.
2. Prediction markets are a clear improvement to sportsbooks in terms of the ecosystem and structure for a zero sum market like sports wagering. Its a better product than the status quo for users so saying Kalshi still needs users to lose is similar to saying healthy alternatives are still bad for you.
Thanks for the kind words! I generally agree, and tried to make it clear that I am not anti sports betting exchange, and am supportive of that fair and free market. But there's a big difference between exchanges and their fee structures: for example, if we were talking about Novig, where there are 0 maker or taker fees, and anyone can truly offer a price and their counterparty takes the other side without a fee, then yes that's way better and more in line with the exchange/PM ethos. But with such egregious taker fees on Kalshi I don't think you can really call it a "free market."
Re your second point: I also agree! Tried to get at this a bit in footnote 16 (lol) but my main critique here isn't about prediction markets, or even high fees, but the mismatch between the nature of products and the marketing promoting them. Obviously most people are going to lose betting on sports no matter what the ecosystem and more platforms/options and better prices/lower losses is good for the user. But it's not good when a company like Kalshi goes around marketing their -EV product as investing, especially given how recklessly they do it and how much it reaches an underage audience (I see this firsthand; yesterday I spoke at a high school and dozens of boys came up to me after telling me about how they were betting/trading on Kalshi and how it was all over their Tik Tok). I also don't believe that you shouldn't criticize certain actors just bc they might be slightly less bad than other actors. I am all for bettors having more options, and am not out here writing Kalshi hit pieces bc the AGA is paying me. I'm doing it bc they deserve it. Thanks for reading!
I would believe the taker fees get lowered as other PMs enter the market and get more traction which is happening according to the CFTC filings. Gotta let time play out for capitalism to do its work (in the same way they do on PMs. Novig business model is trading on Kalshi and other venues to subsidize their lack of fees and also the VC money to sustain operations. How would a no fee PM work? Doesn't sound like sustainable business.
Point 1 misses that casinos operate in a competitive marketplace. Google any combination of [game] and [bet] and you’ll get dozens of online casinos trying to take your wager by brandishing their prices. The fact that the venue itself is “monopolistic” in a competitive market is irrelevant. It’s simply false to characterize this as a monopolistic pricing regime.
Point 2 states a conclusion but makes no argument so I can’t usefully respond to it.
If you think that the presences of multiple sportsbooks = a competitive marketplace than I encourage you to read up on how sportsbooks make money and google the marketshare of Draftkings and Fanduel. They don't win marketshare because they are offering more competitive prices.
Sure, they compete on other dimensions too. That’s not mutually exclusive. Is there some explanation for the very tight pricing that involves no price competition? Seems hard to believe that’s just a coincidence.
I think non sports is broadly positive sum once you account for public value of information which is substantial. Plus the hedging value is real and emergent. And then the exchanges themselves probably make sports betting less negative sum. Responded in greater detail on my blog where I linked to this.
Great article — and the poker analogy is spot on. Pros extracting money from recreational players eventually broke the ecosystem: GGPokerOK now actively removes professionals, and most other rooms have tightened table selection.
Prediction markets might be heading down the same road.
Coincidentally, my latest post covers exactly this — how wealth gets redistributed in prediction markets, if anyone wants to go deeper 😊
Providing liquidity is a value add in the PM ecosystem or else users get a worse price. If you wanna use that analogy, poker pros do not provide liquidity and actually function as quite the opposite role that you think. They actually reduce liquidity because most are tight players.
You’re right that pros reduce liquidity — but not because they’re tight, but because they’re so much better that ordinary participants simply don’t want to be their counterparty. The same applies to prediction markets — retail takers end up trading against market makers with an informational edge, rather than against each other.
Without pros and market makers, regular participants would trade among themselves — prices would be worse, but the money would stay within the ecosystem. With pros/market makers, money systematically flows to those with informational superiority — and that’s exactly the point of the analogy.
Providing liquidity is a value add in any ecosystem. See the stock market or any other financial market. Poker pros are not liquidity providers in any way shape or form.
If the ecosystem was only regular participants, liquidity would be a fraction of what it is. Look at past decentralized prediction markets that have been around since 2017. None of them had sufficient liquidity
Actually — poker pros do provide a form of liquidity. They’re always willing to play, at any stake, for as long as you want. Without them, finding a high-stakes game on demand would be nearly impossible. That’s not so different from a market maker always posting a price.
But the real question is: valuable for whom? For the market as a whole — sure. But first and foremost for the professionals themselves, who have every incentive to keep as many retail users in the game as possible. The retail user who funds all of it with consistent losses is essentially paying an invisible tax to subsidize infrastructure that serves everyone but them.
I mean if we are trying to argue that poker pros function as liquidity providers in the poker ecosystem and are similar to market makers in a financial market or prediction market than there's really no point in discussing it further if we have to reach that far for the analogy to make sense.
Bringing in some stats from a Bloomberg article earlier this week:
Over 100,000 accounts lost at least $1,000 on Polymarket, one of the largest prediction markets, according to a Bloomberg News analysis of every wallet active since the beginning of 2025. That is almost twice the number that made at least that much.
Among the winners, a majority of the profits were raked in by a tiny slice of what look to be automated bots, based on the Polymarket trade records compiled by the data firm Dune. Everyone else, in aggregate, lost $131 million.
What an incredibly useful and interesting column! I hope this gets spread widely so everyone understands how these "markets" really work.
Kalshi and other prediction markets can be understood as Democratic and Natural Sports Markets. Unlike traditional sportsbooks, which are predominantly rent-seeking operations explicitly designed to condition and extract maximum value from profiled customers, prediction markets operate with a more profit-seeking orientation.Their structure is structurally superior and more ethical in key ways. This makes them genuinely more democratic and more natural in reflecting collective judgment/utility rather than engineered exploitation. That said, prediction markets are not free of rent-seeking themselves. They still depend on a steady supply of net losers to generate sustainable volume and fees, and they profit from the same variable reinforcement psychology that drives gambling behavior. The difference lies in degree and design: while both models ultimately rely on wealth redistribution from losers to winners plus the platform, prediction markets represent a meaningfully less extractive and more meritocratic version of sports-related risk markets.
I agree with your framing, but not necessarily the conclusion. I see sportsbooks as NYC medallion taxis and prediction markets as Uber.
Uber won early because it was cheaper, cleaner, and more convenient, aided in part by regulatory arbitrage. But once it became dominant, it raised platform fees, squeezed drivers, and layered in pricing tiers to squeeze customers. Over time, the total economic extraction between medallion owners and platform owners converged toward a similar equilibrium. If you get in a cab versus getting in an Uber today, you are going to pay the same. If Uber knows you are a business account, you’ll pay more.
Where prediction markets may differ is expansion. Uber made car service viable almost everywhere. Kalshi and Polymarket can make markets around almost anything, vastly expanding what becomes tradable.
Big fan of your work but I think this misses the mark.
1. Prediction markets are way different than sportsbooks at a fundamental level. Sportsbooks are monopolies where the price for a game is offered by one party so they will offer the highest price a user will take (-110 and even worse for parlays) and profit is when the the user loses. On prediction markets it is a free market on who can offer the price, so ANY user can offer a price for the game which means if a Market Maker is offering too high of a price, then another market market or user can offer a better price which is better for the user that is taking. A free market > Monopoly in any market structure.
2. Prediction markets are a clear improvement to sportsbooks in terms of the ecosystem and structure for a zero sum market like sports wagering. Its a better product than the status quo for users so saying Kalshi still needs users to lose is similar to saying healthy alternatives are still bad for you.
Thanks for the kind words! I generally agree, and tried to make it clear that I am not anti sports betting exchange, and am supportive of that fair and free market. But there's a big difference between exchanges and their fee structures: for example, if we were talking about Novig, where there are 0 maker or taker fees, and anyone can truly offer a price and their counterparty takes the other side without a fee, then yes that's way better and more in line with the exchange/PM ethos. But with such egregious taker fees on Kalshi I don't think you can really call it a "free market."
Re your second point: I also agree! Tried to get at this a bit in footnote 16 (lol) but my main critique here isn't about prediction markets, or even high fees, but the mismatch between the nature of products and the marketing promoting them. Obviously most people are going to lose betting on sports no matter what the ecosystem and more platforms/options and better prices/lower losses is good for the user. But it's not good when a company like Kalshi goes around marketing their -EV product as investing, especially given how recklessly they do it and how much it reaches an underage audience (I see this firsthand; yesterday I spoke at a high school and dozens of boys came up to me after telling me about how they were betting/trading on Kalshi and how it was all over their Tik Tok). I also don't believe that you shouldn't criticize certain actors just bc they might be slightly less bad than other actors. I am all for bettors having more options, and am not out here writing Kalshi hit pieces bc the AGA is paying me. I'm doing it bc they deserve it. Thanks for reading!
I would believe the taker fees get lowered as other PMs enter the market and get more traction which is happening according to the CFTC filings. Gotta let time play out for capitalism to do its work (in the same way they do on PMs. Novig business model is trading on Kalshi and other venues to subsidize their lack of fees and also the VC money to sustain operations. How would a no fee PM work? Doesn't sound like sustainable business.
Agree re the marketing/promotion.
Point 1 misses that casinos operate in a competitive marketplace. Google any combination of [game] and [bet] and you’ll get dozens of online casinos trying to take your wager by brandishing their prices. The fact that the venue itself is “monopolistic” in a competitive market is irrelevant. It’s simply false to characterize this as a monopolistic pricing regime.
Point 2 states a conclusion but makes no argument so I can’t usefully respond to it.
If you think that the presences of multiple sportsbooks = a competitive marketplace than I encourage you to read up on how sportsbooks make money and google the marketshare of Draftkings and Fanduel. They don't win marketshare because they are offering more competitive prices.
Sure, they compete on other dimensions too. That’s not mutually exclusive. Is there some explanation for the very tight pricing that involves no price competition? Seems hard to believe that’s just a coincidence.
You think sportsbooks offer very tight pricing?
I think the discussion just ended there lol.
Great article! I think it’s important to understand the company’s objectives.
I think non sports is broadly positive sum once you account for public value of information which is substantial. Plus the hedging value is real and emergent. And then the exchanges themselves probably make sports betting less negative sum. Responded in greater detail on my blog where I linked to this.
Would recommend ppl check that post out if they wanna read more on this! https://substack.com/home/post/p-195902546
Great article — and the poker analogy is spot on. Pros extracting money from recreational players eventually broke the ecosystem: GGPokerOK now actively removes professionals, and most other rooms have tightened table selection.
Prediction markets might be heading down the same road.
Coincidentally, my latest post covers exactly this — how wealth gets redistributed in prediction markets, if anyone wants to go deeper 😊
Providing liquidity is a value add in the PM ecosystem or else users get a worse price. If you wanna use that analogy, poker pros do not provide liquidity and actually function as quite the opposite role that you think. They actually reduce liquidity because most are tight players.
You’re right that pros reduce liquidity — but not because they’re tight, but because they’re so much better that ordinary participants simply don’t want to be their counterparty. The same applies to prediction markets — retail takers end up trading against market makers with an informational edge, rather than against each other.
Without pros and market makers, regular participants would trade among themselves — prices would be worse, but the money would stay within the ecosystem. With pros/market makers, money systematically flows to those with informational superiority — and that’s exactly the point of the analogy.
Providing liquidity is a value add in any ecosystem. See the stock market or any other financial market. Poker pros are not liquidity providers in any way shape or form.
If the ecosystem was only regular participants, liquidity would be a fraction of what it is. Look at past decentralized prediction markets that have been around since 2017. None of them had sufficient liquidity
Actually — poker pros do provide a form of liquidity. They’re always willing to play, at any stake, for as long as you want. Without them, finding a high-stakes game on demand would be nearly impossible. That’s not so different from a market maker always posting a price.
But the real question is: valuable for whom? For the market as a whole — sure. But first and foremost for the professionals themselves, who have every incentive to keep as many retail users in the game as possible. The retail user who funds all of it with consistent losses is essentially paying an invisible tax to subsidize infrastructure that serves everyone but them.
I mean if we are trying to argue that poker pros function as liquidity providers in the poker ecosystem and are similar to market makers in a financial market or prediction market than there's really no point in discussing it further if we have to reach that far for the analogy to make sense.
??? Don't see why it's a reach at all. Pros sit at the tables ensuring that if a rec ever wants to play there's other people to play with him
It's why Betfair had to create a premium charge back in 2008
Bringing in some stats from a Bloomberg article earlier this week:
Over 100,000 accounts lost at least $1,000 on Polymarket, one of the largest prediction markets, according to a Bloomberg News analysis of every wallet active since the beginning of 2025. That is almost twice the number that made at least that much.
Among the winners, a majority of the profits were raked in by a tiny slice of what look to be automated bots, based on the Polymarket trade records compiled by the data firm Dune. Everyone else, in aggregate, lost $131 million.