Editor’s Note: This was originally published in City Journal.
Americans are betting billions on prediction markets, staking money on everything from elections to album sales to football games. Legally speaking, though, they aren’t betting at all. Prediction markets are, according to them and to federal regulators, technically investment platforms, and the event contracts they offer are a type of financial derivative.
Despite their status as legitimate financial platforms, prediction markets have engaged in marketing tactics that would make even a casino blush.
As the Wall Street Journal recently reported, Polymarket—the second largest prediction market in the country—set up dummy websites so that college-aged influencers could fake big wins on social media, often with captions highlighting how “free” the profits were and how winnings were paying for extravagant lifestyles. Kalshi, the largest prediction market, has allegedly employed similar tactics: the newsletter Garbage Day found a third-party service was paying “clippers” to post fake winning bets on Kalshi, often without disclosing that these were ads.
While many of the winning wagers on social media are fake, actual losses by Americans on prediction markets are very real, to the tune of more than a billion dollars on Kalshi alone since 2021. Federal regulators—who have beaten the drum relentlessly about their exclusive right to oversee prediction markets—need to impose reasonable guidelines surrounding advertising. Absent these rules, prediction market companies will continue to engage in misleading practices to entice Americans to gamble.
Financial institutions face a host of rules around advertising. Under rules from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), companies like Charles Schwab, Fidelity, and Robinhood take great care with the wording of their marketing materials. Ads might emphasize the tools at a firm’s disposal to boost customers’ retirement savings, but profits are never presented as guaranteed, and any testimonials require clear compensation disclosure.
Prediction markets, though technically investment platforms, are not regulated like other financial firms. They fall under the oversight of the Commodity Futures Trading Commission (CFTC), an agency formed in the 1970s to regulate things like pork-belly derivatives. Because prediction-market event contracts are technically swaps—a type of derivative contract—the CFTC insists they fall within its jurisdiction.
Put aside for a moment the question of whether the CFTC has the expertise to regulate what is, in practice, a mass-market sports betting platform (it does not), or whether it has sufficient staff to provide that oversight (again, no). The CFTC is focused on regulating derivatives, not marketing. The last time the agency released specific advertising guidance was 2007. The 267 pages of rules around prediction markets the CFTC published in June set no regulatory standards for advertising, marketing, or communicating with the public.
The practical result: aside from the baseline rules covering the private sector from the Federal Trade Commission (FTC), prediction markets are free to advertise however they see fit.
Kalshi, for its part, does not want to be seen as operating without guardrails. The company presents itself as the rule-abiding, regulated operator, in contrast to Polymarket, which is technically based offshore.
On its website, Kalshi boasts that the National Futures Association (NFA) “imposes specific marketing and advertising restrictions” to protect prediction-market customers from “false, deceptive, or manipulative advertising.” The NFA does exactly that for its members. The only problem is that Kalshi isn’t a member of the NFA and is not subject to any of its rules. The company, and the entire industry, cling to the credibility conferred by financial regulation without actually being bound by those regulations. A company spokesperson confirmed via email that Kalshi is not an NFA member and wrote that the section of its website that includes the reference to the NFA “is actively being revised.”
The result has been a flood of misleading and deceptive ads that would be out of bounds for any other financial firm. As the Journal reported, Kalshi paid college-aged influencers to boast of how much they were betting—and winning—on the platform, most of whom never disclosed that they were being paid. Among them was a 15-year-old video-game streamer whose partnership was canceled only after the company’s lawyers weighed in. “Yo brother, legal team confirmed that we can’t work with minors rn,” a Kalshi employee messaged the streamer, according to the Journal. “Kinda sad tbh.”
The companies advertise this way because it works. Young people—especially young male sports fans—are inundated with gambling content on social media. A generation of young people are becoming gamblers, not necessarily because they are excited to gamble, but because they fear missing out on the winnings their peers seem to be raking in.
Regulators are perpetually behind new technology; prediction-market advertising is a clear case in point. But the current situation is untenable.
The CFTC—on its own or as directed by Congress—needs to adopt specific marketing rules or clarify other agencies’ authority to oversee prediction-market communications. At a minimum, those rules should ban promises of guaranteed winnings, prohibit depictions of fabricated or simulated winnings, and require disclosures of paid partnerships in every ad.
Just as important, the rules must bind not only the platforms but their affiliates––the influencers, clippers, and marketing contractors through whom prediction markets increasingly reach the public. Here, the CFTC would not need to invent anything: it already requires those who solicit customers for a regulated exchange to register as Introducing Brokers. Extending that requirement to anyone paid or incentivized to drive traffic to a prediction market would sweep the affiliate economy into the regulatory system—including membership in the NFA, whose advertising rules Kalshi already touts.
Prediction markets cannot both claim to be investment platforms and market themselves like sleazy gambling companies. If they want to be treated as legitimate investment platforms, they need to act—and advertise—like it.
Consumer education in this space is one of the largest untapped opportunities, I think. But we don't have a great track record of teaching financial literacy so I'm not holding my breath.
But what if they are actually a gambling company