When Is a Bet Not a Bet?

In January 2025, Kalchi—the largest prediction market in the United States—began offering bets on sporting events. Within weeks, nearly 90 percent of its trading volume came from sports. The company, which had spent years positioning itself as a federally regulated derivatives exchange rather than a gambling platform, suddenly looked a lot like DraftKings or FanDuel. That transformation has set off a legal and regulatory battle over a surprisingly slippery question: when does a prediction market bet become gambling, and when is it a legitimate financial trade?

The Wolf-and-Sheep Model of Market Accuracy

George Mason University economist Robin Hansen, who has studied prediction markets for decades, argues that their value lies in information aggregation. He describes markets as having two kinds of traders: "wolves," who have genuine information and trade to profit from it, and "sheep," who trade for other reasons—retirement contributions, entertainment, or just noise. Wolves want to trade against sheep, not other wolves, because that's where the profit is. This dynamic, Hansen says, is what makes prices accurate. "Wherever the sheep accumulate in the world of markets, the wolves go there," he explains. "That's why Google stock has more accurate prices than some penny stock. Presidential election markets are more accurate than senatorial election