America's Sports Betting Explosion Just Found a New Loophole

Nearly half of American men under 50 have an active sports betting account, yet 18 states still ban online gambling from home. That contradiction is about to disappear—not through legislation, but through a clever loophole that's turning prediction markets into America's newest sports betting empire.

The Kalshi Gambit

Two weeks before Super Bowl 2025, Kalshi—one of America's largest prediction markets—launched full sports betting operations. The timing wasn't coincidental. The platform has already captured $167 million in Super Bowl bets, with analysts predicting the total could hit $1 billion.

But here's the twist: Kalshi operates legally in all 50 states by calling itself a prediction market, not a sportsbook. Instead of traditional gambling odds, users trade "contracts" that pay out based on event outcomes. It's the same bet with a different wrapper—one that sidesteps state gambling prohibitions entirely.

The major players have taken notice. FanDuel, DraftKings, Fanatics, and others have all launched prediction market platforms since September, effectively entering previously forbidden territories through this regulatory backdoor.

When Everything Becomes Bettable

Kalshi CEO Tarek Mansour has an ambitious vision: to "financialize everything." The platform lets users wager on Oscar winners, snowfall in New York, Iranian politics, and Federal Reserve decisions. CNN and CNBC now incorporate Kalshi's predictions into news coverage, while the Golden Globes displayed Polymarket odds during its broadcast.

Yet for all this grand vision of crowd-sourced forecasting, the reality is more mundane. Sports account for over 90% of Kalshi's trading volume. During a recent month, college basketball bets alone exceeded all non-sports wagering combined. Even Italian soccer drew more action than predictions about Trump's Federal Reserve nominee.

Jack Such, a Kalshi spokesperson, insists the platform's focus shifts with news cycles—politics during elections, sports during game season. But with sports betting now live year-round, that seasonal variation may become academic.

The Regulatory Reckoning

Several states are suing Kalshi for operating unlicensed sports betting, arguing the company deprives them of tax revenue while exposing residents to gambling harms. Research links heavy sports betting to depleted savings, bankruptcy, and domestic violence.

But federal winds are shifting. Michael Selig, the new head of the Commodity Futures Trading Commission, recently signaled support for expanding prediction markets. This federal backing could override state objections, making sports betting truly nationwide regardless of local laws.

The question isn't whether this expansion will happen—it's already underway. The question is what comes next.

The Wisdom of Crowds or the Folly of Masses?

Prediction markets promise to harness collective intelligence for better forecasting. Polymarket CEO Shayne Coplan claims they're "the most accurate thing we have as mankind right now." But when 90% of bets are on sports outcomes, what wisdom is actually being captured?

John Phillips of PredictIt suggests the answer might be "none." He argues that sports bettors and serious forecasters are fundamentally different populations. "People who are making forecasts on political and social and scientific outcomes are possibly different from people who are betting on sporting events."

If Phillips is right, prediction markets face a paradox: Sports betting brings the volume needed for profitability, but it may undermine the intellectual credibility they seek. A platform flooded with four-leg NBA parlays isn't generating the kind of crowd wisdom that could improve hurricane forecasts or election predictions.