Prediction markets vs sports betting: what actually differs
A prediction market is a federally regulated exchange where traders take opposite sides of a contract; a sportsbook is a state-licensed house that takes the other side of your bet. The CFTC regulates prediction markets; state gaming commissions regulate sportsbooks, and the CFTC is suing states that try to apply gambling law to exchanges.
Who is on the other side
A prediction market is a federally regulated exchange where traders take opposite sides of a contract; a sportsbook is a state-licensed house that takes the other side of your bet.
CFTC-regulated exchanges, brokers, or other intermediaries that provide access to prediction markets do not take a side of the trade. They provide a platform for trading and are not competing against you.
Kalshi does not possess any financial stake in whether the event outcomes swing in one direction or another.
Polymarket US does not set prices or take the other side of your trades.
A sportsbook keeps the hold:
Hold is the amount of handle a sportsbook retains after paying out winning wagers.
The exchange line has a caveat: the other side is often a paid market maker.
Under the rules, market makers will make markets on Kalshi in exchange for receiving benefits.
Who regulates it
The CFTC regulates prediction markets; state gaming commissions regulate sportsbooks, and the CFTC is suing states that try to apply gambling law to exchanges.
In the United States, prediction markets have been around since 1988 and regulated by the CFTC since 2004.
Despite the CFTC’s clear and longstanding exclusive jurisdiction to regulate event contracts under the Commodity Exchange Act, various states have attempted to outlaw, regulate, or otherwise restrain the activities of DCMs that facilitate trading in lawful event contracts.
The mission of the Massachusetts Gaming Commission is to regulate the legal casino, horse racing, and sports wagering industries with integrity and transparency.
Pennsylvania's regulator calls an exchange on sports by another name:
To be clear, a market by which patrons can take opposite positions on the outcome of a sporting related event is “exchange wagering” under the Pennsylvania Race Horse Development and Gaming Act, 4 Pa.C.S. §13C01, which is unlawful under Pennsylvania law if done without appropriate licensure by the Pennsylvania Gaming Control Board.
Where each state stands is on prediction market legality.
How each is priced
An exchange charges a visible fee on each trade; a sportsbook builds its margin into the odds, the vig.
Kalshi makes money by charging a transaction fee on the expected earnings of the contract.
Vigorish, also known as “Juice,” “Service Fee,” “Commission,” or “Take Out,” is a fee licensed online sportsbooks collect on losing wagers.
The fee on each venue, worked out at every price, is on our fee pages.
Age
Kalshi and most exchanges take customers from 18; sportsbooks require 21 in Pennsylvania and most states.
To place a wager with a PGCB-regulated sportsbook in Pennsylvania (and the vast majority of other gaming jurisdictions), an individual must be 21 years old. 4 Pa.C.S. §13C11(a)(ii). In stark contrast, the majority, if not all, DCMs make what is essentially the same activity available to anyone 18 years of age or older.
Kalshi's member agreement ties it to the law where you live:
if You are an individual, You are of the age of majority in Your state of residence
Tax forms
Kalshi issues 1099 forms; a sportsbook issues Form W-2G for certain gambling winnings. We found no primary source on how the IRS classifies prediction market profits.
1099-INT - contains interest payments from Kalshi
A payer is required to issue you a Form W-2G, Certain Gambling Winnings if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding.
What each venue sends you, form by form, is on prediction market tax forms.
