The professional sports world was rocked late last week by the biggest gambling scandal in living memory. It came just as professional leagues and sportsbooks were hinting at entering the burgeoning prediction market industry, raising questions about whether the combination would soon lead to predictable results.
On Thursday, the FBI investigation reached its climax. arrest NBA players and coaches have been indicted for allegedly participating in multiple gambling schemes that involved manipulating game results to influence sports betting.
Just the day before, the NHL made history by becoming the first major sports league to sign a licensing agreement. Prediction Markets – An emerging and hugely popular betting site that has taken traditional sports betting by storm. legal gray area.
On the same day, DraftKings, one of America’s most popular sports betting sites, obtained As a unique prediction market company, we’re firing on all cylinders in a fast-growing field.
With federal law enforcement now effectively spotlighting insider trading in sports betting, some experts are increasingly concerned about sports betting’s shift to prediction markets, while others argue against public betting platforms when utilizing them. blockchain It provides an added layer of transparency to the network.
Former government regulators and legal experts spoke. decryption The shift to prediction markets could make the already difficult task of monitoring sports betting even more difficult and could lead to widespread fraud in sports-related betting.
Prediction markets, where users can buy monetary bets on the outcome of events through futures contracts, are overseen by the Commodity Futures Trading Commission, a federal regulator with little experience overseeing professional sports. For most of its 50-year history, the agency passively oversaw trading in agricultural derivatives such as soybeans and cattle futures.
The agency is now poised to regulate not only the growing field of sports prediction markets, but also most of the cryptocurrencies. aggressive push By Donald Trump’s administration.
One former CFTC official, who requested anonymity to speak candidly, said the CFTC is not only small compared to other financial regulators, but also incurs huge costs. personnel reduction This year, there is no system in place to police cryptocurrencies or sports betting, let alone police both industries.
“I think the CFTC will be swallowed up,” one former official said. decryption. “We’re going to see more cases of insider trading in prediction markets because the CFTC isn’t monitoring it. They don’t have the personnel to detect it on their own.”
Because of its size and historic mandate, the regulator relies primarily on self-reporting by whistleblowers and market participants to root out corruption in the markets it oversees. The company does not actively investigate insider trading and will not be able to do so in sports markets without significantly increasing its staff and funding, former CFTC officials said.
It seems unlikely that such changes will occur to the authorities anytime soon.
The CFTC’s leadership is pushed It plans to permanently reduce the size of government agencies this year. Earlier this month, Brian Quintenz, who President Trump once nominated to run the agency, accepted his candidacy. derailed after this summer collide Tyler and Cameron Winklevoss – Cryptocurrency executives became a big problem Among other things, this concerns Mr. Quintenz’s plan to increase the CFTC’s budget.
The billionaire twins argued that increasing the capacity of government agencies would lead to “regulatory capture.”
Gambling and sports betting law expert Daniel Wallach said: decryption The CFTC’s ability to monitor sports markets is inadequate compared to existing state-level sports betting regulations. He said state law requires stakeholders to proactively combat insider trading and work with law enforcement and third-party integrity monitoring companies.
“In contrast, under the CFTC, there are no sports-related regulations that address this activity,” Wallach said of prediction markets. “These companies are largely left to not only self-certify their event contracts, but also self-regulate their own integrity.”
CFTC did not respond decryptionRequest comments on this story. An automated response from the agency cited layoffs due to the ongoing government shutdown.
The predictive business has boomed over the past year. Prediction markets allow users to take financial positions on virtually anything—From sports and politics to cryptocurrencies and cultural events. Last Monday, the sector soared record $2 billion Percentage of weekly trading volume in the four largest prediction markets: Calci, Polymarket, Limitless, and Myriad. (Disclosure: Myriad is a product of Dastan. decryptionis the parent company of. )
Often cited is certainty report estimates that the forecast market as an industry will reach a value of $95.5 billion by 2035, with a compound annual growth rate of 46.8%. Polymarket and Kalsi are currently in rough control. 96% market shareBased on recent funding rounds, both companies are valued at $9 billion and $5 billion, respectively.
said a spokesperson for Calci, currently the largest prediction marketplace offering sports contracts in the United States. decryption The company has implemented internal systems to identify suspicious trading activity as required by the CFTC. The company also said it is partnering with integrity monitoring firm IC360.
“Insider trading is a harmful practice and is expressly prohibited at Karshi,” the spokesperson added.
But Wallach argues that in a political environment in which the CFTC shows no apparent attempt to adapt its practices to sports market oversight, companies like Calci are effectively left alone, changing the dynamic between platforms and regulators from what currently exists in traditional sports betting.
“These are commercial companies operating in a regulatory vacuum and setting their own policies without any checks or restrictions on their ability to respond in this area,” Wallach said.
The lawyer continued: “Match-fixing and insider information have influenced sporting events since time immemorial, but there are no rules to hold these companies accountable.”
Leading academics who study the field of prediction markets say that these platforms are designed not only to not discourage insider trading, but to support it in principle. “If the purpose of a (prediction) market is to have accurate information about prices, then you absolutely want to allow insider trading because it makes prices more accurate, even if it prevents other people from making bets,” said Robin Hanson, a professor at George Mason University who is widely regarded as the nation’s foremost expert on prediction markets. decryption In October of last year.
While prediction markets could pose new challenges in regulating fraud in sports betting, some say they also present new opportunities to combat insider trading.
Although Kalsi does not use cryptocurrencies in its day-to-day operations, the platform’s main competitor, Polymarket, does use cryptocurrencies, and proponents argue that reliance on it increases transparency.
Marcin Kazmierczak, Co-Founder redstoneHe said it is an oracle network used in prediction markets to verify information and settle bets. decryption Since all transactions on platforms like Polymarket are exposed on a blockchain ledger, this setup makes it easier to identify suspicious trading activity.
“This transparency alone will not prevent insider trading, but it will enable detection at a scale and speed not possible with traditional systems.” Kazmierczak said.
Paul Grewal, Chief Legal Officer of Coinbase, said: implicit On Thursday, it said on-chain prediction markets would be more helpful than traditional betting platforms in preventing crimes like last week’s NBA gambling scandal.
Indeed, in recent months, observers have noted numerous instances of suspiciously timed transactions on Polymarket. Notably, earlier this month, users of the site appeared to have correctly chosen the Nobel Peace Prize winner hours before the decision was made public, resulting in internal investigation A Norwegian official clarified the matter.
However, Polymarket did not issue an independent investigation into the Nobel Peace Prize market in response to the revelations, nor did it issue a statement condemning insider trading.
Instead, Polymarket’s X account reposted it. news alert They spoke out about the situation and then immediately used the potential scandal to promote their products.
“Just in: Before the winners were announced, it has been revealed that only five people were known to Nobel Peace Prize Foundation officials,” the company said in a statement. boasted Posting X. “Everyone checking out Polymarket knew.”
Polymarket is planning a reboot immediately In the U.S., the company did not respond to multiple requests for comment after being expelled overseas in 2022 for failing to comply with CFTC regulators’ rules. decryption about its attitude towards insider trading.
However, Calci and Polimarket share similar positions in America’s current political ecosystem, even if they differ somewhat in their public attitudes toward insider trading. both company He is receiving advice from the president’s son, Donald Trump Jr.
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