Recent Sports Betting Scandal Raises Questions
Just last week, professional sports experienced what might be the largest betting scandal in recent memory. An FBI operation led to the arrest of an NBA player and a coach for their alleged involvement in gambling schemes that included manipulating game outcomes to influence sports bets. This happened at a particularly interesting time—right as major sports leagues and betting companies were signaling their embrace of the rapidly growing prediction market industry.
I think the timing here is quite telling. The day before these arrests, the NHL made history by becoming the first major sports league to sign a licensing deal with prediction markets. These platforms have become wildly popular, though they operate in something of a legal grey area. That same day, DraftKings, one of America’s most popular sports betting sites, acquired its own prediction market company, diving headfirst into this burgeoning sector.
Regulatory Challenges Emerge
Now, as federal law enforcement shines a spotlight on what essentially amounts to insider trading in sports betting, experts are divided about the migration of sports betting to prediction markets. Some worry this transition could make monitoring sports betting much more difficult and lead to more misconduct. Others argue that blockchain-based prediction markets might actually provide more transparency.
Prediction markets operate under the oversight of the Commodity Futures Trading Commission (CFTC), a federal regulator that has historically focused on agricultural products like soybean and cattle futures. The agency now finds itself responsible for regulating not just sports prediction markets but also much of the cryptocurrency industry.
A former CFTC official, speaking anonymously, expressed serious concerns about the agency’s capacity. “I think the CFTC is going to get swallowed,” they told me. “You’re going to see more and more of these cases of insider trading happening on prediction markets, because the CFTC isn’t doing surveillance—they don’t have the manpower to catch it on their own.”
Industry Growth and Regulatory Gaps
The prediction market business has exploded over the last year, with users able to take financial positions on virtually anything from sports and politics to cryptocurrency and cultural events. Last week, the sector reached a record $2 billion in weekly trading volume across the four largest platforms. Estimates suggest the industry could grow to nearly $100 billion by 2035.
Legal expert Daniel Wallach points out that the CFTC’s capacity to monitor sports markets appears inadequate compared to existing state-level sports betting regulations. “By contrast, under the CFTC, there are no sports-related regulations that would address this activity,” Wallach explained. “These companies are largely left to not only self-certify their own event contracts, but also self-regulate their own integrity.”
Kalshi, the largest prediction market currently offering sports contracts in the US, says it has internal systems to identify suspicious trading activity and has partnered with an integrity monitoring firm. “Insider trading is a harmful activity and is explicitly banned on Kalshi,” a company spokesperson stated.
Transparency vs. Insider Trading
Interestingly, some leading academics argue that prediction markets are actually designed to support insider trading in principle. George Mason University professor Robin Hanson, considered a foremost expert on prediction markets, explained last year that if the point of these markets is to get accurate price information, then allowing insiders to trade makes prices more accurate—even if it discourages other bettors.
But there’s another side to this story. While prediction markets may pose new regulatory challenges, some argue they also present new opportunities for combating insider trading. Platforms like Polymarket that use blockchain technology offer increased transparency because all transactions are publicly visible on a blockchain ledger.
“This transparency alone doesn’t prevent insider trading, but it enables detection at scale and speed that traditional systems cannot match,” said Marcin Kazmierczak, co-founder of RedStone, an oracle network used by prediction markets.
Coinbase’s chief legal officer Paul Grewal recently suggested that on-chain prediction markets might do more to prevent crimes like the NBA gambling scandal than traditional betting platforms have.
Yet recent events raise questions. Earlier this month, users on Polymarket appeared to correctly pick the Nobel Peace Prize winner hours before the public announcement, leading to an investigation by Norwegian officials. Polymarket didn’t announce its own investigation but instead used the situation to market its product, boasting that “everyone checking Polymarket knew” the winner before the announcement.
Both Kalshi and Polymarket share an interesting political connection—they’re both advised by Donald Trump Jr. As these platforms continue to grow and potentially relaunch in the US market, the balance between innovation, transparency, and regulation remains uncertain. The recent sports betting scandal suggests we’re only beginning to understand the implications of this new betting landscape.
