Is Kalshi A 'Source Of Truth?' It Depends On What You Think That Means
News roundup: DraftKings CEO talks prediction markets; Kalshi nears 50 sports markets; CFTC roundtable deadline is upcoming
The Event Horizon is a weekly newsletter from gambling industry consultant and analyst Dustin Gouker on the prediction markets industry. He runs a daily newsletter on the online gambling industry called The Closing Line.
One of the taglines that Kalshi likes to use a lot is that it’s a “source of truth.”
That line started getting trotted out when the prediction markets at Kalshi and Polymarket had Donald Trump winning the presidential election before it happened. It’s a nice story to tell that prediction markets “knew” before everyone else.
For a major election and with a ton of liquidity, the prediction markets did get it right. Polls made the outcome seem much closer before ballots were counted. (In reality, prediction markets made Trump a clear but not overwhelming favorite to win; it did not declare him a guarantee to win.)
Here’s the rub: prediction markets aren’t going to tell us what is going to happen 100% of the time; even at their best and most efficient, they’ll get things right a lot of the time. But when I see that Kalshi is promoting itself as a “source of truth” — and equating that with being correct and nothing more nuanced — I’d expect that the favorites in the markets are winning almost all of the time. Well, that’s not what’s happening in reality.
Prediction markets are going to give us a snapshot of current probabilities more than actually tell us what’s going to happen in the future. If we were using “source of truth” to mean something like that — here’s what the odds are now! — that would be fine framing. But it feels more like we’re being told the markets are right and infallible. The media, in the honeymoon phase with Kalshi, likes to point out instances where Kalshi markets were right and ignore markets if the outcome didn’t match what happened.
In sports prediction markets, so far, it’s easy to see that the market is just able to ascribe probabilities to things, not tell us who is going to win. In reality, the market is shaped much like what we see at sportsbooks, with similar odds.
Let’s take the recent Super Bowl, for instance. Both sportsbooks and prediction markets had the Kansas City Chiefs as small favorites before the game began. We all know the result: The Philadelphia Eagles won in a blowout that was not terribly competitive (Go Birds).
“The markets got it wrong!” is what we should shout if we were to look at every market from a binary choice of right or wrong. But again, saying that market is always going to get it right is an unrealistic expectation, and also a silly thing to claim if your platform is offering the markets.
Here’s an even better example. Kalshi recently put up a market for the Genesis Invitational in golf. Scottie Scheffler is an amazing golfer and was the favorite heading into the event at Kalshi and at sportsbooks. (He’s also the favorite to win three of the four major tournaments this year.)
But the winner of the event was Ludvig Aberg, who birdied four of the last six holes to win in dramatic fashion. Here’s what the market looked like.
The market didn’t “know” anything special about Aberg winning the event. He wasn’t even a favorite until the final minutes of the tournament. Was Kalshi a “source of truth” in telling us what his probability of winning in real time was? Sure! Was it a source of truth in telling us who would eventually win the tournament? Absolutely not. That’s also kind of the point; it can arguably be a “source of truth” without predicting the final outcome.
Let’s get out of sports and try entertainment. Kalshi usually has a market for the most watched Netflix show of the week; it seems like one where “the crowd” could get it right. But the crowd did not. Surviving Black Hawk Down was getting no traction at the start of the week, it was only a favorite for a brief point in time, and it didn’t close as the favorite, either:
As more trading happened (the little gray bars at the bottom of these graphs), Black Hawk Down improved. Maybe with more liquidity — like it had for the election — Kalshi users would get much closer to predicting something like this one (and in past weeks they have gotten it right).
Let’s also be clear, there are plenty of instances where the prediction markets are getting it right, too; I am not pretending they’re not. I just want to make the point that referring to prediction markets as a “source of truth” is a nice catchphrase, but is a bit overblown, at least when it’s used to mean “our markets are telling the future!” They’re a useful data point, yes. An infallible crystal ball, no.
The Closing Bell
A quick roundup of other prediction market industry news and thoughts:
DraftKings CEO open to prediction markets potential: Jason Robins suggested during the company’s recent earnings call that prediction markets are on his radar, in pretty vague terms. Transcript of what was said:
Analyst: Great. And if I could, just as a follow-up but on the strategic side, Jason. There's been a lot of newsflow out there and buzz around events, contracts, and prediction markets entering the sports landscape. So appreciate it's very early here and this has been a moving target, but just sort of what's DraftKings' initial take here? Is this something you'd get into? Or what can kind of protect or differentiate you from that kind of offering?
Robins: Yeah. I do think you're right. It's early. We are watching it very actively.It's certainly something that we have keen interest in seeing how it plays out. So I think there's some, in the next couple of months, 60 days or so, there's going to be a CFTC ruling and all sorts of other things, so I think we'll know a lot more over the next few months.
Prediction markets = disruption for sports betting?: Wednesday’s Earnings+More newsletter suggests a potential cascade of gambling industry disruptions that could come as a result of the current pro-prediction markets administration, especially with Brian Quintenz now chairing the CFTC.
According to industry analyst Chris Grove, both DraftKings and the Flutter-owned FanDuel, could be viewing the ‘measurable upside’ from the potential to either partner with Kalshi – as Robinhood has done – or go it alone with prediction offerings.
Grove also suggests that the proliferation of sports prediction markets could shake up the M&A landscape for online gambling operators where suddenly the potential for a trading company like Robinhood to absorb a sports betting giant like DraftKings is in the realm of possible in the not-so-distant future.
Kalshi employees don’t know a whole lot about sports, according to this tweet from co-founder Luana Lopes Lara. Still worried that sports prediction markets are going to overtake the regulated sports betting industry? Seems like they could use a few more people with a sports betting background in house.
Bloomberg TV tackles Kalshi: Lopes Lara appeared on a Bloomberg TV special where she shared the impetus for launching a platform dedicated to prediction markets and defended their existence. The program also noted that Kalshi’s app, since launching in July 2021, has been downloaded about two million times and has seen nearly $2 billion in contracts.
“One thing we realized [is] most trading happens when you have an opinion about what’s going to happen in the future and you find a way to put that in the market. So you think this country is going to go into a recession or you think this person is going to win an election or Brexit is going to happen, and you find a way to express that view in the market to hedge some risk that you have or also to get exposure to something. We realized there should be a better way to do it and for us it was, ‘Why is there no direct exchange that you can just trade directly on what you think is going to happen?’”
“We know now that the election was not manipulated by election markets even though billions of dollars were traded. We know it didn’t destroy democracy. We know all of these things that we were saying were true are actually true. And it’s great to be kind of vindicated that this was actually a great thing to enhance democracy because polls were so bad.”
Why is this not betting? Lopes Lara explained that unlike sports betting operators who take a house cut (vig), Kalshi is an exchange or a “trade matching engine,” not unlike the New York Stock Exchange, in terms of structure. “We are an exchange; we’re not a house. We don’t make money if people lose … We don’t offer margin. We actually pay interest on all your positions and your cash on the platform.”
Tim Massad, former Commodity Futures Trading Commission chairman, shared an interesting take: “If we want to allow this, that’s fine. But I wouldn’t make the CFTC the regulator of it. The CFTC is a small agency. It’s got other things to do that I think are more central to its mission.”
Prediction markets roundtable deadline is Friday: The roundtable that the CFTC promised is growing closer. From the earlier press release: “Members of the public may provide feedback, suggestions, and requests to participate as panelists on the roundtable by February 21, 2025 via email to PublicRoundtables@cftc.gov with ‘Prediction Markets Roundtable’ in the subject field.”
How many Kalshi sports markets are there today? Event Horizon counts 48 different sports markets available for trading at Kalshi at publication:
Basketball, 11: Nothing new here since last week’s newsletter. You can still bet on conference championship winners for the ACC, SEC, Big Ten, Big 12 and the Ivy League, and the champion of WNBA and women’s college basketball.
Soccer, 14: The interesting new thing here is that Kalshi continues to trend toward offering markets that are the equivalent of moneyline betting between two teams. They are currently offering Europa League markets for who will advance. While advancement is dictated by an aggregate score across two matches, the market going live essentially makes it a bet on how a single game will go:
Tennis, 9: Two markets added here since last week. The current nine tennis markets include two women’s events, the WTA Dubai and the French Open.
Golf, 5: Five tournament winners, including The Masters and this weekend’s Mexican Open.
Baseball, 3: World Series and National League and American League winners. (No change.)
Football, 2: Still just college football champion and 2026 Super Bowl.
Formula 1, 1: Drivers Champion.
Hockey, 2: Stanley Cup winner, 4 Nations winner.
Esports, 1: League of Legends World Champion.
Chess, 0: No markets currently up for chess since the Freestyle Chess Grand Slam Weissenhaus concluded Feb. 14.
Meanwhile, Crypto.com has just four sports markets live.
Polymarket has to kill one DOGE market: This is objectively funny, Polymarket had to refund everyone’s positions on the market “Will DOGE cut $3B of DEI contracts before March?” because the Department of Government Efficiency’s data can’t be trusted.
A Kash Patel bet pays off: Another tweet shows a trader cashing in on a 3% chance for a 39x return by going against the grain on a Senator’s “no” vote. Even for someone whose Twitter description reads “I bet on politics and events,” it takes some conviction to fire $2,683 on one side when 97% of the market is on the other.
Sports betting in disguise?: In a GGB news article, COO of BC Tech Bruce Merati joins the echo of regulated gaming voices declaring that sports prediction markets are sports betting markets in disguise and should “be subject to the same state-level regulations that govern traditional sports betting.” Some key points from the article:
“The crux of the issue lies in the format of these offerings. It is not just a legal gray area; it is a direct challenge to the authority of states to regulate gaming within their borders. Bypassing the regulations that states have created to ensure accountability, transparency, and protection for both operators and consumers is a major issue.” …
“If platforms like Kalshi and Crypto.com are allowed to operate outside this framework, it could undermine the integrity of the entire system. It would create an uneven playing field, where some operators are subject to strict oversight while others operate with impunity. More importantly, it would expose the industry to significant risks, including money laundering, fraud, and the manipulation of sporting events.”
So btw, Polymarket isn’t technically legal here: A Current Affairs article on “How Gambling Took Over America” attempts to demonstrate how a number of cultural factors and influencers, including political ones like Donald Trump, have worked together to aid the rise of betting normalization in the everyday lives of Americans. While everyone is free to despise legal forms of gambling, at least some of the analysis here is quickly discredited in the writer’s leading with an anecdote that includes 2024 election betting at Polymarket, which is not technically legal in the US. Somehow Kalshi, which is legal in the US, is not mentioned at all.
This quote also demonstrates a lack of understanding of how prediction markets like those at Polymarket work (there is no odds-setting involved and traders don’t bet against the house): “The thing about betting markets, especially one like Polymarket with such a high volume, is that the odds set using predictive models tend to be quite accurate. This intuitively makes sense: otherwise, Polymarket itself would be fleeced over and over again by more sophisticated bettors and forced to pay out en masse.”
Also from the article:
“What matters to me is the idea that beneath it all, Trump and MAGA are intimately connected with gambling … I find the Barstool Sports-ification of younger men, the erosion of their impulses via the thrills of cryptocurrency and r/WallStreetBets, and the growing seduction of Polymarket-like betting to reflect a deep-seated relationship between financial aggressiveness and, as hackneyed as it sounds, a profoundly toxic form of masculinity—one that Wall Street is both famous for and laid the precedent for.”