One Final(?) Look At Iran Prediction Markets — At Least Until More People Get Pissed About Them
Roundup: DraftKings Predictions is going into a 'super app'; more on the new lobbying group Gambling Is Not Investing.
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The news cycle for betting trading on Iran, is winding down. Maybe? Probably? Or the controversy might stick around for a bit. Who knows.
Either way, here’s a look at the latest on these markets at Kalshi and Polymarket. (If you’re not up to speed, read this piece from me over the weekend):
Kalshi CEO Tarek Mansour’s new statement on the Khamenei market that was not a death market (from Twitter): As an exchange, we resolve the market according to the rules, even when there is disagreement with the resolution. I understand many of you are frustrated about the Khamenei market, and I want to clear up a few things along with steps we have taken to improve:
The market rules were not changed. The death carveout and settlement based on last-traded-price were part of the published market rules from the outset (see the screenshot from the rules, which can also be found in our official filing from 2025 on the CFTC website). The death carveout was also always shown on the market page (see market page below). Once the strikes on Iran started, we added the “Green Box” to further highlight the death carveout in the UI (this is not a rule change, just a highlight of the rules).
We settled according to the rules. Traders were paid based on the last traded price. Some traders who held YES feel like they should have won (as in the market should have settled to YES). But the rules clearly stated that the market would not settle to YES in the event of death: traders expect us to settle the market based on the rules and we have to apply the rules consistently for both YES and NO holders; changing settlement because one side is unhappy would break trust in the exchange (imagine you held NO and you read the rules, but then we decided to settle contrary to the rules). Death carveouts are important; as a federally regulated prediction market, we are required and feel it is important not to enable direct profiting from war, assassination, terrorism, or other violent outcomes.
No trader lost money on this market. While the rules were clear and we tried our best to highlight them, traders vocalized they were not prominent enough. We heard you, and we decided to reimburse out of pocket for all fees and all net losses from trading in the market: 1. If you sold for a net loss before settlement, we reimbursed you for that net loss and 2. if you didn’t recoup your position cost during settlement, we paid you the difference so you get your full position cost back. You can find reimbursements under “Your activity” in the app and website. No trader ended net-negative after our reimbursements.
Kalshi did not profit on this market. We do not stand to benefit from one resolution or the other. We earn fees from facilitating trades. For this market, we reimbursed all fees back to users. We also reimbursed net losses users incurred on the market out of pocket, so no trader ended net negative. As a result, Kalshi incurred a substantial loss to make users whole.
We will improve. We learned a lot from this market. We are updating how we present similar markets (e.g., those with a death carveout or where a death might be a likely scenario) so traders can see the exception more clearly before they trade. We will surface the exception in the title and at the top of the market page. We also recognize that the first iteration of the Green Box warning created confusion; we revised it and reimbursed net losses for the market. Going forward, we are implementing a tighter review process for UI highlights.
The best part about Kalshi is you all and I’m sorry for the disappointment. We’ll improve, thank you for bearing with us.
💡My take: The idea that Kalshi didn’t profit from the market is true on its face. Yes, Kalshi isn’t the house, and doesn’t profit from one outcome or another. But it does profit from fees collected every time people trade on a market. And indeed they profit more when more is traded! While Kalshi refunded fees in this instance, that wasn’t the original plan.
And Kalshi, despite knowing how the market would be resolved, was continuing to promote the market to users throughout the morning on Saturday, even though it was fairly likely Khamenei was dead. That feels like an understated part of all this, and people were clearly betting on whether he was dead or alive, if for no other reason than a lot of people weren’t reading the fine print. The problems with the market title — simply asking if Khamenei would be “out” as Supreme Leader — were arguably compounded by continuing to encourage people to trade into it after the US strikes.
Kalshi Co-Founder Says Prediction Markets Need ‘Moral Side’ After Halting Khamenei Trades (Barron’s): “The main lesson we got from this weekend is that we need to do a better job explaining our rules to our users, and that kind of interaction with the rules before they place the trade,” Lopes Lara says.
A good Substack on the issue:
War Markets Have Some Bugs (Bloomberg, Money Stuff): “One possible interpretation here is ‘you were trying to bet on war and assassination, which is not allowed, so you don’t get to complain that you didn’t get paid.’ If you think that you are getting a wink-wink bet on a prohibited subject, most of what you are getting is not the clean bet you wanted (Khamenei ‘out’) but rather a fuzzy and unpredictable bet on legality and resolution mechanisms. Another possible interpretation is that most of Kalshi’s customers don’t know about Rule 40.11, or didn’t until Saturday, and just figured betting on death was the whole and legitimate point of this market. Everyone’s intuitions about prediction markets are still developing.”
Kalshi and Polymarket keep getting lumped together on this, even though they are very different. Kalshi didn’t have many markets on Iran, and the Khamenei market wasn’t technically about his death. Polymarket saw hundreds of millions of dollars traded on Iran markets, including one that definitely did resolve because of his death. But politicians seem not to know or care about the distinction:
To be fair, the CFTC has helped to create some of the confusion. Polymarket was reportedly under investigation by the CFTC and the FBI, before those investigations closed last summer. Then, less than a week later, Polymarket got approval to acquire a CFTC-registered designated contract market and derivatives clearing organization. Polymarket is now offering both an international site with cryptocurrency — which is very big — and a US-facing app with fiat — which is very small. The Iran markets are on the international site, which technically doesn’t serve Americans nor does it answer to the CFTC, I would be confused if I were a member of Congress parachuting in on this issue, too. Can the CFTC ban those markets at Polymarket? Um, probably not? It could ask nicely, I suppose. But it’s not clear it has any authority over them, nor any will to stop them even if they did.
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Prediction markets roundup
DraftKings is pushing hard on prediction markets (The Closing Line): DraftKings launched its prediction market late last year as a standalone app. Now, Predictions will get rolled into the core DraftKings experience as it endeavors to launch a “super app.” From a press release on Monday coming out of DraftKings’ Investor Day:
The Company also announced plans to launch a new Super App, branded DraftKings Sports & Casino, bringing together Sportsbook, Predictions, Casino and Lottery into one seamless, integrated experience through a single account and wallet, with access tailored to each jurisdiction. Phase one of the integration is expected by March Madness, with additional upgrades planned throughout the year. The Super App will leverage DraftKings’ experience and infrastructure operating the No. 1-rated Sportsbook to offer a unified sports experience, available nationwide.
A lot more in the link about DraftKings’ plans in prediction markets, including extensive comments from the general manager of Predictions.
Nasdaq Plans Prediction Market Yes-or-No Options on Nasdaq 100 (Bloomberg): “Nasdaq Inc. plans to roll out options contracts that would allow yes-or-no bets on a major stock index, the latest exchange operator to put its own spin on fast-growing prediction markets. The company wants to list binary options on its flagship Nasdaq 100 Index and the Nasdaq 100 Micro Index, according to a proposed rule change filed with the US Securities and Exchange Commission. The Nasdaq contracts would be priced between 1 cent and $1, reflecting the market’s view of an outcome becoming true, the filing said.”
Underdog Lays Off Dozens A Year After Hitting $1B Valuation (Sportico): “The people, who spoke on the condition of anonymity, said the company’s recent focus on federally regulated prediction markets were likely a factor in the cost trimming. Underdog incorporated prediction markets into its app in September through a partnership with Crypto.com, beating DraftKings, Fanatics and FanDuel to launch. Relatedly, Underdog withdrew its application for a traditional sportsbook license in Missouri and took its North Carolina sportsbook offline.
“We transitioned our business this year,” Levine said in a statement emailed to Sportico. “We went from a focus on a state-by-state framework to a national prediction markets platform with seamless offerings across the country. It’s simply a different operation, and the changes we made are a part of that transition. We take pride in hiring people who are passionate, good human beings and who really care about their work, so if you’re hiring and come across an ex-Underdog person you’d be lucky to have them and call me for a reference.”
ICYMI, there’s a new group lobbying against prediction markets offering sports event contracts:
Press release: Gambling is Not Investing, a coalition of consumer advocates, announced its launch to advocate for consistent consumer protections and regulatory accountability by enforcing existing state and tribal gaming laws for prediction markets that facilitate illicit sports betting through event contracts. These platforms operate outside established state and tribal gaming frameworks, bypassing safeguards voters and elected leaders have put in place across the country.
The overwhelming majority of activity that occurs on these platforms are sports-event contracts, where participants are gambling on sports without the rules and regulations that govern legalized sports betting. According to prediction markets platform Kalshi, sports events account for 90 percent of their volume.
“Gambling products – regardless of what you call them – must follow established state and tribal laws,” said Congressman Mick Mulvaney, Executive Director of Gambling is Not Investing. “Rebranding sports wagering as ‘trading’ or ‘investing’ or ‘predicting’ misleads consumers, undermines responsible gaming protections, and weakens the state and tribal systems built to protect the public and fund vital community services.”
Because prediction markets are regulated at the federal level by the Commodity Futures Trading Commission (CFTC), platforms can operate nationwide, including in jurisdictions where online sports betting is illegal. In states that have legalized sports betting through voter-approved or legislatively enacted frameworks, prediction-market sports-event contracts can bypass state licensing requirements, age restrictions, and gaming tax structures that apply to regulated sportsbooks.
Gambling is Not Investing is launching amid growing public concern that gambling-like contracts marketed as “investing” or “trading” risk encouraging consumers to treat sports betting as a financial product, distorting risk perception and driving harmful behavior. Existing gaming laws are being ignored, states are losing oversight, consumers are being misled, and communities are losing public revenue. Here is what we believe:
Consumers deserve consistent protections, regardless of product label. If it looks like gambling and functions like gambling, it should follow gambling rules.
States and tribes have the authority to regulate gambling activity within their borders.
Gambling is not investing.
Take Action
The coalition is calling on policymakers, regulators, and state and tribal leaders to protect Americans from gambling-like offerings that escape the protections and responsibilities that apply to regulated gaming.
And there’s a Twitter account:
AP to provide Kalshi its gold standard elections data ahead of primaries (The Associated Press): The Associated Press today announced that it will provide its U.S. elections results to Kalshi, the world’s largest prediction market. AP will provide Kalshi with its vote count data and race calls for national and major state elections, making AP’s election information available on the platform. Kalshi, which is credited with creating and establishing the predictions market category as a financial asset class, joins a global network of news organizations, technology companies and other customers who rely on AP’s elections data and information.
Kalshi has become a top destination to track election results, receiving over 500 million site visits during the 2024 presidential election. Ingesting AP’s live vote data in addition to the native forecasts will provide Kalshi users with a new and improved way to engage with American democracy and the electoral process.
“The Associated Press for nearly two centuries has played an essential role in the American democracy as the most authoritative source for accurate results on election night,” said David Scott, vice president for AP Elections. “We’re pleased to be working with Kalshi as we work to expand the reach of AP’s trusted elections data, meeting audiences where they are with reliable information about who voters have chosen to lead their country and communities.”
“This collaboration will further Kalshi’s goal of being the premier destination to experience elections, combining AP’s trusted vote results with our transparent, market-based forecasts, creating a more complete picture of election night,” said Jaron Zhou, Kalshi’s Head of Politics. “Kalshi’s election forecasts help campaigns and everyday citizens track market expectations for election outcomes, and integrating AP’s live vote count data enhances Kalshi’s election night experience by bringing together real-time vote tallies and market activity.”
Court Ruling Raises Risk of Nevada Trading Halt for Kalshi, Polymarket (Decrypt): “Prediction market Kalshi is once again staring down a possible restraining order in Nevada after a federal judge sent the dispute back to state court on Monday, allowing regulators to seek an injunction against the CFTC-regulated exchange. The court found that the Nevada Gaming Control Board’s claims ‘arise under state law,’ and that the Commodity Exchange Act ‘does not completely preempt’ those claims.”
WIGC Panel: If Courts Or Congress Say Event Contracts Can Continue, It’s Not Kalshi That Will Win (InGame): “The biggest question looming over the legal gambling industry is whether or not prediction markets — specifically sports event contracts — will eventually be deemed to be gambling or financial tools. If the ultimate decision is that the contracts will remain under federal regulation as financial tools, neither Kalshi nor Polymarket will be the biggest winners, a tribal lawyer said Thursday.”
“Let me be clear that if prediction markets become legal [as derivatives], no one is going to have heard of Kalshi in 10 years. It’s going to be Caesars, DraftKings, FanDuel, and MGM operating without state regulation and that is why it is an existential threat to states and tribes,” tribal gaming attorney Scott Crowell said at the Western Indian Gaming Conference at the Pechanga Casino Resort.
Trump Wins $60 On Kalshi Betting He’ll Bomb Iran (The Onion): “The odds were against me, but somehow I just knew that betting on an airstrike ordered by the president of the United States would hit,” said Trump, who added that when he initially placed a $20 wager online that he would authorize a war leading to the death of Iran’s Supreme Leader Ayatollah Ali Khamenei, he had no idea it would pay off as much as it did.”
