The year the prediction markets broke – Kalshi, the Super Bowl and the questions that remain

Kalshi chief executive Tarek Mansour had every reason to smile after Super Bowl LX, but not for the same reasons as those facilitating traditional sports betting markets.

Sportsbooks cheered an unusual but profitable game, where the first four scores were field goals, negating the impact of same game parlays, and favourite Seattle claimed victory, but the unders for game landed, meaning a windfall for the betting companies in what was predicted to be a US$1.4 billion market.

But for Kalshi, the result was close to irrelevant. Unlike a state-licensed bookmaker that takes bets on outcomes, Kalshi, a prediction platform where trades are made under federally regulated contract swaps, is free to offer markets on a wide range of options.

According to data published across various platforms, of the $1 billion in volume Kalshi facilitated, less than 20 per cent was on the pure game result itself. Over $100 million was traded on which song halftime entertainer Bad Bunny would kick off his show with.

Nearly $50 million in volume was generated by asking who else would appear in the halftime show. A host of other markets, which would qualify as “novelties” in a traditional bookie – Kalshi describes these as “culture bets”, helped boost overall volume on the ‘game’ by 2700 per cent year-on-year.

Mansour appeared on CNBC this week, describing Kalshi as “the brand of the Super Bowl” despite not having run a single ad.

“It was an incredible weekend,” he told the network. “It really was a situation where everybody was on Kalshi this weekend.”

While not strictly a betting company, Kalshi’s model is similar to that of an exchange, but with no real restrictions on what markets its users can create.

“The reason why people are flocking to prediction markets, especially Kalshi, is that our incentive as a company, we win when the customers win, we don’t win when the customers lose, and that’s a huge difference in the model,” he said.

“We’re regulated at the federal level by the CFTC, our federal regulator. And yes, there’s some entrenched interests that are feeling some pressure from this new innovation technology that’s coming to market.”

The fact that America’s sport betting behemoths, DraftKings and FanDuel, are both entering the prediction market space, is a validation of that model.

What prediction markets have largely done is establish a national market.

Online sports betting is still legal in only 30 states, but prediction markets, which are regulated by the federal Commodity Futures Trading Commission (CFTC) as derivatives exchanges, can operate in all states.

Some states, including Massachusetts and Nevada, are challenging that, and Polymarket and Kalshi have both engaged in legal battles to preserve their position in recent weeks.

The Super Bowl – with its mix of sport and entertainment – provided a perfect platform for prediction markets. The simple binary “yes” vs “no” or “more vs less” format makes it an easily understandable outcome. But what about integrity?

The prospect of insider trading on relatively obscure, controllable outcomes has been a persistent cloud over the prediction market landscape.

How easy is it for a related party to access information on what the first song may be in a performance, or what words an MC might utter?

Mansour says the risk is no more evident on Kalshi than on Wall Street.

“As a regulated financial market by the CFTC, we have the same rules as the Nasdaq and the NYSE, and we have the same mechanism of enforcement,” he said.

“We know who the customers are when they onboard to Kalshi, like when you onboard to a broker. We know their name, their address, their social security, oftentimes their ID. We know exactly who they are.

“We have systems that detect any weird patterns, suspicious trades, just like the Nasdaq does. Then it goes to surveillance.”

“We have an investigation staff that runs an investigation and checks who was behind the trade and what they were doing. And if they were doing something wrong and there was insider trading, the punishment goes from fines to referral to the CFTC for criminal prosecution.” 

Mansour argued that it was a matter of whether the information was material non-public information, such as information gained by those with specific inside knowledge, or whether it was non-material information that was fair game for trading, such as someone learning the set list order for Bad Bunny.

He said they were working with regulators on communicating with Kalshi users “what is fair game and what is not”. It recently rolled out expanded surveillance and, it says, clearer rules.

But it’s a grey area, and one that raises many questions.

Furthermore, there is scrutiny of Kalshi’s involvement with those who can influence the outcome itself.

Just last week, NBA star Giannis Antetokounmpo announced he would not seek a trade away from the Milwaukee Bucks. Kalshi had traded $23.3 million on whether he would go or stay by the February 5 deadline.

That market featured almost as much volume as had been traded on who would win the NBA championship this year up to that point.

A day after Antetokounmpo came out with a further announcement.

“The internet is full of opinions. I decided it was time to make some of my own,” Antetokounmpo posted on social media. “Today, I’m joining Kalshi as a shareholder.”

The move does not breach any NBA rules – Antetokounmpo has less than one per cent of the company – nor does it breach any laws, nor are we suggesting the NBA star has done anything nefarious, but surely it raises a few questions.

And it’s not even the strangest thing that happened in the prediction market world this month.

A Polymarket offering is presenting options on “Will Jesus return in 2026?” The odds of that have doubled in the space of the past month to 4 per cent.  

But it isn’t a reflection of the turbulent times we find ourselves in, but the result of an alternative market on whether the initial market will get past 5 per cent by February 17.

We now have a bunch of traders trying to push up a market on the return of the Messiah so they can cash in on a derivative market. It’s quite strange.

That came after one Polymarket trader pocketed over US$400,000 for successfully predicting the capture of Venezuelan president Nicolas Maduro by the United States in early January. That case is apparently under investigation.

So, what implications does this have for the Australian market?

The local regulator, the Australian Communications and Media Authority (ACMA), recently ruled that Polymarket was a “prohibited and unlicensed regulated interactive gambling service” to Australian users in breach of the Interactive Gambling Act.

It found that the platform met the definition of a gambling service and had previously offered services to Australian customers. It received a warning letter last year.

The Australian Securities and Investments Commission (ASIC) has banned the issue of binary options to retail customers. That would appear to prevent them from being licensed as a financial product in Australia, but it has yet to be legally tested. This has specific applications to prediction markets.

The future of these markets in the broader Australian gambling ecosystem is, perhaps appropriately, hard to predict. But their growth in the United States will make them an increasingly attractive option for recreational punters, a demographic that underpins the current regulated Australian system.