On any given Sunday, Americans flock to their couches to watch hours of football on TV. Wall Street trading floors are closed, but the American pastime has become prime time for upstart financial platforms known as prediction markets. This past weekend, National Football League fans placed more than $200 million worth of NFL trades through Kalshi, the leading prediction market in the U.S. The financial contracts, like sports bets, pay out depending on the outcome of each game.
Many of those trades are powered by Robinhood Markets' popular stock trading platform, meaning that viewers can use their NFL profits to buy shares of Nvidia, Nike, or Netflix -- all from one app.
Robinhood, which was home to the meme-stock revolution, has gradually brought prediction markets onto its platform over the past year and added Kalshi's NFL contracts for the current season. It sees event contracts, which allow clients to place money on Yes/No predictions about coming events, as a democratizing force in the world of finance.
"Adding pro and college football to our prediction markets hub is a no-brainer for us as we aim to make Robinhood a one-stop shop for all your investing and trading needs," Robinhood said in a blog post announcing the Kalshi-NFL partnership.
But that one-stop shop is raising uncomfortable questions across the world of wealth management: If the same app allows the same trader to place money on the outcome of sports events and corporate earnings growth, what's the difference between gambling and investing?
"The lines of investing and gambling are being blurred like never before, " says James Martielli, head of investment product for Vanguard's Personal Investor business.
And this week, those lines blurred even more, with Robinhood announcing sports trades linked to a series of related events. One possibility: The San Francisco 49ers will win on Sunday, Christian McCaffrey will rush for more than 100 yards, and the total score will be more than 50.
The latest trades, which resemble parlay bets in traditional gambling, pay out only if each event within the combination resolves correctly. Robinhood says the new combos give customers "another way to turn their nuanced sports knowledge into an investing opportunity."
Incumbents like Vanguard, known for its buy-and-hold approach to investing, and Charles Schwab, which itself upended the world of retail investing in the 1970s with discounted stock trades, have steered clear of prediction markets.
"I just don't want young people in our country to think gambling on the Monday Night Football game is the same as investing in stocks and bonds, " Rick Wurster, Schwab's recently installed CEO, told a room of 5,000 financial advisors in November.
"The challenge I see with this is that investing over the long run pays off," he said. "And you have all dramatically enhanced the financial lives of your clients by helping them identify how to invest and what to invest in."
Wurster's defense highlights the stakes of the debate. It isn't just incumbent versus start-up or young versus old. The rise of prediction markets is testing the meaning of an investment.
"Prediction markets, especially sports outcome contracts, are primarily gambling and entertainment products and are not aligned with Vanguard's mission to give investors the best chance for investment success," says a Vanguard spokeswoman.
No brokerage firm has embraced prediction markets more fully than Robinhood, which has catered to a younger audience since it was founded in 2013. It offers a range of topics to trade on, but sports and elections are the most popular. The company says its prediction markets are now generating $100 million in annualized revenue with 11 billion contracts trading hands since the end of last year.
Prediction markets allow investors to wager on the outcome of seemingly any event you can think of -- from who will win an election to whether the CEO of Costco Wholesale will say the words "dividend" or "hot dog" on its next earnings call. And, of course, sports. On Sunday. Dec. 7, prediction market Kalshi saw $329 million traded on its platform, according to analytics firm Dune.
"Prediction markets are really on fire," said Robinhood CEO Vlad Tenev during the company's third-quarter earnings call, adding that he loves being an early mover with regard to this "new asset class."
But for now, the new asset class looks mostly like a sportsbook. Of those Dec. 7 Kalshi transactions, 97%, or $318 million, were traded on sports.
Sensing a threat to their sportsbook duopoly, DraftKings and FanDuel each plan to launch prediction markets offering in the coming months, which will enable them to operate in states where sports gambling is otherwise banned.
Playing the Odds
The event contracts sold on prediction markets are built around yes/no questions. "Will the Cowboys win Sunday's game?" If the odds are 70% in the Cowboys favor, the "yes" side of the contract costs 70 cents, while the "no" side would cost 30 cents. At the conclusion of the event, the correct trade pays out the full $1.
While a sportsbook is effectively the counterparty for any sports bet, prediction market platforms like Kalshi and Polymarket serve as a facilitator. Put another way, there is no "house." Their exchanges connect customers on each side of a given contract and take a transactional fee, usually a penny per contract. Robinhood takes an additional penny for contracts traded on its site.
Robinhood's Tenev has said that prediction markets give investors the ability to price any event and to hedge against risk.
A landlord worried about New York City Mayor-elect Zohran Mamdani's pledge to freeze rent hikes could have theoretically hedged against potentially lost rental income by buying event contracts related to the recent mayoral election.
Those financial hedges remain mostly a curiosity for now. This past month, while options markets were abuzz with traders trying to find an arbitrage opportunity in shares of Warner Bros. Discovery amid a bidding war for the company, prediction markets were notably quiet. After six days of trading, one event -- "Who will successfully take over Warner Brothers?" -- had $96,000 worth of bets. "Pro basketball champion?" by comparison, had more than $11 million.
Thomas Peterffy, chairman of Interactive Brokers Group, may be prediction markets' biggest bull among the old guard. His firm, which traces its roots to 1977, has its own prediction market, ForecastTrader, which is focused on economic and climate indicators. It doesn't offer sports-related contracts.
"In my mind, prediction markets will be the biggest space for investors in the coming years," says Peterffy, "I think it will far exceed the popularity of even the stock market. It will eventually get to the point where people get up in the morning and any questions they have about that day, that year, or the coming decade, they can go get the consensus from the prediction markets."
Global volume on prediction markets reached $13 billion in November, according to Dune, up from less than $100 million in April 2024.
That growth is spurring keen interest from other parts of Wall Street, as well. Kalshi recently raised $1 billion from big name venture-capital firms like Sequoia Capital and Andreessen Horowitz at an $11 billion valuation.
In October, Polymarket got a $2 billion investment from Intercontinental Exchange, the owner of the New York Stock Exchange, valuing the prediction platform at $8 billion.
Jeffrey Sprecher, CEO of Intercontinental Exchange, recently told investors that half of the company's 10,000 institutional clients could be buyers of data from Polymarket. "Hedge funds have the Polymarket app up, and traders are using it for hot news," Sprecher said. "We think for our legacy business of oil and gas and cocoa and coffee and all kinds of basic commodities -- even interest rates -- that people are going to want to see: OK there's something hot here, and I better pay attention to it."
Bookie or Broker
While Wall Street titans seek to recruit customers with prediction markets, some in the industry are going the other way.
In November, New York--based online brokerage Public ran a full-page ad in The Wall Street Journal emphasizing its mission: "Wealth is not won in a bet. If you're looking for a broker that's not also your bookie, we invite you to try Public."
Leif Abraham, co-founder and co-CEO of Public, tells Barron's that the firm's ad campaign is intended to help attract customers who are serious about investing and creating long-term wealth.
"Event contracts may have a place, and sports contracts can be fun, but that place shouldn't be your investing account," Abraham says. "We want people to be able to trust us with their finances and perhaps one day their financial inheritance."
He says his firm could one day offer event contracts related to financial matters but not sports -- even if it means sacrificing revenue. "In the brokerage space, I think there is always a tension between short-term revenue and a long-term relationship with a customer."
Financial advisors, who manage much of the country's wealth, also see a threat from betting's encroachment. "We're not in favor of sports and investing being side-by-side," says Sean Hanlon, co-founder and chief investment officer of VestGen Investment Management, a wealth manager that has $7 billion in assets under management.
For now, it's the bookies that are taking the biggest hit from prediction markets' rise. Shares of DraftKings and FanDuel--parent Flutter Entertainment are down 8% and 16%, respectively, this year as their moat dries up and sports betters are drawn to the simplicity of prediction markets.
Piper Sandler analyst Patrick Moley has estimated that as much as $8 billion in revenue could flow to prediction markets if they take 20% of market share from sportsbooks. Moley thinks prediction markets can become more than just sports, and that, as they do more, brokerage firms may want to offer access to investors. But right now, growth is being driven by sports. “There’s no doubt that’s the case,” Moley says.
Investing Redefined
The term invest, as defined by the Securities and Exchange Commission is “to engage in any activity in which money is put at risk for the purpose of making a profit.” The commission doesn’t include gambling in its glossary, but certainly the same words could apply.
Maybe it’s just a vibe, or as Supreme Court Justice Potter Stewart once wrote about obscenity: “I know it when I see it.”
Some market experts distinguish investing from gambling by the time horizon at work. “The closer you are to win everything, lose everything, in some kind of short time frame, the closer you are to gambling,” says Vanguard’s Martielli.
Kalshi tells Barron’s that prediction markets’ “structure, utility, and business model make them wholly different from gambling, while their broad cultural appeal differentiates them from standard financial markets.”
Polymarket didn’t respond to requests for comment.
Robinhood and Tenev see prediction markets as a natural evolution in finance.
“Prediction markets are often dismissed as ‘gambling’—just as cars were once dismissed as ‘horseless carriages,’ ” the Robinhood CEO wrote in a post on X. “Like any new innovation, they don’t fit neatly into any one category.”
Casinos and gambling oversight were once the sole domain of the states, while financial markets are generally regulated by the federal government, notably the SEC and Commodity Futures Trading Commission.
But now those regulatory distinctions are collapsing, courtesy of prediction markets. The CFTC, which regulates event contracts, approved Kalshi’s move into political and sports betting markets. The next battle revolves around whether courts determine sports event contracts to be investing or gambling.
Thus far, the CFTC isn’t taking a stand. “I would look to what the courts say,” said Michael Selig, President Donald Trump’s nominee to lead the CFTC, at his recent confirmation hearing.
Drawing Lines
Webull, a relatively new entrant to the world of online stock trading, began offering financial-related event contracts in 2024 and expanded to sports in September.
“We saw some client activity moving to other platforms to get access to these products,” says Webull’s U.S. CEO Anthony Denier. The company offers contracts for NFL, college football, National Basketball Association, Nascar, and F1 events.
More than 30 million event contracts were traded in October on Webull’s platform. That’s nearly twice the volume of September. Denier says November saw similar growth.
He doesn’t see much difference between trading sports event contracts and other kinds of futures or options products. “When you are offering a futures product, you can be talking about where the price of gold will be trading, or soybeans or oil,” he says. “This is just a contract for another specific event.”
Chris Grove, partner emeritus at gambling industry market research firm Eilers & Krejcik Gaming, says gambling versus investing is an age-old debate. “The reality is we’ve drawn a line somewhere and said things on this side of the line are capital-G Gambling.”
Webull’s line is drawn at pop culture. It’s skipping Kalshi trades like, “Who will win Survivor season 49?” or “Will Trump attend another UFC event this year?”
“There needs to be enough market participation,” Denier says. “If you go too far down the tail, you can get contracts that don’t really trade, and customers can be frustrated.”
After his cautionary speech to financial advisors in Denver, Schwab’s Wurster remains pragmatic about the future of prediction markets.
“I prefer we don’t get into sports gambling,” he says. “The reality we face is that if our competitors are making so much money in sports gambling that it gives them an edge to invest in brokerage—that’s something we have to keep an eye on.”
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