The temptations of prediction (aka gambling)

Wisconsin was sued by the federal government last week, the second time in the past six months that the state became a defendant in a federal lawsuit.

The U.S. Commodity Futures Trading Commission sued to prevent the state from regulating as gambling the booming business of betting on everything from earth-shaking news events to ridiculous trivia. Wisconsin has company as a defendant. The federal agency has filed similar lawsuits against Arizona, Connecticut, Illinois and New York.

The federal government’s claim in these lawsuits is patently absurd—that betting on, for example, which candidate will win an election is not gambling, but merely investing in a financial market.

The companies that profit from this betting refer to their business as the prediction market. Their customers pay fees to bet on events by buying contracts based on their guess at the outcomes. Like gamblers on sports, if they make the right choice, they make money. If they’re wrong, they lose and pay the winners.

There are problems with the prediction market, but it’s not because it is gambling under a different name. Gambling is a valued institution in the United States.

States are delighted to have gambling going on within their borders. Wisconsin and other states regulate gambling through licensing and oversight to protect citizens from fraudulent gaming, but they also do it to make money. The state of Wisconsin received more than $60 million in revenue for budgetary needs from casino contracts last year. It figures to make more from gambling this year. In April, online sports betting became legal in the state and subject to licensing fees.

The states named in the lawsuit maintain the prediction market is online betting.

But there are more serious concerns about the prediction market than evasion of state laws. Prediction market players can bet on just about anything, some of it on silly things like which movie star’s gown will reveal the most cleavage at the Academy Awards, but also on matters of surpassing importance.

Polymarket, the country’s largest predicting platform, received hundreds of millions of dollars in bets on when the U.S. would attack Iran. Other governmental decisions that affect national security and the economy attract huge sums in prediction market bets. The enormous payoffs possible on winning wagers are invitations to abuse by people who have inside information, even classified information, by using it to place bets themselves or selling the information to other bettors.

A U.S. Special Forces master sergeant involved in the capture of Venezuelan President Nicolás Maduro was charged with using classified information about the raid to win more than $400,000 on a prediction bet.

Three candidates for Congress were reported by the prediction platform Kalshi to be caught using inside information to bet on political issues. One of them bet that he would become a candidate, and would have won when he entered the race.

In Israel, two soldiers were arrested for trading secret information about attacks on Iran and a newspaper reporter received death threats after reporting that an Iranian missile had struck Israeli territory. Gamblers had wagered more than $14 million on Polymarket on whether Iran would strike on a certain day. Some of the losers tried to coerce the reporter to change his story. Others tried to bribe him to write that only missile debris had fallen on Israel.

State gambling regulation is really a side issue in the prediction market phenomenon. Regardless of whether states treat it as gambling under their control, wagering on anything related to national security on prediction platforms should be subject to federal regulation enacted by Congress.

There is sure to be resistance from corporate entities running prediction platforms as well as from political forces. President Trump’s son Donald Jr. owns part of Polymarket through his venture capital fund and is an adviser to both Polymarket and Kalshi. Truth Social, the social media platform owned by the Trump business empire, plans to create a prediction market betting operation of its own called Truth Predict. Still, members of both parties in Congress seem disposed to regulation. For a start, the Senate voted unanimously last week to adopt a rule that senators are not allowed to trade on the prediction market.

In the other federal lawsuit against Wisconsin, the Department of Justice is suing to force the state to provide it with the personal information of all voters, including dates of birth, residential addresses and driver’s license and Social Security numbers.

The Wisconsin Elections Commission is rightly acting to protect citizens by refusing to release the voter data. What are the odds that the feds will win in court? No doubt, wagerers guessing at the answer are already placing their bets.