Introduction

Sports betting was legalized at the state level in 2018, and two parallel industries have emerged: sports betting and prediction markets. While both let you bet on future outcomes, they operate pretty differently behind the scenes.

As platforms like Kalshi and Polymarket continue to raise at billion dollar valuations and major sports betting operators expand into new states, understanding the nuances between these two categories has become important. This article goes through how these platforms work, and how they differ.

What Are Prediction Markets?

Prediction markets let users trade contracts tied to real world events. Each contract usually trades between $0 and $1, where the price represents the market’s implied probability.

If a contract asking “Will the Fed cut rates this month?” trades at $0.62, the market is saying there’s roughly a 62% chance it happens. If it does, the contract settles at $1. If not, it expires at $0.

Unlike betting against a house, you’re trading peer to peer. Prices move based on supply and demand, not bookmaker margins. You can place limit orders, exit early, or hold positions as probabilities change. It functions much closer to stock trading than gambling.

Platforms like Kalshi (CFTC-regulated in the U.S.), Polymarket (crypto-based), and PredictIt (academic) cover everything from elections and inflation to tech releases and, increasingly, sports.

What Is Sports Betting?

In sports betting, you bet against a sportsbook. The house sets odds designed to guarantee a margin, usually 5–10%, regardless of outcome.

A typical -110 line means you risk $110 to win $100. The built-in “vig” that ensures the sportsbook profits over time. Odds move to balance action, not to reflect true probabilities.

Sportsbooks like DraftKings, FanDuel, BetMGM, and Caesars offer deep menus: spreads, totals, props, parlays, and live betting. The experience is optimized for speed, excitement, and volume, not price discovery.

The regulation for sports betting is state-by-state, which limits availability and creates a patchwork of rules, taxes, and restrictions.

Core Differences

Market Structure

Prediction markets operate as a peer to peer exchange, meaning every trade has another participant on the opposite side. You’re not betting against a platform or “the house”, you’re trading with other users who disagree with you. Prices move based on supply and demand, and profits come from identifying mispriced probabilities. Sports betting works the opposite way. The sportsbook is always your counterparty, setting the odds and managing risk to ensure it profits over time. While lines may shift as bets come in, the house ultimately controls pricing and can restrict or refuse bets from players who consistently win.

Pricing and Odds

In prediction markets, prices directly represent probabilities. A contract trading at $0.70 implies a 70% chance of occurring, and that price is determined by what traders are willing to pay or sell for. There’s no embedded house edge, just transparent fees. Sports betting odds, by contrast, include built-in margins. A -110 line isn’t a fair 50/50 bet - it’s structured so the sportsbook collects a cut regardless of outcome. This means sports betting odds often diverge from true probabilities, especially in less efficient or highly recreational markets.

Limits and Fairness

Prediction markets treat all traders equally. Because the platform isn’t exposed to directional risk, it has no incentive to limit or ban successful participants. If you’re consistently right, you can keep trading. Sports betting platforms don’t operate this way. Since sharp bettors threaten the house’s profitability, sportsbooks routinely limit stakes, restrict markets, or even close accounts. This creates an uneven playing field where long term success is often discouraged.

Scope of Markets

Prediction markets cover a far broader range of events. Beyond sports, users can trade on elections, fed decisions, inflation data, regulatory outcomes, technology launches, and other real world outcomes. This makes them useful not just for speculation, but for hedging risk tied to business, investments, or policy. Sports betting, while extremely deep within athletics, remains largely confined to games and player performance. You can bet on almost anything within a match, but not on broader economic or political outcomes.

Regulatory Framework

Prediction markets and sports betting operate under different regulatory systems. U.S. based prediction markets are overseen federally by the Commodity Futures Trading Commission (CFTC), which classifies event contracts as derivatives rather than gambling. This allows prediction market platforms to offer markets nationwide under a single regulatory framework focused on transparency, position limits, and fair settlement.

Sports betting is regulated at the state level. Each state decides whether it’s legal, who can operate, which bets are allowed, and how much tax sportsbooks must pay. This creates a fragmented system where availability and rules vary widely by location.

Several states argue that sports-related prediction contracts are effectively unlicensed sports betting, while prediction market operators maintain that federal law preempts state gambling rules. How this conflict is resolved will shape the future of both industries.

Financial Considerations

The cost structure differs more than most people realize. Prediction markets charge explicit trading fees, usually well under 1%, similar to brokerage commissions. What you see is what you pay. Sports betting hides its costs in the odds themselves.

Taxes add another wrinkle. Profits from both are taxable, but reporting differs. Prediction markets typically issue 1099s, while sportsbooks use W-2G forms for larger wins. Either way, tracking trades and bets matters more than most casual users expect.

For most people, liquidity is often the real constraint. Instead of selling assets to fund trades or bets, some investors use Bitcoin-backed loans from secure platforms like Arch to access cash while keeping long-term exposure intact. That approach can be useful regardless of which platform you prefer.

Accuracy vs Entertainment

Prediction markets are built to surface probabilities. People with better information or analysis can profit by correcting mispriced contracts, which gradually pushes prices toward accuracy. That’s why these markets often outperform polls and experts on elections and economic outcomes.

Sports betting isn’t designed for forecasting. Odds are set to manage risk and maximize revenue, not to reflect true probabilities. Sharp bettors can still find value, but accuracy is not their goal. The experience prioritizes profitability, risk management, and volume over information quality.

Pros and Cons

Prediction markets are great if you care about probabilities, hedging, or expressing views on real world events beyond sports. They offer transparent pricing and equal treatment of winning traders, but liquidity can be uneven and the learning curve steeper.

Sports betting excels at entertainment. Liquidity is deep, options are endless, and the experience is polished. However, the tradeoff is structural: house edges, bettor limits, and long-term odds stacked against consistent winners.

Conclusion

Prediction markets and sports betting may look similar, but they’re built for different purposes. Prediction markets function more like financial tools for forecasting, hedging, and of course, betting. Sports betting is built for entertainment, with structural advantages for the house. Neither approach is inherently better, but the differences are fundamental and understanding them matters if you use either type of platform.

Frequently Asked Questions

Is prediction market trading considered gambling? Legally, prediction markets operate as CFTC regulated derivatives exchanges, not gambling platforms. However, some states disagree with this classification, particularly for sports-related contracts. The practical experience of risking money on uncertain outcomes shares similarities with gambling regardless of regulatory status.

Can I use both prediction markets and sports betting platforms? Yes, assuming you're in a state where both are legal. Many users maintain accounts on multiple platforms to access different markets and opportunities.

Which typically offers better odds for sports events? Prediction markets often provide better implied probabilities due to lower embedded fees and peer to peer pricing. However, sports betting platforms offer promotional boosts and a wider variety of bet types that might provide better value in specific situations. Sharp bettors often compare prices across both platform types.

Are winnings from both platforms taxable? Yes, profits from both prediction markets and sports betting face taxation. Prediction markets typically issue 1099 forms reporting trading gains, while sportsbooks issue W-2G forms for significant winnings. Consult a tax professional for guidance specific to your situation.

What's the minimum investment needed? Prediction markets often have lower minimums since you can buy contracts for under $1. Sports betting minimums vary but typically start around $1 - 10 per bet.

About Arch

Arch is building a next-gen wealth management platform for individuals holding alternative assets. Our flagship product is the crypto-backed loan, which allows you to securely and affordably borrow against your crypto. We also offer access to bank-grade custody, trading and staking services.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrency investments are volatile and risky. Always conduct your own research before making investment decisions.