Gambling And Prediction Markets Versus Investing In Stocks And Bonds
Inside Today’s Issue
Essay: Investing Is Not A Game Of Chance
Real Yields Rise Ever Higher
Lobbying Credit Agencies Like It’s 2007
Meta’s Muse Will Shop For You
Chart Of The Day… Bloom Energy (BE)
Today’s Mailbag
Editor’s note: Today, Porter turns the Journal over to Porter & Co. analyst Martin Fridson, who through no luck of his own has compiled a list of Distressed Investing recommendations that are up 119% since March 2023, or 25.1% a year. Even more impressive, the combined Distressed Investing holdings carry a beta of 0.54 and posted a Sharpe ratio of 1.41 against the market’s 1.30. Much better than hoping for lucky sevens.
Prediction markets have been making news lately.
First off, there is convicted-and-commuted ex-Congressman George Santos, who has been banned for life from Kalshi’s prediction-market platform. Santos had bet on the proposition that he’d show up in person for President Donald Trump’s State of the Union Address this past February, suggesting in online posts that he would. The disgraced former member of Congress then raked in more than $17,000 by betting “No” and skipping the event.
The more important story was an August 28 federal court ruling that activity on prediction-market sites constitutes gambling. The Ninth Circuit U.S. Court of Appeals’ unanimous decision contradicted an earlier ruling by the Third Circuit Court. The Third Circuit upheld the industry’s position that contracts on sports events are swaps that fall under the sole jurisdiction of the Commodity Futures Trading Commission (“CFTC”).
On September 2, New Jersey Attorney General Jennifer Davenport petitioned the U.S. Supreme Court to resolve the conflict of jurisprudence. If the justices decide that companies such as Kalshi and Polymarket – the two leading online prediction markets where people buy and sell contracts based on the outcomes of future real-world events – are gambling sites, they’ll become subject to state regulation and, even more important, taxation.
Supreme Court majority opinions typically run 25-30 pages. I have no legal credentials, but if it were up to me, I wouldn’t need more than a single page to settle this question.
If you go to a sports-betting site and wager a sum of money on which team will win the World Series, and you choose correctly, you’ll receive some multiple of the amount you wagered
If you go to a prediction-market site and lay down a sum of money on whether an NBA player will score at least a certain number of points in a game, and you wind up being right, you’ll receive some multiple of the amount you wagered
True, the sports betting site will take a cut of your winnings, while the prediction market will instead charge you a fee. It’s a distinction without a difference. And unlike the financial instruments that their purveyors claim them to be, prediction market contracts aren’t linked to a security or a commodity, the way stock options and commodity futures are. They instead deal solely with events.
My verdict: If it looks like a duck, walks like a duck, and quacks like a duck, it’s gambling.
