Prediction markets are growing far faster than previously expected and will rival stock exchanges in just a few years, according to Kalshi Inc. Chief Executive Officer Tarek Mansour.
“This is starting to look like a trillion-dollar market,” Mansour said at the Futures Industry Association’s Expo in Chicago on Tuesday. “I always thought it was going to be pretty fast and go pretty big. I just didn’t think that fast.”
The nascent prediction market industry has exploded since Kalshi won a court case last year against US regulators, allowing the firm to begin to offer trading on the outcome of the presidential election.
The business has ramped up since then, in large part because Kalshi and other exchanges have used their regulatory status to open up sports betting in states where it has previously been curtailed or banned by local regulators. Mansour said he expects to announce more sports deals soon.
Kalshi also expects “very large news network partnerships coming out very soon,” Mansour said, without providing details.
“I think prediction market is going to be embedded very smoothly, very effectively in the news,” he said.
Mansour initially thought it would take a decade for prediction markets to reach similar levels of trading as stocks, but Kalshi has “created a whole class of active traders,” he said.
Kalshi has differentiated itself from traditional gambling companies by listing so-called event contracts with binary yes-or-no answers to questions about sports, cultural events and politics, among other topics.
Customers can take either side of the bet, effectively pitting them against each other rather than against the firm that hosts the wagers.
The Commodity Futures Trading Commission, which regulates Kalshi, has allowed the trading to go ahead. But gambling regulators in several states have told Kalshi to shut down, and some judges have sided against the company, which could represent a threat to its ambitions.
Mansour said Kalshi’s markets are very different from gambling. While the house always wins in gambling, prediction markets provide a more level playing field, he argued.
“I don’t think there have been many instances of innovation in financial markets, especially in derivatives markets, that haven’t had this weird tension with gambling,” Mansour said Tuesday.
Gambling companies are now getting in on the action and challenging Kalshi. Moreover, some industry experts say prediction-market exchanges will struggle to replicate some of the most popular gambling products.
Still, Wall Street operators are jumping on the bandwagon. Intercontinental Exchange Inc., the owner of the New York Stock Exchange, agreed to invest as much as $2 billion in Kalshi’s rival Polymarket. And CME Group Inc., the derivatives exchange operator, is teaming up with Flutter Entertainment Plc to create a consumer app with contracts tied to both sports games and economic indicators.
Mansour said he welcomed competition, which he expects to help the industry move forward. Kalshi has gotten its contracts in front of customers on its own app, but also through a partnership with the retail broker, Robinhood Markets Inc.
The companies have posted record volumes, fueled in part by wagers on sports outcomes. Mansour said Kalshi is also going to be “aggressive” in its international expansion and enter many new jurisdictions in the next 18 months.
Written by: Katherine Doherty and Bernard Goyder @Bloomberg
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