Prediction Markets x League Partnerships: The Inevitable Next Step

This is the year that my March Madness bracket makes me (Suraj) a billionaire…

Thanks to Kalshi.

The headline-dominating prediction market announced that it’s giving away one billion dollars to anyone who makes a perfect bracket – backed by quant trading firm SIG. It’s the first billion-dollar bracket challenge since Warren Buffett’s in 2014.

While I’m very happy with my 1 in 9.2 quintillion odds of winning a billion dollars (and Penn winning it all… this is the year), not everyone shares my enthusiasm.

The NCAA has vehemently opposed the prediction markets industry and any official affiliation with the organization – in fact, Kalshi made sure not to explicitly mention “March Madness” in its promotion.

But the NCAA is not alone.

There have been a few questions raised on prediction markets from professional leagues to members of Congress:

The knee-jerk assumption is that prediction markets are not nearly as well-positioned to collaborate with the crown jewels like sportsbooks have.

We whole-heartedly disagree.

And just an hour before we published this, the MLB announced that they signed Polymarket as their Exclusive Prediction Market Exchange Partner.

Sportsbooks were almost in the exact same position less than ten years ago – before the Supreme Court struck down Murphy v. NCAA in 2018.

Now, sports betting is more ubiquitous than GLP-1s in Hollywood.

In this newsletter, we’ll break down:

Before jumping in, here’s some helpful context.

For simplicity, let’s compare Kalshi to DraftKings:

While Kalshi is growing rapidly, sportsbooks still drive significantly more volume and profit.

Let’s now look at the level of integration each platform has with the major leagues & media platforms.

Kalshi

DraftKings

And that’s just DraftKings. Overall, sportsbooks are deeply ingrained with the major sports institutions – a defensive MOAT that allows them to build long-standing awareness with a more traditional, sports-betting consumer base (see chart below for overall brand awareness) – while prediction markets have barely scratched the surface. 

So what’s stopping them?

There are three core concerns: insider trading, unregulated markets, and lack of data sharing.

It seems like general public sentiment is that there is meaningful insider trading risk on prediction markets – just 9% of Americans are confident in their ability to prevent people with insider information from unfairly profiting.

When Kalshi CEO Tarek Mansour joined Squawk Box right after the Super Bowl, he emphasized that on a CFTC-regulated market, insider trading is not allowed – with the same rules and enforcement mechanisms as the stock market. But the push-and-pull between the co-hosts and Tarek around what delineates “information” vs. “insider information” is the core issue. That gray area is what gives leagues pause when thinking about alignment.

We highly suggest watching Tarek’s interview to better understand what actually constitutes insider trading in this context.

Litmus Test: How effectively can prediction markets crack down on insider trading – and reverse public sentiment around this inherent risk?

Last week, the CFTC laid out guidance on what contracts are acceptable on prediction markets, encouraging exchanges to consider whether certain contracts create a “heightened potential for manipulation.”

In sports, they explicitly called out contracts involving athlete injuries, physical altercations between players, and officiating decisions. They also stated that they are actively discussing the integrity of sports event contracts with relevant leagues and governing bodies.

On Squawk Box, the CFTC chairman emphasized that exchanges are the “first line of defense” in policing what contracts get listed. At the same time, reporting suggests the CFTC is still more “asking for conversations” than actively enforcing a clear framework.

Litmus Test: If exchanges are the first line of defense, the burden is on them to prove alignment with leagues, particularly in taking down markets that raise integrity concerns. At the same time, the CFTC will need to provide more clarity, as leagues like the NFL have already expressed concerns with the current guidance.

Genius Sports and Sportradar are the two primary middlemen that collect, process, and distribute real-time game data to sportsbooks – both operating under exclusive data-sharing deals with major leagues.

Not only do leagues profit off their data through the sportsbook ecosystem, they also maintain influence over integrity enforcement through these partnerships. Prediction markets break that model.

Because prediction markets operate as peer-to-peer exchanges and don’t actively set lines, they don’t require data-sharing deals with leagues. As a result:

This is a major concern. To put this into perspective:

Litmus Test: How tolerable will this model be for leagues if they can’t monetize prediction market activity or influence integrity enforcement? Ultimately, this isn’t up to the prediction markets to decide, but the CFTC’s.

The ultimate litmus test: to what extent are these prediction markets willing to go to protect their markets from insider trading?

Based on the most recent timeline, it looks like Kalshi and Polymarket are going BIG on this.

Primary Strategy: Demystify the integrity enforcement process and assemble the Avengers

In a recent LinkedIn post, Tarek not only reiterated that Kalshi bans insider trading, but outlined exactly how they police it:

Kalshi has also seemingly assembled the Avengers to strengthen enforcement:

Kalshi has “opened 200 investigations and frozen a number of flagged accounts” over the past year.

In a Kalshi News article from late February, Bobby shared two closed insider trading cases to provide more clarity on enforcement:

The first involves a candidate who traded ~$200 on his own candidacy for Governor of California, then posted about it on social media — violating several Kalshi rules.

Punishment: 5-year ban + financial penalty (10x the initial trade size).

The second involves an insider who traded ~$4,000 on YouTube streaming markets — a violation of Kalshi’s insider trading rules.

Punishment: 2-year suspension + financial penalty (5x the initial trade size). 

Primary Strategy: Partner with the ultimate AI detection platform of all-time

When in doubt, enlist Palantir to build bespoke, AI-driven solutions that can catch as many edge cases as possible.

Last week, Polymarket announced a partnership with Palantir and TWG AI to develop a “next-generation” sports integrity platform. Over the past year, Palantir and TWG AI have built the Vergeance AI engine – the underlying infrastructure designed to “establish a new standard for sports market integrity controls,” focused on preventing, identifying, and reporting suspicious activity.

The platform offers five core services:

While we’ll have to wait and see how effective Vergeance AI is – given the limited public commentary – one thing is clear: it’s extremely difficult to bet against a solution like Palantir’s.

This story is riddled with déjà vu.

Rewind to 2012. New Jersey challenged the Professional and Amateur Sports Protection Act (PASPA) after voters overwhelmingly supported a referendum to legalize sportsbooks.

Funny enough, the Big 4 leagues and the NCAA jointly sued to block it.

Then in 2014, Adam Silver wrote a groundbreaking New York Times op-ed – “Legalize and Regulate Sports Betting” – arguing that as underground sports gambling became increasingly pervasive, it was in the best interest of Congress to adopt a federal framework allowing states to authorize sports betting, “subject to strict regulatory requirements and technological safeguards” to ensure the integrity of competitive sport.

Once the Supreme Court struck down PASPA in 2018, the entire dynamic flipped. One-by-one, each league, starting with the NBA, struck official partnerships with major sportsbooks. A complete reversal from where they stood in 2012.

Right now, prediction markets are in an eerily similar boat.

While companies like Kalshi are already legal and technically regulated, the same concerns persist – insider trading risk and questions around market integrity, not too different from the fears surrounding underground sportsbooks a decade ago. Prediction markets are already going above and beyond to address the first concern.

Back then, leagues ultimately partnered with sportsbooks to gain a greater say in what markets were allowed.

Prediction markets are offering that same path. In Kalshi / Polymarket’s deal with the NHL, the league has the ability to push platforms to take down contracts it deems inappropriate.

And at the MLB owners meeting in February, Commissioner Rob Manfred said the league is considering partnering with prediction markets to “help aid in overall game integrity.” And today, they just signed a deal with Polymarket. Wow.

Just like what happened with sportsbooks, as prediction markets become more ubiquitous and clearly regulated… 

It’ll only be a matter of time before leagues fully lean in.