‘Horrible’ war bets fuel calls for crackdown on prediction markets
Natalie ShermanEconomic journalist
Stew, a 35-year-old from Montana, has enjoyed dabbling in sports betting since he downloaded the Kalshi app about 18 months ago.
But just a few weeks ago, after spotting reports of a surge in pizza deliveries around the Pentagon during a nighttime scroll, he made a different bet: betting $10 (£7.50) on the chances that Iranian Ayatollah Ali Khamenei would be “out” by March 1.
It was an exchange that tested the limits of the types of bets Americans are allowed to make.
So-called prediction markets – overseen by companies such as Kalshi – have exploded in popularity over the last year, hosting more than $44 billion in transactions.
They are rapidly transforming the betting landscape in the United States, where sports betting was largely illegal until 2018 and betting on elections was banned for years until 2024.
While much of the activity on the platforms revolves around sports matches, users can speculate on a number of issues, including local elections, the US central bank’s decision to cut interest rates and the year of Jesus Christ’s return.
The apps caught fire during the 2024 US presidential campaign, after a legal victory allowed them to accept election bets and showed the odds were tilted in favor of Donald Trump.
But it is more macabre bets linked to military action involving Iran, Venezuela and Israel that have recently attracted attention.
In theory, such bets run afoul of U.S. financial rules, which prohibit the negotiation of contracts involving war, terrorism, assassinations, gambling or other illegal activities.
But that hasn’t stopped businesses from making millions of transactions.
Critics have seized on the activity, calling for a crackdown on the apps, which they say facilitate unseemly and potentially illegal war profiteering, creating national security risks and opening the door to insider trading and corruption.
“You’ve now opened up gambling on almost everything and it’s turned into this very, very horrible kind of thing when a head of state dies,” said Craig Holman, a government affairs lobbyist with the advocacy group Public Citizen, which recently filed a lawsuit this week regarding the gambling.
Polymarket alone hosted what Bloomberg estimated was more than $500 million in bets related to the Iran war, at one point offering the opportunity to bet on the chances of a nuclear detonation.
The company, which is headquartered in New York but operates on a limited basis in the United States, ultimately removed that market after facing scrutiny on social media, but users can still place bets on issues such as the entry of U.S. forces into Iran. He did not respond to the BBC’s request for comment.
Kalshi also ended up canceling Khamenei’s marketplace, which had generated $54 million in transactions, noting that U.S.-regulated entities are prohibited from “having a marketplace directly comment on someone’s death.”
The company, which did not respond to a request for comment for this article, said war betting takes place on unregulated exchanges outside the United States.
Concerns about war betting have collided with a broader battle over how companies in the prediction market should be regulated.
Unlike traditional gaming companies, in which odds are set by the company, prediction market companies operate more like an exchange, allowing users to bet against each other on the outcome of future events using “event contracts.”
This design allowed national financial regulators at the Commodities Futures Trading Commission (CFTC) to claim oversight.
But critics say they are sports betting and gambling operations that try to pass themselves off as financial exchanges in an effort to avoid stricter rules and taxes faced by traditional gaming companies, which are regulated by states.
Disagreement over who should control applications has sparked dozens of legal battles across the United States, as states begin to assert their right to regulate the companies like other gaming companies, rather than leaving oversight to the CFTC.
Even some Republicans have expressed concerns, as traditional gaming companies have also stepped up their lobbying, tapping a savvy former Trump official, Mick Mulvaney, to make their case in Washington.
“No one is saying that gambling shouldn’t be allowed,” says Ben Schiffrin, director of securities policy at Better Markets, which advocates for financial reforms. “What states and other advocates are saying is that things that are gambling should be regulated like gambling.”
Suspicious bets linked to military operations involving Israel, Venezuela and Iran have fueled these calls.
They also warned consumers about the risks of insider trading and wrote to the administration asking it to more clearly enforce rules prohibiting betting on war.
But the chances of a crackdown remain high.
Although the Biden administration took a hard line on the sector, proposing to ban contracts related to sporting and political events, this regulatory initiative stalled after a legal defeat and the election of Donald Trump in 2024, who came to power promising a lighter hand.
Last month, the CFTC announced it would withdraw the proposed ban on contracts related to sports and elections.
He has also sided with prediction market companies in the legal battles they face in the states, which Michael Selig, chairman of Trump’s Commodity Futures Trading Commission, condemned in a recent opinion piece as “overzealous.”
He argued that event-driven contracts performed “legitimate economic functions,” allowing businesses to protect themselves against risks triggered by events.
“It’s clear that Americans love the product and want to participate in it,” he said, while emphasizing that platforms still have to follow rules.
As pressure mounts, Polymarket has announced steps to more formally police suspicious activity, while Kalshi, which announces its status as a “regulated exchange”, has been more vocal about what it is doing to combat insider trading.
It recently announced sanctions in two insider trading cases and revealed that it had opened 200 investigations over the last year.
The company also ultimately canceled the $54 million deal surrounding Khamenei’s ouster.
In a series of statements To explain the decision, the company said it had not “listed markets directly related to death,” noting that its terms included this exclusion.
He promised to make the terms clearer from the start, claiming to have “learned a lot” from the incident.
But in a sign of growing pain, the decision still sparked outrage among users, including Stew, who said the company initially “buried” those rules and that its explanation seemed disingenuous, given that there were “only a handful of realistic methods” for Khamenei to go away.
Stew, who received a refund, said he wasn’t sure regulation was the answer, but he favored the idea that the debate seemed to stumble over semantics.
“They call it contract trading, which technically that’s what it is. But if we’re all being honest here, it’s still gambling,” he said.