NFL football is back, and so are prediction markets! Today, we'll explore the forces driving this resurgence and interpret their implications for the future of prediction markets. 🏈👇 ~~ @JackInabinet Analysis ~~ The return of televised professional football in the US has been a godsend for prediction markets, which had previously seen a slowdown in trading volume and a significant drop in open interest from their peaks during the US presidential election. Trading volume in prediction markets doubled in September, and the resilient platforms at the center of the frenzy are now rumored to have eleven-digit valuations. 🏈 Prediction Market Frenzy Prediction markets are an all-or-nothing game. Winning shareholders receive $1 per share, while all other players lose their bets, becoming victims of fate. The "event contracts" that underpin prediction markets are regulated by the federal Commodity Futures Trading Commission (CFTC) and pay out returns based on specific outcomes, whether they be a Federal Reserve interest rate decision or the outcome of a sporting event. While successful prediction markets are flexible enough to accommodate a variety of niche themes, they need mass appeal to generate sufficient betting interest to facilitate larger order sizes without impacting market prices. Prediction markets (particularly the stablecoin-settled varieties offered by Polymarket on the Polygon blockchain) became a breakthrough use case for crypto in the run-up to the 2024 US election, with speculators around the world investing hundreds of millions of dollars in attempts to monetize the outcome. Unsurprisingly, trading volume on major prediction platforms plummeted immediately following the election results. A year later, the emergence of the NFL filled this void. The start of the NFL season sent trading volume in the sector soaring to its highest level year-to-date. This growth was fueled by increased integrations between major trading platforms, growing user familiarity with prediction markets, and clarity from US regulators. While prediction market giant Polymarket saw a significant surge in trading volume following its football market debut, emerging company Kalshi has been the biggest beneficiary of this momentum, surpassing Polymarket in weekly trading volume for the first time. In addition to offering sports contracts through retail brokers Robinhood and Webull, Kalshi also offers proprietary prediction markets, which saw $441 million in trading volume during the NFL's opening weekend alone. Sports betting currently dominates Kalshi, accounting for 95% of the platform's trading volume, with American football betting accounting for the majority. 🤔 Competition Compared to traditional state-regulated sportsbooks (such as those offered by the online gambling service DraftKings $DKNG), prediction markets offer greater convenience for non-sports enthusiasts and potentially offer better prices. While sportsbooks can offer greater returns than prediction markets through parlay betting (a leveraged bet where multiple bets are linked together and only payouts if all bets win), they also employ "moneyline" odds, making them more difficult for unfamiliar players to navigate than simple probability-based prediction markets. Furthermore, a single centralized operator acts as the bookmaker for sportsbooks. They act as the counterparty for all bets and impose a spread or "commission" on their pricing to ensure profitability. Prediction markets, in contrast, match users based on market-specified probabilities and can charge an optional service fee. Despite the clear demand, growing dominance, and undeniable profits of sports prediction markets, they still operate in something of a legal gray area. Under the Biden administration, the U.S. Commodity Futures Trading Commission (CFTC) has sought to crack down on contracts based on election and sports betting, claiming they constitute "gambling" markets prohibited by the Commodity Exchange Act. Although regulatory pressure has eased somewhat under the Trump administration, many state gaming commissions have still issued cease-and-desist orders to prediction markets. They argue that prediction markets are operating unlicensed sportsbooks in violation of their respective state laws. Prediction markets counter that they do not need to comply with state gambling regulations because their contracts are federally authorized and the Supremacy Clause of the U.S. Constitution provides that federal law prevails when it conflicts with local law. The NFL itself has expressed concerns about sports betting contracts, claiming that without proper state regulation, prediction markets "may be susceptible to manipulation or price distortion." Amidst legal uncertainty, the longevity of sports-centric betting contracts remains uncertain, but one thing is clear: prediction markets are eager to capitalize on the craze. Kalshi is reportedly raising funds at a $5 billion valuation, while Polymarket's investors are considering a new term sheet that would value the company at $9 billion to $10 billion.