College students, teens could be fueling the boom
A version of this article first appeared with Alex Sherman in the CNBC Sport newsletter, delivering the biggest news and exclusive interviews from the world of sports and media. become a member to receive future editions straight to your inbox.
While the trading volume of the prediction market is increasing rapidly, Truist analysts say there may be an unexpected source behind this increase.
Analyst Barry Jonas wrote this week that 18- to 20-year-olds, who are too young to gamble legally in most states, could contribute significantly to the growth of prediction markets.
Specifically, data from HoldCrunch, founded by a former FanDuel executive, shows that prediction platform Kalshi receives more trades in college football than in the NFL and NBA. While non-university students can also bet on university outcomes, this trend may of course offer a clue as to the demographics of the prediction platform’s users.
HoldCrunch analyzes data on “OSB equivalent identifier” rather than just volumes.
The prediction platform said Kalshi’s college football total hit the highest percentage in the week ending Jan. 4 at 32%. NFL accounted for 24% of total bets, while NBA represented 22%. According to Kalshi, the trend has been changing in this direction since October.
The popularity of prediction markets, where users can bet on the outcome of events in every field, from politics to world news, from popular culture to sports, has grown rapidly with the help of platforms such as Kalshi and Polymarket.
They are quickly filling the gap in the market in states where online sports betting is not legal. And in states where it’s legal, online sports betting is generally limited to people 21 and over. Kalshi and Polymarket are open to anyone 18 years of age and above, with some state-by-state exceptions for sports and other specific professions.
“It is clear that these new proposals are having an impact on the behavior of sports bettors,” Jonas wrote.
This week, NCAA President Charlie Baker wrote a letter to the Commodity and Futures Trading Commission, which regulates prediction markets, asking the agency to exclude college sports from options trading until more protections are provided.
Juice Reel, an app that allows sports gamblers to track bets and provide analysis of betting and trading activity, found that prediction markets are used at a higher rate in states where sports betting is not legal.
According to Juice Reel, 9% of its customers in California have linked their guess accounts, the highest rate among any other state. Just over 6% of Juice Reel’s Texas customers have linked their prediction market accounts. Neither California nor Texas offers legal, licensed sports betting.
Interestingly, New York, which has legal online sports betting, ranks second on Juice Reel (6.8%) among customers linking betting accounts, likely due to its concentration of financial traders accustomed to trading futures, options and other volatile financial derivatives. Truist’s analysts suggest 18- to 20-year-olds may also be fueling the state’s forecasting action.
Residents of both New York and California show a notable tendency to gamble outside the confines of regulated sports betting sites. New York taxes sports betting sites at 51%, but not sweeps, daily fantasy, betting accounts and offshore sports betting sites. And these alternative platforms charge Juice Reel customers 40% of the total amount or deposit.
That’s partly because gamblers who really know what they’re doing can’t place big bets on platforms like DraftKings or FanDuel.
“Some of the biggest and best bettors are going to the prediction markets because they are limited to smaller bets on sports betting sites,” Ricky Gold, founder of Juice Reel, told CNBC.
A full 70% of the bets tracked by Juice Reel are on regulated sports betting sites, but they account for only 38% of the bets. In comparison, predictions account for only 1% of the number of bets but 13% of the bet amount.
“Prediction markets increase the skill and differentiation of bettors,” Truist’s Jonas concluded, adding that they “show significantly greater downsides for low-wallet users and significantly higher upsides for high-wallet users.”
Disclosure: CNBC and Kalshi have a business relationship.
