Jonathan D. Cohen and Isaac Rose-Berman, writing for City Journal, explain the nuances of prediction markets. The American public invests billions in these markets, wagering on events as varied as elections, music sales, and sports results. Despite the appearance of betting, these activities are not classified as gambling from a legal perspective.
Prediction markets function as investment platforms. They offer event contracts, which are categorized as a form of financial derivative. This classification aligns them more with financial investments than traditional betting.
Federal regulators support this viewpoint, seeing prediction markets as sophisticated financial instruments rather than simple wagers. This understanding impacts how these markets are regulated and the legal frameworks that govern them.