Over the past ten days, the sports world has been rocked by scandal. More than 30 people have been arrested by the FBI for allegedly turning pro basketball into what investigators describe as a criminal betting ring powered by insider information. At the same time, prediction markets like Kalshi and Polymarket are suddenly everywhere. Kalshi is tied up in lawsuits across the country. Polymarket is trying to re-enter the United States after being pushed offshore. All of it raises a simple question with enormous consequences. As prediction markets grow, are we heading toward more match fixing and more insider trading?
The latest FBI bust only heightened those concerns. On Thursday (October 23), federal agents arrested an NBA player and a coach, accusing them of schemes that included manipulating game outcomes to swing bets.
That came just 24 hours after the NHL became the first major sports league to sign a licensing agreement with prediction markets. These are the fast growing sites that look like the next big thing in betting, but often operate in murky legal territory.
The same day, DraftKings jumped in by acquiring a prediction market company, signaling that the industry’s biggest players see serious upside.
All of this is happening as federal authorities start drawing parallels between sports betting and insider trading. Some experts warn that moving betting activity into prediction markets could make those risks worse. Others believe that using public blockchains could offer transparency that traditional sportsbooks cannot match.
Two experts who spoke directly with ReadWrite said prediction markets are still gambling at their core, and could introduce a new “element of risk.”
CFTC faces criticism over alleged lack of scrutiny of prediction markets
These platforms function by letting users buy futures contracts tied to real world outcomes. That puts them under the oversight of the Commodity Futures Trading Commission, a regulator that has spent most of its 50 years watching agricultural derivatives, not pro sports. Now the CFTC is expected to oversee both this new class of sports contracts and much of crypto, largely due to a major push by the current Trump administration.
“The trading limits in prior prediction markets were too small to create the incentives necessary to fix matches or risk prosecution for insider trading. Also, expanding to sporting events introduced an entire new element of risk.” – Tom Gruca, Iowa Electronic Market Professor in Marketing and Director
A former CFTC official told Decrypt, “I think the CFTC is going to get swallowed.” The official added, “You’re going to see more and more of these cases of insider trading happening on prediction markets, because the CFTC isn’t doing surveillance, they don’t have the manpower to catch it on their own.”
Legal analyst Daniel Wallach echoed the concern during a recent Indian Gaming Association webinar. He said that Kalshi CEO Tarek Mansour “teased the possibility of other sports leagues signing similar partnerships,” even though leagues like the NBA and MLB have already warned regulators that existing safeguards are insufficient.
Wallach pointed out that prediction markets are able to “self certify any event contract they want and it goes into effect immediately which is hysterical.” He added that the “CFTC already has a regulation that expressly prohibits event contracts” and cited rule 40.11, which bans contracts related to gaming or anything illegal under state law.
In his view, “All of those people are benefiting because the CFTC has been infiltrated and captured by the Trump administration and refuses to enforce that existing rule.”
Prediction markets could bring in additional match fixing ‘risk’
Tom Gruca, professor of marketing and director of the Iowa Electronic Market, the first prediction market founded in 1988, shared his insights with ReadWrite.
When asked whether the rise of prediction markets like Kalshi and Polymarket could increase the chances of match-fixing and insider trading, he answered, “Yes. The trading limits in prior prediction markets were too small to create the incentives necessary to fix matches or risk prosecution for insider trading. Also, expanding to sporting events introduced an entire new element of risk.”
On the line between regulated derivatives and gambling, he explained, “Regulated derivatives are supposed to help market participants mitigate risk, e.g., having crop prices rise when you have already set prices for your end product like breakfast cereal. Gambling is the introduction of risk where none existed before. There is no risk associated with who wins the first game of the world series. Gamblers (and gambling sites) create that risk.”
He said league partnerships could help by eliminating prop bets, which removes incentives for individual players to participate in fixing. But he warned that constant gambling promotion “creates the appearance that gambling is more important than the games themselves,” and that this poses reputational risks when match fixing inevitably occurs.
On crypto-native platforms, Gruca said, “There are no restrictions on who is participating. They could be minors. Also, it is not clear who regulates the verification of the identity of the bettor. It is easier to see match fixing when you can have insights into why the prices are moving due to the actions of a few individual traders.”
He also warned that prediction markets offer “an easy way to launder money if there are no identity controls,” and said tax evasion is easier when platforms operate without clear regulation.
Blurred lines between betting and derivatives
Daniel O’Boyle, Senior Business Reporter for InGame.com, told ReadWrite that the divide between derivatives and gambling is already blurred.
“Nobody really knows exactly where the line is,” he said, adding that many prediction market products fall into both categories. A contract offered on a CFTC regulated exchange is, by definition, a derivative. But if that contract is tied to a sports outcome, “it’s obviously gambling.” The result is a weird overlap where something can be both at the same time.
“Maybe – at least at the moment, no crypto-native platforms are operating under CFTC registration – CFTC rules effectively make it impossible. So these platforms like Polymarket are essentially self-regulated, so there’s nobody out there making sure they enforce insider trading rules.” – Daniel O’Boyle, InGame Senior Business Reporter
He said league partnerships could help if leagues demand strong integrity standards. But if leagues simply accept money for “official partner” branding, he worries they will be endorsing prediction markets less equipped to fight match fixing than sportsbooks.
On crypto-native platforms like Polymarket, O’Boyle said they operate without CFTC registration, which means “there’s nobody out there making sure they enforce insider trading rules.” Kalshi at least publishes lists of people who are prohibited from trading. Polymarket generally do not. That absence increases the chance of suspicious activity, such as odds spiking right before an announcement. He noted that public blockchain data can, in theory, help detect these patterns, but only if platforms choose to enforce fair play.
He also pointed out that unclear or poorly defined market rules can create opportunities for exploitation, and that prediction markets sometimes lack the responsible gambling tools that traditional operators provide. The CFTC has no experience regulating gambling addiction, leaving a gap that no one is filling.
Concerns over lack of guardrails
Wallach remains concerned about the CFTC’s capacity. “If there’s a regulation on point which says these are not allowed and the CFTC is not enforcing that rule, it does beg the question, why is that happening?”
“Due to its size and historic mandate, the regulator mainly relies on whistleblowers and self-reporting by market participants to eliminate corruption on markets it oversees.”
— Daniel Wallach (@WALLACHLEGAL) October 26, 2025
He cited the government shutdown and said the agency currently has 30% fewer staff. “All of their employees are basically furloughed, except for 31 people, which is less than the size of the Rhode Island Lottery Commission, which means that the Rhode Island Lottery is a more robust regulator.”
He argued that, in practice, prediction markets face almost no restraint. “There are no guardrails, there’s no permission. You just say, hey, I’m doing it.” He added that the CFTC has taken no enforcement actions, which is why companies feel free to expand aggressively. “Parlays and props, they can put up anything that they want.”
Meanwhile, Polymarket has shown little interest in addressing insider trading concerns. When the Nobel Peace Prize market raised questions about traders possibly using private information, the company did not launch an investigation or issue a statement. Instead, Polymarket reposted a news alert and then turned the situation into marketing fodder. “JUST IN: It has been revealed only 5 people at the Nobel Peace Prize foundation knew the winner before they were announced,” the platform posted. “Everyone checking Polymarket knew.”
JUST IN: It has been revealed only 5 people at the Nobel Peace Prize foundation knew the winner before they were announced.
Everyone checking Polymarket knew.
— Polymarket (@Polymarket) October 11, 2025
Polymarket is preparing to relaunch in the United States under CFTC rules after being forced offshore in 2022, but the company did not respond to requests for comment from ReadWrite on its approach to insider trading.
Despite their differences, Kalshi and Polymarket share something politically notable. Both count Donald Trump Jr. as an adviser.
ReadWrite has reached out to the CFTC, Kalshi, and Polymarket for comment.
Featured image: Canva
