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With trading volume in the prediction market booming, Truist analysts say there could be an unlikely source driving the surge.
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 trades more on college football than the NFL and NBA. While non-college students can still bet on college outcomes, this trend could of course offer a clue to the prediction platform’s user demographics.
HoldCrunch analyzes data on an “OSB equivalent handle” rather than on volumes only.
During the week ended Jan. 4, Kalshi’s college football participation reached its highest percentage of the total at 32 percent, the prediction platform said. The NFL accounted for 24% of total bets and the NBA accounted for 22%. The tide has been turning in this direction since October, according to Kalshi.
Prediction markets – in which users can bet on the outcomes of events in everything from politics and world news to pop culture and sports – have grown in popularity with the help of platforms like Kalshi and Polymarket.
They are quickly filling a market gap in states where online sports betting is not legal. And in states where it’s legal, online sports betting is often limited to those 21 or older. Kalshi and Polymarket are open to anyone age 18 or older, with some state-by-state exceptions for sports and certain other professions.
“It is clear that these new offers are having an impact on the behavior of sports bettors,” writes Jonas.
NCAA President Charlie Baker wrote this week to the Commodities and Futures Trading Commission, which regulates prediction markets, asking the agency to remove college sports from trading options until more safeguards are in place.
Juice Reel, an app that allows sports gamblers to track their bets and provides analysis of betting and trading activity, has seen greater adoption of prediction markets in states where sports betting is not legal.
According to Juice Reel, 9% of its California customers have connected prediction accounts, the most in any other state. Just over 6% of Juice Reel’s Texas customers have linked 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 in terms of customers who have connected betting accounts (6.8%), perhaps due to the concentration of financial traders accustomed to trading futures, options, and other volatile financial derivatives. Truist analysts speculate that 18- to 20-year-olds could also be fueling the forecast in the state.
Residents of New York and California demonstrate a notable propensity to gamble outside the bounds of regulated sports betting. New York imposes a 51% tax on sports betting, but not on gambling, Daily Fantasy, bookmaker accounts and offshore sports betting. And these alternative platforms receive 40% of the overall amount, or money wagered, from Juice Reel customers.
Part of the reason is that players who really know what they’re doing can’t bet big on platforms like DraftKings or FanDuel.
“Some of the biggest and best bettors are turning to prediction markets because they are limited to smaller bets by sportsbooks,” Juice Reel founder Ricky Gold told CNBC.
At least 70% of the bets tracked by Juice Reel are on regulated sports betting, but they represent only 38% of the total. On the other hand, predictions represent only 1% of the number of bets, but 13% of the amount.
“Prediction markets amplify bettor skill and variance,” concluded Truist’s Jonas, adding that they “show significantly larger declines for low-wallet users and significantly higher rises for high-wallet users.”
Disclosure: CNBC and Kalshi have a business relationship.