How can racing face the threat posed by prediction markets?

Who will be the Republican and Democratic nominees for the 2028 U.S. presidential election? Who will win best picture at the Oscars? The Fed decision on interest rates? Gas prices this month? How much snow will New York get?

You could have gotten down on what Trump was going to say during his State of the Union address. Or on when Iran leader Ayatollah Ali Khamenei would be ousted – though maybe not if he was actually killed, as was the case Saturday.

Yet to be determined: Will angles involving the Kentucky Derby be among the offerings in the world of the loosely regulated and increasingly controversial prediction markets? (No, vows Churchill Downs.)

First came slots and casino gaming. Then fantasy sports, sports betting and sweepstakes. Now horse racing faces another competitor for the gambling dollar in prediction markets, which are allowed under the Commodity Futures Trading Commission but have no state oversight.

"Prediction Markets and Wagering: An Emerging Threat to Horse Racing and Interstate Horseracing Act Revenue” was a featured panel Thursday at the National Horsemen's Benevolent ant Protective Association Conference at Oaklawn. Speakers agreed that prediction markets have the ability to dwarf even sports betting in America. The prediction-market platform Kalshi reportedly took in more than $500 million in trading volume on the Super Bowl. Bloomberg has reported that Polymarket took in $529 million on the timing of U.S. strikes in Iran. And Polymarket reportedly took in $1.2 million overseas on the 2025 Derby. 

Unlike pari-mutuel horse racing and legal sports betting, prediction markets aren’t subjected to state gaming taxes and have little of the consumer protections built into state regulation, said the panel, moderated by wagering consultant and SIS Content Services vice president Michele Fischer. Prediction markets, parsing semantics, say they offer futures contracts akin to commodities trading, heretofore generally thought of being more about crops, livestock, metals and oil, contending they are not bets. They've dubbed money placed on the outcome of a future event a “contract” or “swap” but insist it’s not a wager.

If the panelists disagreed on whether to join forces or head to court, they concurred that horse racing cannot ignore the prediction markets.

"I think that the prediction market is a real threat to the horse racing industry unless we handle it correctly,” said attorney and horseman Dennis Drazin, chairman and CEO of Darby Development, which runs and leases Monmouth Park, a horsemen-driven transition that saved the track from closure. Drazin also has been a leading figure in adopting fixed odds in American horse racing, along with sports betting outside Nevada and Atlantic City.

Prediction markets offer the so-called contracts on almost anything, but there’s an element of caveat emptor. For instance: Reports said more than $54 million was traded on when Khamenei would be ousted. When a joint U.S. and Israeli air strike killed Khamenei, some people were expecting huge paydays, only to find out Kalshi wouldn’t pay because of what it contended was a death carve-out. 

The public outcry, not just that bettors were perceived as being stiffed but, for the prediction markets that did pay out, the unseemliness of wagering on a death, never mind the potential abuse of insider trading, was so loud that some lawmakers in Congress threatened to ban the markets. In response, the Commodity Futures Trading Commission this week sent a rule-making plan to the President's Office of Management and Budget.

Donald Trump Jr. is an investor and unpaid advisor to Polymarket and a paid advisor to Kalshi, The New York Times reported.

“We really have a situation in which you have this administration and the federal government advocating very, very hard for these platforms,” said panelist and industry consultant Peter Gardiner, founder and managing general partner of Seaforth Partners, “while the state government, where there are already regulated gaming commissions, tribal nations and generally the Democratic administrations and states, plus Utah, are fighting back at a very hard level.”

Prediction markets’ morphing into sports has been so fast and lucrative that sports-betting powerhouses FanDuel and DraftKings have gotten into the action.

Churchill Downs Inc. has vowed to see the prediction markets in court if the prediction markets again try to offer contracts on the Derby. Indeed, horse racing has ammunition to fight not available to other athletes and sports: the Interstate Horseracing Act of 1978, which gives horsemen the right of approval or refusal to have their betting signal sent out across state lines.

The panelists said more than 60 lawsuits are pending over the prediction markets. The consensus is the issue will wind up before the U.S. Supreme Court, with a final decision years away.

“I think we have a very strong case, because we have federal laws that control this,” said Drazin, who joined the panel via Zoom. “It's not something that's trying to create state law. And I think as things go on, this has been a very important week. There were two very important decisions by the federal court saying that, basically, the prediction market does not preempt state law, and they dismissed those cases and sent them back to the state court. So I think certainly there's a lot to be said and a lot to be litigated.”

That ideally would be a class-action suit, he said.

“We need to be prepared to decide how we're going to deal with this,” Drazin said. “My recommendation is that those of us who want to participate, we head to the federal court and assert our rights under the Interstate Horseracing Act. But the industry is going to have to make some decisions.”

Jason Johnston, sportsbook manager for Nebraska’s WarHorse Gaming, said the prediction markets can do an end-run around the state-regulated racebooks. For instance, Nebraska does not allow betting on a Nebraska team playing at home, he said. Its legislature also rejected an effort to get mobile sports betting on the ballot. 

"They were really hung on protecting student athletes, protecting those underage,” Johnston said. “… Well, fast forward, just a couple months later, when Kalshi started to blow up in the summer, really after March Madness in 2025. What happens? Now their worst fears have come true: A senior in high school between periods can sign up for Kalshi and Polymarket in less than 45 seconds and get a bet down on Nebraska.” 

Unlike casinos, there is no self-exclusion, Johnston said.

“That’s because if they admitted to the need for responsible gaming, they would be considered a gaming company. …,” Gardiner said. “So they would be shooting themselves in the foot by doing that.” 

Despite concerns, Johnston believes horsemen and tracks will have to try to work with prediction markets to get a cut of the action. He said the Nebraska HBPA, which owns the horse tracks in Omaha and Lincoln and partners with WarHorse, gets a slice of every sports bet made, revenue threatened by competition from the prediction markets.

“If there's not a hard block, they're going to swing for the fences, and it's going to escalate fast,” Johnston said. “Just look at how much Kalshi has changed over the last nine months from a consumer experience. The other backup plan would be get ahead of it, try to find a partnership with it and get a piece of the pie. Because I think Kalshi and Polymarket are just going to try to run through everybody and just get what they can get, just like they've done in other sports and states, and deal with the lawsuits later.”

Drazin said he would be open to appropriate compensation for tracks and horsemen but that his apprehension goes beyond that, given the integrity and accountability concerns. He said the industry needs a working group to thoroughly study the issue, including determining whether there’s a standard revenue split that might justify signing up and risking cannibalization of racing’s current market. “I think it would be a disaster if one jurisdiction alone got into the prediction market and left the others out in the cold,” he said.

Dave Basler is executive director of the Ohio HBPA and an avid handicapper who is frequently involved on behalf of the National HBPA on wagering and gaming issues. He concurs with Drazin.

“Ultimately, what we have to consider is litigation,” he said. “Because I think Kalshi, Polymarket, they make it very clear that they don't believe that they need approvals. … Once they ultimately start taking bets, I think the industry players have to decide if they're willing to be 61st in court. Because if they're not willing to do that, I think (the prediction markets) are going to take bets and we’re not going to get paid.”

Meanwhile, several American sports leagues are working with those platforms. So are some mainstream media companies, with CNN becoming Kalshi's official prediction-market partner.

Prediction markets have more liquidity that allows high-volume players to invest more than through sports books and pari-mutuel pools, Gardiner said, adding that those traders will have more opportunity with prediction markets just because of the sheer volume.

Fischer, who previously moderated National HBPA Conference discussions on sports betting and fixed odds, said that if the economics are right, prediction markets could be a boon to horse racing by presenting an easily consumable product with added markets to millions of people.

“We missed the mark with sports betting for the horse-racing industry,” she said. “It’s a highly regulated form of gambling, and that’s something that’s still on the table for horse racing. I think that the conversation needs to be a little wider. We sit here and look at all the threats, which they all can be. But where are those opportunities for this new market we've been talking about for 20 years? Where are all the eyeballs that we wanted on horse racing? What are they watching?”