Motley Fool Money - Polymarket, Kalshi, and the Line Between Investing or Gambling

Episode Date: October 21, 2025

Prediction markets are having a moment - from Fed odds to football. In this episode of Motley Fool Money, host Emily Flippen, with analysts Jason Hall and Sanmeet Deo, break down what prediction markets are, why they exploded, how regulators view them, and the smartest ways investors might (or might not) get exposure. Companies discussed: HOOD, ICE Host: Emily Flippen, Jason Hall, Sanmeet DeoProducer: Anand ChokkaveluEngineer: Bart Shannon Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit ⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Prediction markets are having a moment. From fed odds to football, betting platforms are soaring. But how should investors use them? We're discussing today on Motley Full Money. It's Tuesday, October 21st. Well, it's Motley Full Money. I'm your host, Emily Flippen, and today I'm joined by full analyst Jason Hall and San Mateo as we dive into the growing world of prediction markets.

We'll be talking about how investors can play the trend, and if investing is really that different than just, gambling itself. But first, let's discuss what even is a prediction market because I know I can't speak for our listeners, but speaking for myself, this was an industry that I didn't even know existed prior to 2025. I mean, some of platforms like Kalshi and Polly Market, two of the most popular prediction platforms just seem to like pop up overnight. Now billions of dollars are flowing through these sites annually. What happened to cause this industry to explode? Well, prediction market is basically in essence, or if you think of

movie Rat Race, where the rich guys are betting on anything and everything happening in the whole, like, you know, the movie. That's kind of what prediction markets are. So, you know, the recipe for the explosion was really legal, well-funded, and user-friendly product that kind of lets anyone trade on, you know, real-world events, you know, like New York City mayor election, top artists on Spotify, the existence of aliens. Calshue is one of them, which became kind of the first CFTC regulated exchange. And that was a game changer because it made. the entire space kind of feel legitimate and safe. You know, that legitimacy kind of opened the door for institutional investment. Most notably, which we'll talk about a little later, is

International Continental Exchange, which is the owner of the New York Stock Exchange, investing $2 billion into Polymarket, kind of giving those platforms, you know, money to fund their growth in product development. And then finally, you know, unlike, you know, clunky older platforms, Colchium Polymarker, they're very easy and cheap to use. I mean, Jason, when I look at this industry, it just feels like gambling. to me. So I can understand the arguments that one may point at this and say, you know, to sound meets point. I mean, this is almost like a regulated financial market where these are operating almost as options, contracts on specific real world events. But on the other hand,

how is this different from gambling? Like what happened in the regulatory environment to allow these prediction markets to effectively crop up overnight? Look, this is gambling. This is gambling. Legally, it exists. And this is where it's different. than what we've seen from like Draft Kings and Fandul and MGM and Seizers have their betting sites. Those are regulated by the states. I think they're legal in about 30 states. Basically what happened is Kalshi bought a CFTC regulated exchange. And now they're saying, this is our business. So the difference is they're not the house.

Okay. They're not the house where you're betting directly with the platform, right? You're betting the outcome with Seizers, right? So you're making a bet with a counter party on the other end. And this is the platform that exists for you to be able to do that. So they're taking a rake of that, right? The fees and things that they charge. So that's how it exists because it's the same structure that's in place for commodities trading.

Where it's different than commodities trading is if you participate in a commodities trade from the beginning to the end, you either have to pay to buy a commodity or somebody's going to give you money. and you're going to sell them the commodity, right? The trade is for that thing. These are pure outcome traits, right? So they're able to exist because regulators have allowed it to happen so far. Now, there's still lawsuits going on, right? The federal government is saying, look, they exist because they're regulated by the CFTC is these exchanges. They're not true betting businesses. A lot of states are pushing back. There are lawsuits right now. These platforms have filed countersuits. So it's all still kind of playing out. But we're so we're still trying to just get clarity on it.

Well, for the time being to the extent that regulators are allowing these platforms to exist, you can certainly bet on the fact that more and more individual investors and consumers are going to them. And yes, that pun was intended. Up next, we're digging into the publicly traded companies that are finding ways to create investor returns through these prediction markets. Stick with us. The old adage goes, it isn't what you say. It's how you say it. Because to truly make an impact, you need to set an example and take the lead.

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Now that we have an idea about what prediction markets are and how they legally operate, let's dive into how investors can play this field. Like all of these vice industries, I recognize that prediction markets are probably a non-starter for many investors who want their portfolio to, to quote David Gardner, reflect their best vision of the future. But for investors whose best vision of the future includes more gambling opportunities, there always are plenty of publicly trade companies that are finding ways to monetize this new industry. Jason, I know we talked about Robin Hood last week, but in March, Robin Hood, whose ticker is H-O-O-D, launched its own prediction markets hub in partnership with, Cali. It's a section of its app specifically targeted towards these real-world event contracts. So for investors looking to gain exposure to the prediction markets without participating in the

markets themselves, how viable is buying shares of Robin Hood today? So Robin Hood's already told us that they're seeing the business is seeing some momentum from this. And I think they have exposure to it that's going to probably grow. But I think the thesis for it for Robin Hood and really any of the online brokers or even the betting platforms over time has to be more broad. These platforms are seeing explosive growth right now because the betting market was already huge. The friction has been removed right now. Betting, prediction markets, if we want to use their nice little PR verbiage that they've put together, that regulators have bought hook, line, and sinker has existed as long as two people were able to have different

opinions on the outcome of something and trade something of value for it, right? Betting has existed as long as humans have. So the friction has been removed to allow it to happen. But I think what's going to happen is over time, these platforms, they're not really going to have any serious competitive advantages at scale. They're going to operate as highly competitive price takers. We've already seen this happen with online brokers over the past half decade. Trading fees for stocks and ETFs have essentially disappeared. Options contracts are a lot less expensive than they used to be, if these platforms are going to survive with the prediction markets, you're going to see an explosion in competition.

Right now, it's the test bet, right? The lawsuits and things are going to play out. There's going to be an explosion in competition if this survives the federal government regulating, or maybe there's a federal law that gets passed that say, hey, we're just going to take this under the purview of the federal government. That explosion of competition is going to happen. And then inevitably, we're going to see consolidation of the winners. Again, I'm going to bring online brokers back into that because that's largely what we've seen.

brokers do a lot more now than they used to as they've consolidated other parts of the financial services industry. So, I mean, to an extent, we might actually already be seeing what Jason is talking about. And to play devil's advocate a little bit, I mean, some of these consolidators have been really decent investments. Robin Hood, especially over the last couple of years, has been a stellar one. But part of the reason why this is such a hot topic right now is because, as you mentioned, intercontinental exchange, that tickers ICE, the company that owns the New York Stock Exchange, recently announced a $2 billion investment in Polly Market, one of those trading platforms.

And that gives Polly Markets platform a valuation of somewhere around $8 to $10 billion. So huge private company that's doing a lot of volume here. And I understand, to Jason's point, maybe you look at Robin Hood and you're like, wow, that investment, that's just way too risky for me, but I'm still interested in playing this market. Is an alternative investment in intercontinental exchange, I see a viable alternative? Yeah, I mean, you know, it's not just a viable return. It's for some, it might be the smarter one.

You know, it's a classic picks and shovels play on of the gold rush. You know, it's important not to overstate the investment, though, the ICE is making in polymarket. You know, $2 million sounds like a lot. But given what the trading revenue for ICE is, it's just a small portion of that. Manager says it's not going to be very material over, you know, any short period of time here. So they're just kind of touching into that market because they know, it could be something.

But instead of betting on a single high-risk platform like Robin Hood, you're investing in a company that owns kind of the entire financial railroad. You know, ICE isn't speculating. They got the exchanges, the infrastructure, and the profits from the activity itself. And they're taking a small piece of every transaction. Their investment in Polymarket is just kind of like building a new track on that booming territory. So while investment in Robin Hood is a bet on explosive growth, you know, ICE is a bit on the evitability of trading, you know, you're swapping that electric upside for kind of that

stable cash generating compound or that's positioned no matter which, you know, specific platform comes out on top. And mind you, people trade in up and down markets. So they tend to do well in either. Yeah, that's a fair point. And when I look at the platforms that have succeeded, which is really just so far, the Calci and Polymarket, there's an understanding that these markets will tend to get bigger depending on network effects, right? Like the more people you have trading on the platform, the less friction there is in that exchange, the lower the fees are likely. So when you're looking on investment in the space, how important is it, and this goes to either you, Jason, or send me, whoever has an opinion, how important is the platform they're associated with,

right? Is it a matter of just rising tides going to lift all boats? So Calci, Polymarket, doesn't really matter. Or is one platform better position for success over the other? So therefore, you should be targeting an investment that is focused on that single platform. I would say the one with the more liquidity, the more volume, the more opportunities to do the trades where you feel more comfortable doing your trades and investments or bets would be the platform that could potentially be leading, but it will rise all tides, too. This is going to be multiple platform winners. Its betting is already well over $100 billion globally.

It's massive. I mean, there are some estimates that might be a little off the mark that are calling this a trillion dollar industry, you know, within the next less than a decade. But I think, again, that network effect you talked about, that is really important, right? That's hugely, hugely important. But I think if you were hearing nothing about them being into it, but Fidelity or Schwab, these big players, if this turns into something large, they have millions of customers, right? They have a built-in network effect. And I think you would see acquisition of some of these platforms over the long term, because while they have a lot of potential, we're going to see expansion. I think we could also see

maybe the draft kings and some of those sorts of companies, maybe look to participate more broadly by finding a regulated exchange that they can acquire, right, to become basically what Kalshi did to get into this business and the same thing that we just saw a Polymark could do, right? So I think the network effect is probably the most important thing because this is a very profitable high margin business at scale. And there's going to be lots of capital flowing into it, but nothing I don't think is going prove to be a true moat beyond stickiness with your customers and offering lots of different services to those customers to keep them. Thanks, guys. Coming up next, we'll close out the show with the

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Go to Q-I-N-C-E.com slash motley for free shipping and 365-day returns. Quince.com slash motley. Welcome back to Motley full money. As we wrap up today's show, I want to expand out and look at the bigger picture around prediction markets. Of course, as part of the man we're seeing, it reflected in things like the rise of gambling, right? As more states have legalized just like sports betting, for example, we've seen broad exposure to gambling rise amongst Americans. But at the same time, studies have shown that younger Americans also distrust financial markets at a rate higher than

their older generations. There's a belief that Wall Street is corrupt or weighted against them. So send me, it seems like prediction markets have almost offered this reprieve for people looking to get a return on their money and a system that they perceive as more fair, right? That depends on the perception of skill rather than luck. Do you think that's part of the reason why they've grown so rapidly? Yeah, that's exactly right. You know, the appeal is the clarity of the outcome. Prediction markets offer a pure test of judgment that you don't find elsewhere.

Think about it. In poker, you play a perfect hand and still lose a lucky river card. You know, in the stock market, you can be right about a company's future, but then the stock gets dragged down by market sentiment or Fed announcement. Your prediction markets strip away all that noise. There's a direct, unambiguous link between your foresight and the result. The question is simply, were you right? Yes or no?

And for a skilled risk taker, the clean outcome is the ultimate form of fare. This is a dopamine hit, people. Come on, let's be honest. That's what's happening right now is because, again, the friction has been removed. This is buying that lottery ticket. I think for the vast number of users, that's the case. And just as we saw the explosion of day trading in the early 2000s, when online trading became so ubiquitous. And then again, during the pandemic, when there was no sports

betting around to bet on, it's there. And people will have the assumption of skill because it's easy to be able to do. And we're going to see a big transition of money from those who think they have skill and those who actually do have skill. I think it's going to remain big. But again, I don't think this is the next big thing or some own correlated asset that we need to have exposure to in our accounts. It's a big part of how financial action happens in the world. We do know that. But whether or not it needs to be something we have exposure to, I think is a very, very different question to answer. And it is interesting what's going to happen with the regulatory framework. After centuries, really, of this being kept in the dark

and not legal in most places, is it now going to become more of a mainstream thing that can be part of the financial services business that we all own? Well, I can understand the argument that these effectively act as contracts as an investor. and maybe this is just me showing my age year, getting a little too old here for the podcast, but there's something nice to me that when I buy an equity, I'm buying aspects of a business that I have underlying economics, right, underlying cash generative's potential. And so in my mind, these types of contracts are almost more akin to options trading or commodities in the sense that their value depends to you're right, Jason, on the perception

of value or the perception of skill, not actual cash generation itself. So while it has been an interesting industry to watch, it's also one that, to your earlier point, I think, well, in addition to some cash-generating businesses like Robin Hood or Intercontinental Exchange is also something that on an individual contract basis, investors can probably, in my opinion, avoid putting in their portfolios or betting their assets on and probably not miss out on too much in the world today. For now, Jason and Sunmeat, thank you both so much for joining. Listeners, be sure to join us for tomorrow show where Travis will be diving into earnings season. As always, people on the program may have interest in the

stocks they talk about and the Mottley Fool may have formal recommendations for Oregon, so don't buy yourself stocks based solely on what you hear. All personal finance content follows the Molleypool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Jason Hall, Sam McDeo and the entire Motleyful 19, I'm Emily Flippen. We'll see you tomorrow.