Kalshi Inc. co-founder and Chief Executive Officer Tarek Mansour has an argument why prediction markets shouldn't be regulated as gambling. Traditional sportsbooks, he argues, are "essentially a product that is designed for customers to lose." Sportsbooks profit from customer losses, making them structurally predatory. Kalshi, by contrast, operates as a peer-to-peer exchange: customers bet against each other, Kalshi takes fees from both sides, and the house has no stake in the outcome. It's a financial market, not a casino.
He's right about the business model distinction. He's wrong that it answers the regulatory question.
What Mansour is describing — a balanced book, fees on both sides, no house risk on outcomes — has been the operating model of sports betting, both legal and illegal. The genius of the operation, which reached its mature form with the invention of the point spread in the 1940s, was precisely its exchange-like structure. Bookmakers weren't gamblers; they were market makers. The business was less like the corner bookie and more like the New York Stock Exchange — minus the federal charter and the disclosure requirements.
The point spread allowed bookmakers to attract roughly equal action on both sides of any sporting event, regardless of the talent gap between teams. With a balanced book, the outcome was irrelevant to profitability. Bookmakers collected roughly 10% vigorish from losing bettors, netting approximately 5% of total action however the game went. Revenue was steady, predictable, and auditable. A bookmaking operation could be evaluated entirely by how well the book balanced and how consistent the vigorish was. This was not a cottage industry. By the 1970s it was a national market, with a single price — the Vegas line — set each week and followed from Boston to Los Angeles.
Exchange-model sports betting is not a new financial innovation. It is the mid-20th-century sports betting model, and the question of whether it benefits or harms society has never had anything to do with whether the house profits from losses. Mansour's argument — we're different from sportsbooks because we don't prey on losers — is a description of a fee structure, not a regulatory philosophy. The same fee structure ran for decades before the FBI shut it down, and nobody involved claimed it was unregulated because it was fair.
Gambling regulation historically served several purposes simultaneously, and Mansour's business-model argument addresses only one of them.
Consumer protection from operator exploitation — the concern that the house is designed to take your money — is indeed different for peer-to-peer exchanges than for sportsbooks. Here Mansour has a point. The structural conflict of interest that makes sportsbooks predatory doesn't exist in a true exchange model.
But problem gambling — the behavior that causes individual and social harm regardless of whether the operator profits from losses — is unaffected by the peer-to-peer structure. A compulsive bettor chasing losses on Kalshi is identically harmed to a compulsive bettor chasing losses on DraftKings. The mechanism of harm is the same. The exchange model provides no protection here.
State revenue is a separate concern. After the Supreme Court struck down the federal sports betting ban in 2018, states built elaborate licensing and taxation frameworks that generate substantial public revenue and fund problem gambling treatment. Kalshi's strategy — obtain CFTC designation as a derivatives exchange and claim federal preemption over state gambling law — routes around this.
The Trump administration has now sued three states to enforce that preemption claim, and a federal appeals court ruled just last week that New Jersey cannot regulate Kalshi's sports contracts. If prediction markets prevail on preemption, states lose both the tax revenue and the consumer protection frameworks they built over the past seven years, replaced by CFTC oversight designed for commodity futures, not retail sports bettors.
The market structure question — who should regulate this — is genuinely difficult, and Kalshi has a reasonable case that a single federal framework is more coherent than 50 state regimes. Derivatives markets are already federally regulated, and the CFTC has real expertise in exchange-model trading. The argument that a binary contract on the Super Bowl is more like a crude oil future than a DraftKings parlay has merit.
But the regulatory question and the business model question are not the same. Mansour wants to conflate them: We're not like sportsbooks, therefore we shouldn't be regulated like sportsbooks. The early bookmakers – dominated by organized crime - weren't like casinos either. They ran balanced books, collected modest fees, took no position on outcomes, and provided a service that millions of customers wanted. The reason the FBI spent a decade dismantling their operations had nothing to do with how they structured their revenue.
Regulation asks what purpose the activity serves, who it harms, and what framework best protects the public interest. Those questions don't have cleaner answers just because the house doesn't profit from your losses. When organized crime ran sports betting, the monopoly, and the violence that enforced it, and the redirection of profits away from tax authorities and toward criminals, were the problem. The business model was just the cover story — and a perfectly accurate one.
Regulation asks what purpose the activity serves, who it harms, and what framework best protects the public interest. Those questions don't get easier just because the house doesn't profit from your losses — as the history of sports betting makes clear.
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