Prediction Markets vs. Gambling: Where’s the Line? | Prof G Markets

I love how they're already discounting us. That makes me feel good. On your South by Innovation badge at voxmedia.com slash SXSW. That's voxmedia.com slash SXSW. We'll see you there. I'm actually really excited. How many people from Prov G are we bringing to Austin, Ed? We've got a huge crew. I think it's like 12 people, maybe. I heard 16. I wonder how much money that's going to cost me. Oh my gosh. I'm excited. Anyways, everybody, Ed and Scott are going to be at South by Southwest. Please say hi. We enjoy, we really do enjoy meeting our fans. And Ed, not so much. Ed's sort of standoffish and a little bit arrogant, thinks he's better than everybody else. But not me. Not me. Not me.

Say hi. Hola. Hola, el perro y el absorbo de self, young person, young man. See you at South by Southwest. No comment. Here's our conversation with Tarek Mansour, co-founder and CEO of Kalshi. Tarek, good to see you. Welcome back to the show. Thanks for having me, Scott and Ed. I'm excited. so it's been a little over a year since i first interviewed you on first-time founders a lot has happened since then just looking at calci as a company your revenue has grown by about 1000 percent uh your volume on this platform has gone from 280 million dollars to 2.3 billion dollars you also uh recently raised a billion dollars at an 11 billion dollar valuation basically we knew calci was going to explode but it's exploded in a way that is kind of uh larger than life and getting a lot of attention.

I'll just start with this. Why is Kalshi so popular right now? And why are prediction markets so popular? You know, one, it's just the exponential. You know, when, you know, the numbers are small, the exponential, you don't really feel it quite as much. And then as you compound and compound, all of a sudden, you know, everything basically happens all at once. And you tend to see that with sort of, with a lot of consumer businesses that really hit the mainstream. and they're growing at a, I mean, at an exponential or exponential looking pace. And I think that's definitely happening in prediction markets, or at least in the case of Kalshi.

The second thing where I think we're benefiting quite, you know, I think that prediction markets are benefiting from an overall societal wave, which is sort of this general distrust in traditional news sources or information sources. And I think people are looking for an alternative. And, you know, I think they found it a lot, you know, a lot of people have found in podcasts, I don't think a lot of people have fun in social media. I think people have, I mean, social media had this kind of idea of, you know, crowdsourced wisdom or crowdsourced truth, but social media incentivized clickbaits in a way that, you know, people over time are not feeling like, you know, news feeds are basically like split into two.

the world is basically completely dispersed. Everything is polarized. And prediction markets are in some ways some sort of antidote where you get the crowd wisdom. You have a lot of people participating in prediction markets, but you have skin in the game. People are putting money where their mouth is, and that leads to some of the answers that get out of prediction markets to be more accurate. And that's been definitely a big catalyst of the growth. There are two things I'd want to kind of separate in this conversation. One is prediction markets as a content platform, which i totally agree with you on it's been massively helpful for us i think a lot of people find it interesting because it just tells you a little bit more about the future if you're trying to understand an issue you will go to the prediction markets and you'll find the question and then you'll get to see like this is what the consensus view is this is a probability of this event occurring or not occurring that's content it's also a trading platform some would say a gambling platform, which is a different kind of thing. And it brings with it a lot of different issues. And I think as this platform has gotten so popular over the past year, it has also drawn

a lot of criticism. And I think a lot of that criticism is reasonable. valid worth talking about so i guess i'd love for us to dive into those criticisms um as as the founder of this company as the ceo what would you what would you say is the the overall um let's say the the three or four biggest criticisms of the company right now uh based on what you're seeing based on how it's things are being reported what would you say are the issues that people are worried about when it comes to prediction markets and Kalshi? Any consumer company, and this is one of the things that we've learned and I'm learning in real time right now, most consumer companies that hit the mainstream, they go from like really exciting new technology.

And when they hit the mainstream, there's a sort of flip where all of a sudden, you know, there is this sort of like, let's just kind of air out all the risks, the dangers, all the ways that this could go wrong. You know, I think we've seen it play out with Uber. Airbnb had its fair share of it. We're seeing it play out with AI on many dimensions, many levels. And we're seeing it play out in prediction markets. And to some extent, I think that's a healthy thing. Like I think society having a debate about new technologies and how to kind of deal with them is a good thing, right? If we all agreed on everything, you know, we probably are headed in the wrong direction.

Look, my understanding is like, there's one, you know, this question of like, you know, is this gambling? is this different? You know, are there kind of concerns about addiction and socialist isolation? I know you guys, Scott, you talk about this a lot. I think number two is there's the concerns of insider trading. And to me, I bucket it into kind of, is the market fair? How do we police it? What is being done about that? But to me, I don't think it's totally, totally abnormal given, you know, the rate of growth and how fast this basically has gone mainstream. Well, just to double click on that so there's a real fear that a lot of big tech or a lot of technology companies as they scale tap into a less mature prefrontal cortex of men looking for dopa hits and that essentially prediction markets are sort of the high iq or graduate education version of gaming apps and that it preys on a dopa hungry male and that there's enormous incentive for uh well first let me start there who who is your typical what's the demographic profile of your average customer and what is what is different from uh Speculation or prediction markets from just flat-out gambling sites.

You know, the vast majority of volume is really in the bucket of 25 to 45 years old. And then we have a bucket and, you know, 60 plus. So retired has sort of disposable income time on their hand. And I think that, like, you know, when I think about the typical customer, there's been recent reporting, which I think was pretty interesting about this. You might have, I don't know if you've seen the New York Times article about the rise of the prediction market trader. and they kind of gone through a number of, you know, and the most active traders, the people that basically, you know, drive a lot of the activity on the platform, you know, people that you'd kind of considered like a super user or power user.

Those are the people that like are spending quite a bit of time modeling. Like, you know, I'm passionate about the economy. I read the news a lot. And like, you know, I'm going to basically be forecasting inflation on a daily basis. Or I like mentioned markets. You know, Joel, there was a whole profile on him on this New York Times piece. And the guy has built pretty sophisticated models of what words are going to be said and what appearances. And those are people that have had an interest in something and then they figure out an outlet to basically make money off of it or engage with a community that has kind of that shared similar interest.

Like these are the most engaged in our Discord or we have this Kalshi Idea platform, which is basically Twitter, but you can only speak if you have a position. So it's kind of a Twitter that's filtered for people that are position takers. But to me, it's like, you know, I think the concern that you sort of outlined is a real concern, right? Like I think, in my view, any financial markets, and I think this concern applies to any financial market. I think it applies to, you know, day trading of options or this kind of idea of zero DT options that settle on any given day. Retail trading, I think it applies to crypto, also the meme coins.

And obviously it applies to traditional gambling and sports betting. And that risk exists in prediction markets. And I think the way that I think of it and as I build a company and as this company scales, there are certain things that are intrinsic to the model and then there's guardrails, like things that you add to the model around your business model to basically protect consumers from this sort of thing. So let's talk about the intrinsic piece. So I think prediction markets

send it to a friend and please follow us if you haven't already. We're back with Profty Markets. I just want to go back to some of the criticisms. And by the way, the reason I'm interested in this is because this is what everyone is interested in when it comes to prediction markets right now. And I was just on a PBS panel where, you know, this was the entire conversation. There was a focus on young men and young men's issues, this prevalence of addiction and this trend towards gambling.

And this question of do prediction markets sort of fit that description? And so what are we supposed to do about it? How are we supposed to feel about them? So one thing that I found interesting, and I want to get your reaction to, I read somewhere that almost 90% of the volume that is happening on these prediction markets, and I think on Kalshi, is related to sports. so it's prediction markets trading but if it's trading based on like what color is the gatorade going to be at the super bowl halftime show that to me fits the bill of gambling it's to me is a kind of a different thing from the looking at satellite data and figuring out how will this affect weather patterns so i guess my question is one is that right are you seeing that amount of sports prediction markets trading?

And two, does that not fit your definition of gambling? So we're seeing a lot of sports. Sports has grown astronomically last year. We don't have the Gatorade market. Again, there's unregulated regulated. But we don't have the war, terrorism, assassination markets either. You know, the insider trading is also not, you know, the Maduro trade And, you know, the capture that's not regulated prediction markets or Calsi. But look, I think there is sort of definitional, like, okay, maybe like, let me just kind of, let me just, let's just align on some definitions so we can have like a precise conversation, right?

When someone is buying an option that expires end of day, retail participants buying it against Citadel and the open market on, you know, traditional, you know, the most boring names like NASDAQ or Chicago Board of whatever. do you consider that to be gambling or a form of gambling? I think it's something different from investing. And so I would consider it, I would call it gambling, yes. And that is why I'm very interested in the regulatory rules around options trading, which are stricter than buying a stock, for example. So long answer, short answer, yes. So let's just establish a definition and then we can basically have a principal conversation here.

So there's a few definitions we can basically take on, right? It's like one definition could be there's a threshold of research or understanding in a certain market that needs to happen for this to be a trade or not gambling. And obviously, you'd see kind of the problems with that definition from a delineation perspective, because how do you know who does research and you get into anti-state questions and like now you have access, you know, open access problems, etc. One other one that I believe to be too broad is one that a lot of states in their state rule books hold, which is like you're staking some money in the hope of making more money on something you don't control.

that's one you know now you could see where that lands right you know if you and i just leave this call and open schwab and buy stock even if we're investing that stock that's gambling right like we just gambled so so what is the line like i mean how do we define that line and and you know uh i'll tell you how we do it but i but it's actually kind of grounded with how historically the lanes and the regular like the regulations have basically landed on this piece which is one

When I think about potential for insider trading, which has gotten a lot of reporting, I think eventually that'll be starched out when people realize that you never want to bet against someone who has more information. so i see that probably going away organically why would you say that this already happens i mean insider trading is rampant across many markets including the stock market the way we prevent it is through regulating it and making it stop it doesn't organically stop itself if i'm betting on the speed of a baseball pitch and i realize i i don't know but someone in the audience may be giving hand signals to somebody or it comes out that this is highly susceptible to insider trading i think fewer and fewer people are going to bet on those things that don't have access. My friend Todd Benson once said to one of my classes at CERN, never bet on anything where there's, if you can, where you believe there's people who may have much greater information than you. I think a lot of the

most ripe for insider trading markets are just going to, quite frankly, die a slow death because people are going to realize they're maybe betting against people who... I don't understand why anyone would bet on, I forget what you call them, markets, where someone's saying something on a TV show that's already been pre-recorded, unless you are engaging in insider trading. Because it's fun. Well, then it's consumption. It's not gambling. And you better make sure you're having a lot of fun, because it means someone with a lot more information is betting against you. You're on the wrong side of that trade. Anyways, Tarek, what would you say?

That's like doing research outside of Walmart. It seems to me, my mind starts spinning around the different types of synthetic applications of this or different things you could use prediction markets for,

fam we're back with property markets my understanding is that uh your revenue 10x'd in 25 relative to 24. Are you assuming that same level or ballpark of growth in 26? 24 to 25, just to kind of talk about the number, I think we grew, it was closer to like 35, 40X, 24 to 25. And this is like on an FY basis, on an annualized basis, much more. It was maybe like 60. I think we could do, I don't know if 10X, but maybe half of that is I think within the realm of possibility for this year.

it is pretty mainstream now right like it is very very mainstream i think like the so obviously as you get more in the stream the growth you know at some point i mean you know 45 percent of of people to up to the age of 45 of men up to the age of 45 are like basically active users of prediction markets now like like some part of them are trading pretty actively and the other part is like consuming consuming it as an information feed as a news feed to the use next to x and other places like that's a pretty large number right you're starting to kind of like flirt with i wouldn't say you're flirting with the boundaries but you're starting you know you start decelerating as you kind of get closer to the boundaries of the time um but yeah i think it's possible i mean I think, you know, we're growing it. The institutional business is starting to pick up traction. I think going international is exciting. Diversifying into more marketplace, markets, types of markets, and there's a lot of categories that are growing. So, you know, I think there's a lot to be excited about for 2026.

Tarek, I've grilled you a good amount in this episode. I think, as we just close here, I would separate two things, as I said at the beginning. On the content, Calci and prediction markets as a content machine, as an information machine, I don't think it can be disputed. Everyone is looking at this stuff. Everyone is interested in this stuff. This is, by the way, one of the great things about markets in general. This is kind of why I love markets. It has this really awesome thing, which is that it tells you a lot about the world. You can look at a chart and you can understand things. It tells you about the future.

This is the great thing. It's even a great thing about options trading as well. Options trading also is an interesting and helpful information machine, content machine. At the same time, I am personally someone who thinks that the act of trading options is not a good or wise investment decision most of the time. I would grant you that there are a lot of people who make a lot of money who ultimately are doing well. But ultimately, something I wouldn't recommend, I don't think it's great. Now, the law generally agrees, for the most part, which I think is why we have these stringent laws on things like gambling, on things like options trading, where we say, you're only allowed to do it if you prove this, this, and this.

You're only allowed to do it if there's sufficient education. That's not true for gambling. Or for gambling, it would be, we need to express to you, and I mean, if you're advertising as a gambler, you need to say, you need to gamble responsibly. We kind of recognize that that is built in. You need regulation. Which brings me to, I view Calci as kind of the only platform

Tarek, thank you very much. Appreciate your time. Thanks, Tarek. Thanks for having me. what'd you think again what did you think can i throw it back to you uh well you know me i don't i'm pretty quiet i don't like to share my viewpoint um just sort of reserved um i think they're trying to be the clean well-lit corner of this environment on. I mean, I struggle with the concept as a whole and the tension between you can't infantilize young people. Paul Tudor Jones, one of the great investors, will say that 80% of the stock market is speculation. That if you look at there's $3 trillion in transactions, it's like $300 billion of secondaries and equity offerings, true financing. So technically 90% of it is not investing. It's me betting against you that the stock's going to go up or down and you're taking the other side of that trade. So this isn't much different. But at the same time, it does feel like it has more of a gambling feel to it. So I don't have moral clarity around that. What I am absolutely

fascinated by is the opportunity for... So I am a resident of Florida. Basically, Floridians are struggling with they can't get insurance. And it's not only you have to go naked in terms of risk, If you have a mortgage, a lot of, because the mortgage industry is in bed with the insurance industry, in order to get a mortgage, you have to show proof of insurance. And now homeowners in Florida can't get insurance. So is there some sort of synthetic where they basically, every time, you know, Hurricane Claudia pops up, they basically agree to buy or bet for you that this will hit. And if it hits, you get a bunch of money to cover your, you know, damage.

I just think there's so many opportunities here. As you know, we are constantly using this information because as it ends up, the wisdom of crowds really is wise that this might put pollsters and investment banking. analysts out of business because the guy covering Apple for J.P. Morgan, J.P. Morgan wants Apple's next debt offering and is always going to exaggerate the upside or have a bias towards the upside. There's nothing to get to how you really feel about something when you ask people to put their money behind it. I hope that he does appear to be sincere about not embracing regulation, but at least being relative to his peers, he gets credit for embracing regulation as opposed to trying to skirt around it. So I think he gets some credit there. It'd be interesting to see if he, I thought it was 10X, he said 40 to 60X. Obviously, 26 is going to be a pivotal year for him. Anyways, my thoughts. What are your thoughts? I think you have to give him credit for wanting to comply with regulation. I think there are so many of these companies that the idea is Let's just skirt around as many rules as possible to make as much money as we can.

That's not the route that he is taking. I do think he needs to get more clear on what are the lines that you're drawing here. What are the lines between speculation versus investing? What are the lines between speculation and gambling? These are hard lines to draw. It's not very clear. As you say, options trading, you can make the argument that the entire stock market, or at least 90% of the stock market, if you're not directly participating in the fundraising and investing in an actual company, if you're just trading the stocks around, maybe that's speculation, maybe that's gambling. I think it's a harder argument to make.

But the point being, there needs to be a lot of clarity on what are the definitions between these different things. Because what I can tell you is that betting on, say, the color of the Gatorade is flat-out gambling and there is no real benefit to society other than it's fun and it's a form of consumption. And if that is the case, and if that is happening on the platform, he says they didn't do that, do the Gatorade on the platform, but maybe there are some others. If that is the case, you got to regulate it like it's gambling. You got to have disclosures. If you're going to advertise, you need to say, gamble responsibly, trade responsibly.

The same way that we have real robust regulations around any other addictive product, around cigarettes, around drinking. I mean, the rules are there in place because bad things can happen. And so, what I would love... for Tarek, and I think he's doing this better than anyone else in this industry, which is happening. Sorry, it's happening, whether you like it or not. He is embracing that more than the others are. And I think that is going to be crucial to minimizing the very real potential for downside risk here when it comes to speculation, addiction, and gambling. Because unfortunately, that is happening on these platforms so now it's on regulators to figure out how to make sure this Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for