War bets on prediction markets spark ethical debate in US

Prediction markets — platforms that allow users to bet on the outcome of future events — have surged in popularity across the United States, generating more than $44 billion in trades over the past year. Platforms such as Kalshi and Polymarket have helped reshape the country’s betting landscape, particularly after changes in regulations surrounding sports and election wagering. However, the rise of so-called “war bets” tied to the conflict involving Iran has raised fresh ethical and regulatory concerns.

While many users participate in wagers related to sports, a review by BBC noted that the platforms allow speculation on a wide range of events. These include political contests, central bank decisions and even unusual hypothetical questions — such as predicting the year of the return of Jesus Christ.

Prediction markets gained major attention during the 2024 US presidential election, when a court decision allowed platforms to accept bets on political outcomes. During the campaign, trading on these markets appeared to show growing odds in favour of Donald Trump.

More recently, however, attention has shifted toward bets linked to geopolitical developments, including military activity involving Iran, Venezuela and Israel. In theory, such wagers conflict with US financial regulations, which prohibit trading on contracts related to war, terrorism, assassination or other illegal activities. Despite those restrictions, the platforms have continued to attract large volumes of trades tied to such events.

According to estimates reported by Bloomberg, Polymarket alone hosted more than $500 million in bets related to the Iran conflict, including a market speculating on the possibility of a nuclear detonation. The company — headquartered in New York but operating only partially in the United States — later removed that market following criticism on social media. However, users have continued placing wagers on questions such as when US forces might enter Iran.

Kalshi also withdrew a market related to the potential death of Iranian Supreme Leader Ali Khamenei after it attracted $54 million in trades. The firm stated that US-regulated entities are prohibited from “having a market directly settling on someone's death.” It added that many war-related bets are occurring on exchanges operating outside US regulatory jurisdiction.

The controversy over war-related wagering has intensified an ongoing debate about how prediction markets should be regulated. Unlike traditional gambling platforms — where the company sets the odds — prediction markets function more like financial exchanges. Users trade “event contracts”, essentially betting against each other on the likelihood of future outcomes.

Because of this structure, oversight has largely fallen to the US Commodity Futures Trading Commission (CFTC), which regulates derivatives and financial markets.

Critics, however, argue that these platforms are effectively sports betting and gambling operations disguised as financial exchanges in order to avoid stricter state-level rules and taxation applied to traditional gaming companies.

The dispute has sparked numerous legal battles across the United States as state governments attempt to assert authority over the industry and regulate the platforms like other gambling operators rather than leaving oversight solely to federal regulators.

Traditional gaming companies have also stepped up lobbying efforts in Washington. As the article points out, among those advocating their position is Mick Mulvaney, a former official in the Trump administration.

“Nobody is saying that gambling shouldn't be allowed,” Ben Schiffrin, director of securities policy at the advocacy group Better Markets tells the BBC. “What the states are saying and other advocates are saying is things that are gambling should be regulated as gambling.”

As the article recalls, recent incidents have further fueled calls for stricter oversight. Suspiciously timed bets related to military developments involving Israel, Venezuela and Iran have drawn scrutiny from lawmakers.

In one widely discussed case, a trader new to Polymarket reportedly earned nearly half a million dollars by correctly wagering on the capture of Venezuela’s president shortly before the news was publicly announced.

In response, US lawmakers have proposed legislation that would prohibit federal officials from trading event contracts. Authorities have also issued warnings to consumers about potential insider trading risks and urged the government to enforce existing rules that prohibit wagering on war-related events.

By Nazrin Sadigova