Kalshi CEO outlines the difference between prediction markets and sportsbooks
As the battle between sports book and prediction markets continues to unfold, the head of one of the leading prediction-market companies has explained the differences in betting in the traditional sense and trading on prediction contracts. Appearing on T he Axios Show , Kalshi CEO Tarek Mansour argued that sports books are " designed for customers to lose . " “When a customer wins on a traditional sportsbook, they block that customer because those winnings are coming from the business model," Mansour said, via Sports Business Journal .
When they lose, Mansour said, the sportsbooks will "give them promos and figure out how to bring them back. " In theory, the sportsbooks make money from the surcharge built into the cost of the bet relative to the payout. If there's equal action on both sides of a given bet, the sportsbook's profit comes from the so-called vigorish.
But if, as Mansour suggests, they eventually cut off the consistent winners and persuade the losers to keep going, the net revenue increases. On the prediction markets, no one is turned away. That's because the company isn't backing up the bets with their own assets; the money changes hands between the winners and losers, with the Kalshis of the world getting their cut through facilitating the transaction.
Basically, sportsbooks are the house. Prediction markets make the users the house. And the users pay for the privilege of the prediction markets connecting them with those who will take the other side of the yes-no proposition that forms the basis of the bets.
That's irrelevant to the question of whether the states can regulate prediction markets. Eventually, that question likely will be resolved by the Supreme Court. And whatever the business model, these businesses have found a way to make money in an industry where the only commodity is money.