New York City announced that it is investigating prediction market betting websites, alleging that the companies use predatory marketing tactics to target young people.
New York City Council Speaker Julie Menin said that she had informed four companies - Kalshi, Polymarket, Coinbase, and Gemini Titan - of the investigation. The city has officially requested information from each company regarding their marketing practices.
"As a mother of four, I know firsthand the fears that come with raising kids in a world where predatory industries are constantly finding new ways to target them," Menin said. "Prediction markets aggressively entice consumers to bet and wager on sports, politics, culture, weather, and pretty much anything. We refuse to let New Yorkers, especially our young people, become collateral damage."
The sites allow people to buy contracts and make predictions on sports, politics, and culture. If a prediction is correct, a person can cash out for a profit. But contracts can also be sold like a commodity. Also, people are not betting against the house like in a traditional sportsbook; the value of contracts is solely determined by traders.
On Polymarket, contracts are available on everything from the midterm elections to who will attend Cristiano Ronaldo's wedding. The platforms maintain that they are not gambling websites, but more akin to commodity futures trading. Critics disagree.
Menin, as Commissioner of the Department of Consumer Affairs, has been involved with other, similar investigations into so-called predatory industries including for-profit colleges, fraudulent auto loans, illegal and unlicensed secondhand gun sellers, and debt collectors.
"Good government requires us to ask questions, examine the facts, and make informed decisions, particularly as new and emerging industries reach more New Yorkers," said Deputy Speaker Dr. Nantasha Williams. "We also have to recognize the potential harms associated with these platforms, particularly when it comes to young people, compulsive wagering, and how these products are marketed to consumers.
"We look forward to engaging with The New York City Council on this matter," a spokesperson for Polymarket said in a mailed statement to Reuters.
The sites are already facing scrutiny from lawmakers, who worry about the potential for corruption and insider trading.
For example, Master Sgt. Gannon Ken Van Dyke was criminally charged after making more than $400,000 on predictions related to the capture of Venezuela's authoritarian President Nicolas Maduro. Van Dyke has pleaded not guilty to the charges and is expected to go to trial in December.
The prediction markets have also faced scrutiny over contracts related to political activities. It is illegal in 23 states for people to bet on elections. CNBC reported that states are seeking guidance as to whether the prediction markets amount to gambling as defined by the laws.
Federal lawmakers are considering legislation that would effectively define the sites as gambling operations. The Prediction Markets Are Gambling Act is a bipartisan bill meant to distinguish prediction markets from more traditional commodity markets.
Also, New York State Attorney General Letitia James filed a lawsuit in July alleging that Kalshi was violating state gambling laws. Kalshi has maintained that its activities are not gambling. However, the U.S. Commodity Futures Trading Commission intervened Tuesday and said the platform should continue operating and trading in New York.
