Prediction Markets Are Not ‘Just Gambling’ Platforms

W hy would a sports bar across the street from Chicago’s Wrigley Field put a money stake on the Cubs failing? Rizzo’s, a 20,000-square-foot bar in Wrigleyville, did just that. It bought a contract that would pay if the Cubs hosted fewer than two home playoff games. The Cubs then lost both Wild Card games to the Padres in San Diego, triggering the payout.

The logic is called “hedging.” Rizzo’s revenue depends heavily on the Cubs going deep into the playoffs. A longer run means a packed bar and thousands of dollars in higher takings. An early exit means empty stools and quieter cash registers. The bar’s position cushioned that downside risk. If the Cubs progressed, Rizzo’s would earn lots of revenue, minus the cost of its hedge. An early exit would instead trigger a payout at least offsetting some of the missed takings. Through prediction markets, the bar uses derivatives to turn uncertain income into a more predictable stream.

Rizzo’s shows what people like New York Attorney General Letitia James miss. In July, she declared, “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.” Yet the same event contract that offers one trader gambling for fun lets others protect themselves against income risk. This matters, because anti-gambling campaigners want these platforms shut down and state governments want to regulate them like ordinary sports betting. Behind both claims is James’s assumption that these sites are “just gambling.”

But they’re not. Oftentimes, they work more like insurance. And prediction markets are opening this protection to businesses with risks that conventional financial markets have struggled to cover.

In the past, Rizzo’s could perhaps imperfectly hedge by betting against the Cubs through a sportsbook. Yet a Cubs bar hardly wants to bet directly against its own team, especially when its true exposure is to fewer home games. Prediction markets extend a familiar financial practice — airlines hedging fuel costs or farmers guarding against falling grain prices — to a wider range of very specific business uncertainties.

It’s true that sports currently account for most of the trade volume on these platforms — 78 percent of Kalshi’s July 2026 trade volume and 82 percent of Polymarket’s, according to one Pew Research Center report. But those figures tell us what people trade on, not why they trade. Treating the whole category as recreational gambling risks bans or state patchworks of regulation that would also destroy the hedging functions.

These creative uses are growing, even in sports. Rizzo’s used event contracts for protection against a short playoff run, as do other bars and chains. Other establishments use them within a match. In Austin, the Garden Bar at Inn Cahoots hosts about 2,000 people on the Longhorns’ game days. The owner traded $1,000 on Texas not leading by more than 2.5 at halftime. If Texas trailed and fans drifted out, the contract paid. If the game was close, the bar stayed full. Only a Texas blowout left her uncovered, but in those cases the crowd tends to stay and celebrate anyway.

Event contracts can also help businesses protect against payout risk when undertaking promotions. Consider The Jeffrey, a bar on Manhattan’s Upper East Side. For Game 1 of the 2026 NBA Finals, it offered to cover customers’ tabs if the Knicks won. It took out a $5,000 position that paid out when the Knicks won, offsetting some of that liability.

Such hedging applications extend beyond sports. Event contracts let bicycle-rental companies and tourist sites hedge against rainfall, ski lodges against low snowfall, and other businesses against gas price spikes. In June, Polymarket announced a six-figure trade between digital asset brokerage FalconX and AneraLabs, which builds markets for AI computing capacity. The trade tracked the computing rental prices of Nvidia H100 chips, hedging the provider’s cost exposure under a contract to supply computing services.

Treating prediction markets as if they were “just gambling” would therefore stifle these nascent financial products that allow businesses to hedge risks they might otherwise absorb. Naturally, someone must take the other side of all these trades. So these markets also allow speculation and gambling. Yet closing these markets also removes opportunities for both, while a patchwork of state regulation could fragment participation and make that protection harder to obtain.

This wouldn’t be the first time derivatives trading was condemned as gambling. A 1920 New York Times article covering one senator’s bill to end “gambling in cotton, wheat and other farm products” denounced the Chicago Board of Trade — the oldest futures and options exchange — as the “world’s greatest gambling institution.”

More than a century later, we should know better. Banning prediction markets or exposing them to a patchwork of state regulation wouldn’t just reduce opportunities for gambling for fun. It would leave businesses like Rizzo’s more exposed to the real world’s vicissitudes.