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Prediction markets and fantasy sports share some technical similarities. However, they are fundamentally different in concept. Both involve predicting the future, and prediction markets even offer sports-related events, but the way participants engage is different. So, what sets them apart?
What are prediction markets and how do they work?
Prediction markets are platforms that function like stock exchanges. Instead of trading shares, users buy or sell “event contracts” based on what they think will happen in the future. Participants can trade predictions on almost anything, including sports matches, awards, politics, finance, entertainment, technology, the weather, and more.
In the United States, prediction markets are generally legal when they operate under overseen frameworks — most notably when they are registered and regulated by the Commodity Futures Trading Commission (CFTC), which treats these contracts as financial instruments rather than traditional gambling. That federal oversight allows prediction markets to operate legally nationwide as long as they meet specific regulatory requirements, although some contracts (especially those tied to sports outcomes) can face additional restrictions or challenges in certain states under local gambling laws.
In prediction markets, prices double as probabilities (odds), and users effectively act as the odds-makers. Buying and selling activity determines prices, reflecting market sentiment. For example, if an event contract is valued at $0.70, it indicates a 70% probability of the event occurring.
Event contracts typically cost between $0.01 and $0.99, with winning contracts paying out $1. Profits are the difference between the purchase price and $1. For instance, if you buy a contract for $0.70 and the prediction comes true, your profit is $0.30. Losing contracts, however, becomes worthless.
Fantasy sports 101: Drafts, teams and competition
Fantasy sports are games based on real-world sports. Participants act as general managers, building and managing virtual teams composed of professional athletes.
Teams are structured to reflect real-world rosters, including realistic numbers of players and positions. For example, a fantasy football team typically includes one quarterback, two running backs, and so on.
Managers join leagues, usually consisting of eight to 12 teams, and participate in a draft (snake or auction) to select their players. Team management continues throughout the season, including benching injured players, trading, and adding unowned players.
Teams compete based on the real-life statistical performance of their players. In other words, virtual players earn points according to how their real-world counterparts perform in games. For example, a touchdown scored by a real player earns points for that player’s fantasy team. Winning teams are awarded prizes from a pool collected from league entry fees.
Prediction markets vs. fantasy sports: Key differences
| Factor | Prediction Markets | Fantasy Sports |
|---|---|---|
| Core Structure & Activity | Participants are traders who buy and sell contracts based on predictions of future outcomes. | Participants act as team managers, assembling and managing virtual teams of real-world players. |
| Pricing/Odds | Users set odds through buying and selling activity, reflecting market sentiment. Prices equal odds and fluctuate with demand. | No odds exist. Winning is based on scoring rules. Pricing varies depending on league entry fees. |
| Markets/Events | Trades cover a wide range of events, including sports, politics, finance, health, and climate. | Limited to forming teams in sports leagues such as the NFL, NBA, MLB, and NHL. |
| Outcome Basis | Outcomes are binary (yes/no). | Outcomes are based on the total points scored by team players in real-world games. |
| Payout Model | Winners profit based on the difference between $1 and their purchase price, multiplied by the number of contracts held. | Winning teams receive the prize pool, funded by league entry fees. |
| Regulation | Federally regulated by the Commodity Futures Trading Commission as derivatives or event contracts, not gambling. | Considered a game of skill, regulated by individual states. |
Two skill-based platforms, two very different experiences
While both prediction markets and fantasy sports are skill-based and offer potential rewards, they are distinct activities. Prediction markets allow users to forecast outcomes across a wide array of events, including sports, whereas fantasy sports focus on drafting and managing virtual teams based on player performance in real-world games.
