Bank of America warns of credit risk associated with prediction markets and sports betting

Abi Bray

27 November 2025 at 6:50am UTC-5

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The Bank of America has warned lenders may face greater credit risk as consumers increase spending on online betting and event-trading platforms.

According to Bloomberg, the bank pointed to the growth of prediction-market operators such as Kalshi and Polymarket, both of which allow users to trade contracts tied to political, economic, and sports outcomes.

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“Online betting markets introduce a new risk for lenders, one that they have not had to deal with historically and underwriting models may need to be adapted,” the bank is reported as writing in a note published on Friday.

Analysts said prediction markets, alongside the broader sports-betting market, have created a new form of speculative activity that mirrors rapid-fire wagering. They warned that “easy access and gamified interfaces encourage frequent and impulsive wagers,” noting more substantial risks among younger men and lower-income users.

Bloomberg pointed to research from UCLA Anderson School of Management and the University of Southern California in October 2024 that found that states permitting online betting saw average credit scores fall by nearly 1%, bankruptcy risk increase by 28%, and an 8% rise in the number of debts sent to collection agencies.

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The bank noted that an increase in gambling marketing was also likely to increase engagement and lead to greater credit risk for lenders.

The warning comes after Polymarket received approval from the Commodity Futures Trading Commission to relaunch in the US, following its withdrawal in 2022.

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The Backstory

How prediction markets became a mainstream risk factor

Event-based trading has shifted from a niche crypto experiment to a mass-market product sitting alongside sports betting. Platforms such as Kalshi, Polymarket and Robinhood’s predictions unit have ridden a post-election surge in interest and the expansion into sports-style markets. That momentum has drawn in large financial backers and distribution partners, pushing volumes to new highs and placing the products directly in front of retail users.

The growth is evident in reported exchange activity and capital flows. A recent tally estimated that Kalshi and Polymarket handled about $1.4 billion in trading volume last month, a figure supported by independent trackers of prediction exchange activity that show a sharp upswing. One catalyst: distribution through mainstream brokerages. Robinhood’s predictions platform, which integrated with Kalshi in March, is estimated to account for 25% to 35% of Kalshi’s daily volume, according to an interview with a Robinhood executive. That same executive said Robinhood is weighing acquisitions or joint ventures to speed expansion.

Capital is following usage. Intercontinental Exchange, the parent of the New York Stock Exchange, disclosed a $2 billion investment in Polymarket, underscoring how established market operators view event contracts as a growth wedge. Distribution is widening too. PrizePicks, a major daily fantasy sports operator, struck a multi-year deal to embed Polymarket’s event contracts into its app as part of the company’s push into regulated derivatives tied to real-world outcomes, as detailed in PrizePicks’ partnership announcement with Polymarket.

That mix — more distribution, bigger balance sheets and product expansion into sports — is what is turning prediction markets into a notable variable for risk managers watching consumer credit. Rapid-fire interfaces and a retail audience accustomed to fractional bets can translate into frequent, impulsive trading behavior with real cash consequences.

Regulatory gray zones and a shifting rulebook

The sector’s rapid expansion has outpaced a clear regulatory taxonomy. Operators argue they run exchanges where users trade with each other under the Commodity Exchange Act, not sportsbooks that take house-side wagers under state law. That distinction is central to product design and jurisdiction.

Polymarket, which previously exited the United States, has charted a return by acquiring a CFTC-licensed exchange and clearinghouse, QCEX. Its reentry strategy surfaced as part of the PrizePicks partnership, which also noted PrizePicks’ registration as a Futures Commission Merchant, giving it a federal path to offer event contracts through licensed venues. Kalshi, for its part, has steadily broadened listings to include contracts that resemble player props and game outcomes, moves that have fueled its growth and its legal defense that it is an exchange, not a bookmaker.

The line-drawing matters. Federally regulated event contracts can bypass many state-by-state gambling constraints if products are deemed to be hedging tools or economic risk transfers rather than wagers. That creates friction with state regulators, tribal gaming compacts and professional sports leagues, all of which have built compliance regimes around sports betting’s state-based licensing model.

Leagues tighten policies as sports-style markets proliferate

Professional leagues are signaling that prediction markets are, for practical purposes, sports betting by another name. The NFL recently warned that these platforms “mimic traditional sports betting” and therefore fall under its prohibition for players and personnel. In a briefing, league officials cited gaps in integrity controls, information sharing and restrictions on market types that could be influenced by insiders. The league’s stance, outlined in the NFL’s policy clarification on prediction markets, specifically named Kalshi, Polymarket and Robinhood’s predictions product.

The enforcement angle is straightforward: if an athlete or staffer can trade on outcomes such as point totals, player performance or in-game events, the same conflicts and corruption risks that apply to sportsbook prop bets apply here. That pushes exchanges toward league-style integrity protocols or toward limiting the scope of sports contracts — both of which run counter to the growth playbook that has made these platforms popular with retail users.

States weigh the tribal compact model against federal exchanges

The state-versus-federal clash is surfacing in legislatures and courts. In Wisconsin, a bill to permit statewide mobile betting via servers on tribal land aims to retain wagering revenue and regulatory control inside the compact system. A leading proponent warned that if lawmakers stall, prediction markets operating under federal commodities rules will fill the void, routing money to national apps that are not aligned with state oversight. The argument is laid out in coverage of Wisconsin’s legislative push, which also notes potential lawsuits by tribal entities targeting Kalshi for allegedly skirting gambling laws.

That dynamic highlights a patchwork risk: states and tribes that have invested in regulated sportsbooks fear erosion of their markets and tax base if consumers migrate to federally supervised event exchanges with sports-like products. At the same time, any state action to block federally authorized contracts could invite preemption battles, leaving consumers and lenders to navigate inconsistent rules while the legal dust settles.

Washington’s spotlight on conflicts and jurisdiction

The regulatory uncertainty is compounded by personnel and scope questions in Washington. Brian Quintez, a former CFTC commissioner and board member at Kalshi, is President Donald Trump’s nominee to lead the agency. At a June 10, 2025 confirmation hearing before the Senate Agriculture Committee, senators pressed him on conflicts given his ties to platforms the CFTC oversees. The exchange is documented in the committee’s hearing docket and his written testimony, where he touted “new hedging tools such as event contracts” as part of a broader case for expanding CFTC jurisdiction, including over spot crypto markets. Lawmakers questioned whether recusals and divestitures would fully address perceived conflicts, as outlined in reporting on Quintez’s nomination and affiliations.

The stakes are high: a CFTC that codifies event contracts as bona fide risk-transfer tools could normalize prediction markets within federal derivatives law, accelerating institutional adoption and distribution through brokerages. A stricter posture or narrower approvals could curtail sports-style listings and push more activity offshore or into unregulated channels.

Why the buildout matters for household balance sheets

The convergence of mainstream distribution, sports-style products and regulatory ambiguity is feeding consumer exposure. Platforms embedded in brokerage and fantasy sports apps lower friction to trade, while gamified interfaces encourage repeated, small-dollar wagers that add up. Leagues are treating the activity as sports betting, states are scrambling to keep control within existing compact systems, and federal regulators are weighing how far to stretch derivatives rules to cover event markets.

For lenders, the result is a harder-to-detect form of speculative spending that looks less like a night at the sportsbook and more like frequent microtransactions on a trading app. As prediction markets expand through partnerships like PrizePicks and Polymarket and as brokers like Robinhood explore acquisitions or joint ventures to scale, credit models built for traditional spending categories will encounter a faster-moving target. The policy choices now facing leagues, states and the CFTC will shape whether these markets evolve with robust guardrails or continue to grow in ways that complicate consumer protection and credit risk management.