No sport is more entangled with the betting industry than horse racing. Indeed, there are areas where the two intersect, including the racing levy. And each is seen as being part of the lifeblood of the other, something that became apparent when the new betting tax rules were proposed in the UK last year, and from which British racing protested and eventually got an exemption.
Nevertheless, the world changes, and it’s more than probable that the racing industry has one eye on the remarkable rise of prediction markets. They have become a phenomenally popular way to bet and trade, seemingly overnight. As such, there is every reason to believe they will have a big influence on horse racing in years to come.
What is a prediction market?
What is a prediction market? It is essentially a fusion between betting and trading. A market is created in the form of a question – Will Willie Mullins train a Melbourne Cup winner this year? Will Christmas Day win the 2026 St Ledger? – with a Yes or No answer. The odds and returns are created by punters taking either side of the trade. The markets aren’t limited to sports, and many people use them to trade politics and pop culture.
The concept of prediction markets has roots in the cryptocurrency sector, leading to some questions over regulations. However, some mainstream platforms have now entered the fray, including DraftKings, which offers licensed prediction markets online with a big emphasis on sports. The arrival of a major brand like DraftKings really underlines how this could impact sports betting.
So, what’s the attraction? Well, the first thing is that you are no longer betting against a bookie. You are betting against other people. There can be a significant gap between what the masses think about a particular market and what the bookies think, so there can be an opportunity to get more value.
There is an argument, of course, that a prediction market for sports is just like a betting exchange with another name. There’s some truth to that in how the market is settled, but there are differences.
A fusion between trading and betting
For a start, the remit is a lot broader with prediction markets. They can be focused on massive events, such as the winner of blue-chip events like the Grand National or Kentucky Derby, but they may also focus on niche markets. Indeed, the direction of travel is that eventually anyone will be able to create their own market.
The idea behind these things is that they are social, almost like they can be used to settle an argument down the pub. Part of their marketing is built in that respect, as the way markets are trading is reported like news. For example, you might see a report that 77% of traders believe that Constitution Hill will win a Group 1 race on the flat. The idea is that you enter the trade when you believe the ‘crowd’ is wrong.
As mentioned, regulation remains a hurdle. Brands like DraftKings have moved to be compliant with US regulators, but the traditional sports betting sector is pushing back against those unregulated platforms, or those that play fast and loose with the rules. Still, if you are a punter, the best thing about it is that it gives you a choice, allowing you to take the standard bookies’ odds or those offered through the prediction market trade, whichever is better.