Prediction market bettors make risky wagers on unlikely outcomes

Longshot bettors drive most prediction market volume despite near-certain losses

A contract priced at two cents wins about two percent of the time. That is not a surprising fact. What is surprising is that contracts priced at two cents, and ones like them, account for the majority of trading volume on Kalshi and Polymarket, according to Bloomberg's analysis of the platforms' activity.

The mechanics here matter. A longshot contract is cheap to buy, which means a small nominal outlay can acquire a large notional position. The gambler's logic is familiar from scratch tickets and parlay cards — the loss is bounded, the upside is large enough to feel real, and the probability is abstract enough to ignore. What makes prediction markets different from a lottery is that the price is set by a market, not a printer. Someone on the other side of that two-cent contract is collecting ninety-eight cents on the dollar, repeatedly, at scale.

That is the trade. And it is a good one, if you are the person taking it.

The Bloomberg finding lands differently when you set it next to Bank of America's DraftKings upgrade, which crossed the same morning. Analyst Julie Hoover kept her price target at twenty-seven dollars while raising her rating to Buy, anchoring the thesis to prediction market revenue. The bank's model has DraftKings generating around forty million dollars in prediction market fees in 2027 from its current business, with an additional two hundred to four hundred million possible from market-making. DraftKings reported annualized trading volume of eleven billion dollars in July, up from two point three billion in April. That growth rate is real. What the Bank of America note does not fully price is where that volume is coming from.

If the Bloomberg data holds across DraftKings' platform — and there is no structural reason it would not, since the same behavioral profile that dominates Kalshi and Polymarket is not platform-specific — then a significant share of DraftKings' trading volume is longshot buyers being systematically harvested by market makers. The forty million in fee revenue is only part of the picture. The two hundred to four hundred million in market-making upside is the larger number, and it accrues precisely because retail participants are pricing longshots worse than the true probability.

The reporting consensus frames this as a volume story. I think it is a margin story. The volume is a delivery mechanism for a structural edge held by whoever is on the right side of the longshot book. DraftKings' market-making operation, which generated seven point four billion dollars in annualized volume against three point six billion in consumer volume by July, is already positioned there. Bank of America's upside scenario is not speculation — it is a description of a transfer that is already occurring, at scale, from people who buy two-cent contracts to the entities clearing against them.

The Sixth Circuit's ruling in favor of Ohio and Tennessee adds a layer the BofA note does not address. If state gambling law can reach sports event contracts, and if courts in different circuits continue to split on that question, the market-making business at DraftKings — built on federal preemption logic — carries regulatory tail risk that does not yet appear in a twenty-seven dollar price target. Judge Gibbons' opinion explicitly questioned whether Commodity Exchange Act coverage extends to a contract on the number of corner kicks in a soccer match. That is a different legal exposure than the one DraftKings acquired when it bought Railbird.