Bank of America Strategists Say Prediction Markets and Sports Gambling Could Pressure Credit Quality

Bank of America strategists reportedly expect consumers’ growing use of prediction markets and sports gambling sites to create new credit risk for lenders.

Users’ losses on these platforms could create financial stress, with consumers taking on too much debt and defaulting on loans, the bank’s strategists said, according to a Tuesday (Nov. 25) report by Bloomberg.

“Easy access and gamified interfaces encourage frequent and impulsive wagers,” the Bank of America strategists wrote in a note, per the report. “For investors this convergence of entertainment and speculative finance signals heightened behavioral risk that could pressure credit quality, increase delinquencies, and impact earnings for issuers and subprime lenders.”

PYMNTS reported in October that the prediction market boom blurs the line between trading and gambling.

“At its best, the embrace of events-based contracts could represent a new asset class: event outcomes traded with derivatives-grade infrastructure transparency and liquidity,” the report said. “At its worst, it could serve as a potential regulatory arbitrage path around state gaming laws, one with thin consumer protections and opaque payout mechanics.”

In August, PYMNTS reported that markets like Kalshi let people trade on the outcome of real-world events, including everything from when celebrities will get married to which AI model will pull ahead of its competitors.

In Tuesday’s Bloomberg report, Kalshi spokesperson Jack Such said: “As a federally regulated financial exchange, Kalshi’s model provides fairer, more transparent pricing and doesn’t extort consumers like casinos do. Since we aren’t a ‘house,’ our revenue doesn’t come from customer losses.”

Prediction market Polymarket said Tuesday that it received an approval from the Commodity Futures Trading Commission (CFTC) that positions the company to return to the United States under a fully regulated exchange structure.

Robinhood Chairman and CEO Vlad Tenev said on Nov. 5 that since launching prediction markets on its platform last year, Robinhood has doubled its volume of contracts each quarter.

“I think it’s really exciting to see where this can go,” Tenev said during the company’s quarterly earnings call. “I mean, we love being early to this new asset class, and some people are saying this could be one of the largest asset classes because you can price risk in pretty much anything.”