Prediction markets are rapidly gaining attention both globally and across Europe. These platforms, which enable users to trade on the outcomes of future events—such as elections, sports results, or economic indicators—are increasingly attracting interest from users, investors, and operators alike. Nevertheless, the legal classification of prediction markets in Europe, and particularly in Germany, remains complex.
For companies planning to enter the European market, it is crucial from a regulatory perspective to determine whether a prediction market is classified as gambling, financial trading, or a hybrid model.
What are Prediction Markets?
Prediction markets are platforms that allow participants to trade contracts whose value is contingent upon the outcome of a future event. The price of such contracts represents the market's assessed probability of the event's occurrence.
Typical examples encompass contracts that forecast i.a.:
- Election Results
- Sports Results
- Economic Indicators
- Technological or Business Milestones
Globally, prominent platforms like Kalshi, Polymarket, and PredictIt have illustrated the commercial viability of this model.
However, their legal treatment varies considerably between jurisdictions.
The Legal Framework in Germany
In Germany, prediction markets present notable regulatory challenges as they may be subject to the gambling provisions outlined in the Interstate Treaty on Gambling 2021 (ISTG 2021).
1. Gambling Law
Under the German Interstate Treaty on Gambling 2021, a product qualifies as gambling if:
- A stake is paid,
- The outcome depends predominantly on chance, and
- A prize is granted.
Many prediction market structures could, therefore, be interpreted as gambling, particularly when users trade contracts associated with sporting events.
Licensing and enforcement in the gambling sector are governed under the ISTG 2021 by the German Joint Gambling Authority (GGL).
Without a valid license, providing gambling services to German users may result in i.a.: Regulatory enforcement proceedings, payment blockage, advertising restrictions or administrative penalties.
2. Regulation of Financial Markets
Some prediction markets attempt to position themselves as financial derivatives platforms rather than being categorized as gambling services.
In this case and depending on the overall setting, the regulation may fall within the scope of the European or German financial framework governing finance. This depends significantly on its structure. If it is classified as a financial instrument, the operator may be required to obtain an investment firm license within the EU.
3. Regulatory Classification
Authorities across Europe are intensifying their scrutiny of these platforms. For operators, this creates significant legal risk if the regulatory classification has not been carefully assessed before market entry. Within the European Union, regulatory approaches continue to lack uniformity, leading operators to frequently undertake jurisdiction-specific legal assessments before launching services across the region.
Important regulatory considerations include cross-border service provision, advertising restrictions, consumer protection rules, anti-money laundering compliance, and licensing requirements.
Operators planning to launch or expand a prediction market platform in Europe must develop a clear and robust regulatory strategy. The legal classification of the product will dictate whether a gambling license, financial authorization, or an alternative compliance structure is required
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Contact your author: Fabian Masurat
