Karl M.F. Lockhart, a law professor at DePaul University, just wrote a 72-page paper arguing what a lot of gamblers have known for a while: The line between gambling and investing is mostly nonsense.
In “Betting on Everything” (forthcoming in the Boston College Law Review), Lockhart digs into the regulatory mess around prediction markets, sports betting, meme stocks, crypto, and more. His conclusion is basically this: There is no meaningful way to distinguish many new investment products from gambling.
He walks through the legal history, reviews the Commodity Futures Trading Commission’s (CFTC) previous efforts to shut down political and sports-based event contracts, and tests five different ways regulators and courts have tried to tell the difference between placing a bet and making an investment.
Only one of those five holds up, according to Lockhart — and even that one leads to more questions than answers.
System overload
At the center of Lockhart’s paper is this idea: Regulators like the CFTC, the Securities and Exchange Commission, and those on the state level have built different systems for investing and gambling, but those systems don’t make much sense anymore. Especially not when people are trading zero-day options, flipping meme coins, and betting on the Super Bowl through federally approved “event contracts.”
Lockhart looked at the CFTC’s 2024 proposed rule aimed at banning political and sports-related contracts — like the ones offered by Kalshi — and showed how the agency’s logic didn’t hold up. (He wasn’t the only one who thought so as Kalshi beat the CFTC in court, the appeal got dropped, and the contracts are live.)
The CFTC had argued these markets were “gaming” and should be banned because they lacked hedging and pricing utility, used weak information, were prone to manipulation, and might confuse or harm retail traders.
Lockhart’s response: All of that could just as easily apply to plenty of legal financial products.
“The rationales the CFTC set forth … do not adequately differentiate political and sports contracts from other financial products that the CFTC and the Securities and Exchange Commission (‘SEC’) have allowed,” he wrote.
So what is the difference?
To find a clearer line between gambling and investing, Lockhart pulls together five common tests that regulators, courts, and scholars have tried over the years. One by one, he breaks them down.
Information-gathering potential: If the activity gets people to seek out real, useful info to make better decisions, it’s usually considered investing.
Risk profile: The idea here is that investing carries measured risk, while gambling is more about high volatility and big swings.
Time horizon: Investments are supposed to take time — months or years — while gambling pays off quickly.
Existence of an underlying asset: Stocks, bonds, and commodities are backed by something real. Gambling, in theory, isn’t.
Extant versus created risk: This one actually holds up. If the risk already exists, like a political election or a storm, it leans toward investing. If the risk is invented for the bet, like a spin of the roulette wheel, that’s gambling.
Lockhart writes that only this last one — the difference between existing risk and created risk — “categorically distinguishes gambling from investing.”
Even then, real-world examples start to blur it. If you’re betting on a football game with real consequences and real money involved — but doing it through a federally regulated exchange — what is that?
He doesn’t offer a simple answer. But he makes it clear: The old ways of telling the difference aren’t cutting it anymore.
Betting, trading, everything
Lockhart lays out examples across the board — sportsbooks, prediction markets, Robinhood, Polymarket, meme stocks — and shows how they overlap.
“This paper explores the similarities and differences between investing and gambling for individual investors,” he wrote. “It argues that they are more similar to each other than most people would consider at first glance.”
He points out that apps like PredictIt and Kalshi offer contracts that “pay out $1 if a specified event happens, and nothing if it does not.” They look exactly like binary options. And the people using them aren’t just political junkies — they’re making real bets, often with models and strategies, the same way bettors do.
And then there’s the explosion of trading activity that looks a whole lot like gambling. Lockhart brings up meme investors, crypto speculators, and the billions moving through Polymarket, even though it’s not registered in the U.S.
So now what?
Lockhart doesn’t try to write new rules. He’s not pitching a bill or rewriting regulations. What he is doing is pointing out that the current split between gambling and investing isn’t based on anything solid — and that it’s only getting harder to justify.
“How many legitimate hedgers should be in a market before we are willing to call it investing, rather than gambling?” he wrote. No answer. Just a good question.
He also raises concerns about where this is all heading.
“If investing involves the transfer of real-world risks,” he wrote, “then what risks should businesses be allowed to transfer to others — to hedge?”
Lockhart doesn’t pretend to solve this.
“This paper does not purport to fully describe a set of revised statutes and rules that would be needed,” he wrote.
But he’s doing the next best thing: calling out the mess.
For gamblers, especially those already knee-deep in prediction markets and sports-based event contracts, Lockhart’s argument hits home. You don’t need a law degree to see that a lot of so-called investing looks just like the stuff state lawmakers call dangerous.
The only difference? Who’s wearing the suit.
