Rules of the Road for Newsrooms Grappling With Prediction Markets

Why and when they are news, pros and cons of deals and the need for new ethics rules

Welcome to Second Rough Draft, a newsletter about journalism in our time, how it (often its business) is evolving, and the challenges it faces.

Prediction markets, where people bet on the probability of future developments of all sorts as if they were securities or sporting events (choose your metaphor) are a big and growing business. They are also moving into newsrooms, with deals recently made to feature particular markets’ data by CNN, CNBC, Dow Jones (including the Wall Street Journal), Fox, Twitter and Yahoo Finance.

This week, rather than get dragged into the debates about whether this is good or bad for society, or whether prediction markets should be regulated more like financial markets or like gambling, I want to try to derive what the rules of the road should be in this emerging sphere for newsrooms.

What’s news in prediction markets

Let’s start by acknowledging that what’s going on in prediction markets can constitute important news. For one thing, there seems to be significant insider trading afoot in some of the markets, with people who apparently know big events are going to occur placing bets just before they do and making big profits. (It’s worth remembering that this was legal in the securities markets before the New Deal, and occurred frequently in the 1920s ahead of the Great Crash.)

Some of the most prominent insider trading has taken place on questions of national security, with major decisions by Trump seemingly front-run by a very small number of traders. No evidence has emerged to link Trump’s family to these bets, but, as the President would say, “some people are talking” about how his eldest son is on the board of one of leading prediction markets, Polymarket, and is a strategic adviser to the other, Kalshi.

Whatever is or is not going on there, it’s surely a story.

And that’s not the only news value in the prediction markets. The markets offer the wisdom of crowds, and there are surely subjects on which such wisdom is valuable. Examples would include consumer confidence, distilling political polling into the likelihood of election outcomes and tracking probable results as votes come in on election nights. Any newsroom that ignores this sort of data is missing a significant source.

On the other hand, crowds are not universal repositories of wisdom. There is no reason, for instance, to think they have special insight into the answer to currently unknowable questions. Moreover, the prediction markets themselves, as part of their aggressive marketing, have proven poor prognosticators when trying to edge into the news business.

Two issues newsrooms are increasingly dealing with, and that all newsrooms will likely have to confront eventually, are whether and on what terms to strike business deals with the prediction markets and how, if at all, to regulate the conduct of their own staffs with respect to participating in the markets. Let’s take up each of these in turn.

Benefits and costs of deal-making

The big benefit of aligning with one of the betting platforms is simply money, which I am painfully aware newsrooms need these days. But there are costs as well, and the relevant analogy seems to me news organizations sponsoring polls—a practice I have long disfavored.

If a newsroom ties itself up with one prediction market, the risks are that it will miss or downplay important stories emerging on rival platforms, or be tempted to tout what turn out to be phony stories emerging from its partner platform—or, even worse, be discouraged from pursuing some stories about insider trading. None of these risks is insurmountable given aggressive and determinedly independent editing, just as newsrooms that have sponsored political polls sometimes continue to produce strong political horserace coverage.

One thing any newsroom whose parent company has made such a deal should always do is to disclose to readers, viewers and listeners how the newsroom benefits, e.g. from increased betting or from promoting the visibility of the markets. Even with that, the business deals will make things harder for journalists and journalism, and they also tend to undermine reader trust when that is the last thing we should be doing.

We need to adjust our ethics policies

Whether or not they make a deal with a prediction market, I think the time has now come when all newsrooms need to take account of such markets in their conflict of interest policies. (This is a subject of more than passing interest to me, having been the principal author of a couple of such codes, even if they have been subsequently revised.) The risks are analogous to those I have long believed sports betting poses to journalism.

My own view is that, at the very least, top editors and business executives should be forbidden from participating in prediction markets, and that reporters, more junior editors and others should be barred from betting on subjects they now cover or might expect to cover in the foreseeable future. These restrictions would be analogous to those now in place in the codes I drafted with respect to the securities markets. It’s notable that CNN has apparently barred all employees from the prediction markets, and that CNBC follows a policy similar to the minimum I have outlined. ProPublica made changes to its code last week barring participation in prediction markets with respect to news events.

The fact that a level of corruption in this and so many other areas is now being widely tolerated in our national life should have no bearing on the standards to which we hold journalists and journalism. We should cover the news in prediction markets, the news they may reveal and the news, however unseemly, they represent or facilitate. But our standards must continue to be our own.