Malta is seeking to position itself as a European hub for prediction markets, after a senior minister revealed that officials are working on new regulations, but what does the island stand to gain?
Visiting a suite of new tech sector offices last week, Economic Minister Silvio Schembri told reporters that Malta is pushing forward with plans to licence predictions operators.
“We are actively exploring the emerging field of prediction markets, an area experiencing rapid global momentum which presents significant opportunities for innovation, provided it is supported by clear, forward-looking legislative framework that enables it to develop responsibly and at scale,” he said.
Having emerged initially in the United States, prediction markets offer a kind of combination between financial trading and betting. Operators provide the ability to buy shares in two-sided contracts that will pay out depending on which event occurs.
The products have proved popular with consumers, particularly younger and more crypto-native audiences, who are attracted to its simplicity and the belief they can profit from their skill at predicting events.
Contracts can, in theory, be offered on anything — and this unrestrained freedom has led to some difficult headlines.
There have been allegations of insider trading, particularly relating to bets on the Iran war, and there have also been several contracts offered on the survival of various world leaders, leading to questions of whether it is ethical to profit from gambling on death.
The minister’s announcement pledged to allow predictions operators to “develop responsibility”, meaning Malta will need to decide whether it wants to permit the more controversial fringes of the predictions world to exist within its potential ecosystem.
Controls around insider trading and sports integrity will also need to be deeply considered, unless the island wants to repeat its damaging run-in with the Financial Action Task Force (FATF).
Europe remains cautious
These contentious contracts may dominate the airwaves, but — as explained by Yoni Sidi of predictions operator Winpot in a recent episode of the iGaming Exchange — despite all the headline grabbing bets on war and international assassinations, the product is still driven overwhelmingly by sports contracts.
This factor is at the core of its divisive status in the US. Predictions operators have effectively sidestepped state-by-state sports betting regulations, massively reducing their compliance overheads and tax burden, while still offering customers markets on the world’s biggest sporting events.
This has riled traditional operators in the US, but it is not immediately obvious that this same dilemma would be present for predictions providers that might end up being licensed in Malta.
It is highly unlikely that the EU will introduce rules that allow event contract markets to exist outside of national gambling regulations. Meanwhile several influential regulators, inside and outside the EU bloc, have already made their suspicions about this new vertical clear.
The UK Gambling Commission said earlier this year that prediction markets are close enough betting exchanges that any operator wishing to enter the British market would need an exchange licence.
The Netherlands Gambling Authority (KSA) has meanwhile threatened predictions giant Polymarket with fines of up to €840,000 if it does not leave the Dutch market. If Polymarket were ever to return to the Netherlands with a Maltese licence in hand, but no local Dutch approval, it is hard to imagine that the KSA would have a different reaction.
It begs the question of whether regulating prediction markets in Malta could ease European adoption of this new sector?
While it might not allow predictions operators to immediately passport their wares into other EU nations, predictions boosters will be hoping the project establishes a foundation of respectability and compliance that smooths their passage into local markets, even if the cooperation of local regulators will still be required.
“If Malta creates a clear framework, it could accelerate adoption across the whole industry,” said Yoni Sidi, speaking to EEGaming after Minister Schembri’s announcement.
“The challenge won’t just be just the licensing: I think it will be building products that balance liquidity, integrity, and user trust. Regulation is, I believe, a good and important first step.”
Right time, right place
The pivot to predictions also comes as Malta adapts to a growing need to diversify away from the igaming paradigm it established through its trailblazing acceptance of online gambling in the early 2000s.
There’s no doubting that the proliferation of local European licensing and the gradual judicial shutdown of EU grey markets has degraded the overall value of a Maltese licence.
That has left the island looking for alternatives: whether that be in bolstering its support for the B2B sector or to simply provide a base of operators for providers that want to offer into unregulated spaces outside of Europe.
Prediction markets and their unusual mix of financial trade and betting product potentially provides Malta with another much needed vector for growth.
“When it comes to remote gaming regulation, Malta has always been one of the leading jurisdictions. But times have changed, and state- and country-specific regulations take their toll on demand for remote licenses,” said Shmulik Segal, the founder of Media Troopers, an affiliate company that regularly works in the predictions space.
“Living in Malta and leading Media Troopers, which has a base here, I am very happy to see the Malta Gaming Authority taking the initiative to stay relevant and protect its position as a leading regulatory jurisdiction.
“Prediction markets span across cryptocurrency, finance, sports, world events, and pretty much anything people can speculate on. So the MGA getting involved is a great opportunity for the island’s economy to develop and diversify,” he said.
