A decade ago, netting a windfall from an incompetent government would have required a complex web of insider trading – but in 2026, all it took for Alan Cole was placing a bet on his phone.

Cole made a simple wager that despite Elon Musk’s pledges to shrink the federal government, quarterly spending in 2025 would exceed that of 2024. According to the Wall Street Journal, he bet his entire life savings, $342,195 (£253,180) on the prediction, taking the opposite position to traders who wagered that Musk would shrink the federal government. Cole won $470,300 (£347,960) – a 37pc profit.

Such a bet would not be possible in Britain today, but one day it almost certainly will be, as so-called prediction markets make their way overseas.

Soon punters will be able to wager on esoteric “yes-no” prospects such as whether a White House briefing will last longer than 40 seconds, or whether or not Volodymyr Zelensky will be wearing a suit by July – both real bets available to make on US platforms Kalshi and Polymarket, respectively.

The two businesses have become shorthand for the prediction market craze where, unlike traditional gambling, the companies involved essentially act as financial exchanges where users buy and sell contracts tied to real-world events – elections, inflation figures or corporate results – rather than placing a fixed wager. Here, traders, not the companies, take the other side of the bet.

Already, Kalshi and Polymarket’s soaring popularity is starting to eat into the bottom lines of US gambling giants.

Between them, the companies grabbed an estimated $630m in Super Bowl bets in 2026, leading to a drop of 2pc in traditional sportsbook betting compared to last year.

Meanwhile, global gambling heavyweights have seen share prices plummet over concerns that more bets will start to be made on prediction markets instead.

Shares in Paddy Power owner Flutter have tanked by more than 40pc in 2026, while DraftKings, the second-largest online sports betting platform in the US, has similarly suffered a $5.7bn drop in its value this year.

Peter Jackson, Flutter’s boss, sought to downplay the potential threat last week, saying the company was “never complacent” in the face of competition.

It is planning to introduce a new loyalty programme for US sports-betting brand FanDuel to keep people betting via its website.

For Flutter, holding on to customers will be critical, with its latest set of results described by US-based Citizens Bank analysts as “the worst in recent memory”.

Smaller firms in Britain are already embracing the prediction-market craze. One such platform, Matchbook, announced in December that it would soon launch the UK’s first licensed offering.

While a trial has yet to be rolled out to consumers, the arrival of a new challenger is the last thing Britain’s beleaguered gambling sector needs.

In her most recent Budget, Rachel Reeves imposed sweeping tax rises worth £1bn on the sector, including a rise in remote gaming duty from 21pc to 40pc, and a new remote betting rate of 25pc, with a lower 15pc rate for horse-racing.

A slew of profit warnings came in the weeks that followed. Late last year, Ladbrokes owner Entain, which is due to publish its full-year results on Thursday, warned of a £100m dent in profits in 2026, rising to £150m from 2027.

William Hill owner Evoke faces a £136m hit this year, and floated plans of either an outright sale of the entire group or a partial sell-off of its divisions in December.

Flutter claimed the Budget was a “victory for illegal operators”, as it warned of a £235m loss over 2026.

A spokesman for the Betting and Gaming Council said the Chancellor’s tax increases and “the growing cumulative burden of regulation are making it increasingly difficult for licensed British businesses to compete in”.

When prediction markets finally make their way to Britain, they could face similarly burdensome regulations.

Much of the furore around prediction markets in the US has been over whether they should be regulated as a gambling or a financial product. This debate is a non-factor in Britain, with the Gambling Commission having been clear that prediction markets would fall under its remit.

“It is unlikely the commercial drivers for prediction markets are the same here as in the United States,” the watchdog said. “There are notable differences between the gambling market in Great Britain and the United States.

“Sports betting is established and available across the whole of Great Britain under a single overarching regulatory framework. Legal sports betting in the United States is a more recent development and to date has been subject to state-by-state approaches.”

However, prediction markets are expected to pay less tax than typical betting shops. “The attractions of a prediction market are around the tax structure,” says Greg Johnson, an analyst at Shore Capital.

“The tax burden is lower because the operator doesn’t pay a 25pc tax on sports betting in the same way. Theoretically, that means you can have a higher payout ratio, or better odds.”

Despite this, industry experts have been quick to downplay the threat of prediction markets, which rely on lots of people trading at once to work properly.

Without that steady flow of bets, no one can easily find someone to take the other side, says Jack Cummings, an analyst at Berenberg.

New platforms such as Kalshi are drumming up hype by paying traders to keep activity buzzing, but that cash burn could limit how much they shake up the industry.

Others point to the fact Britain already has a form of prediction markets in the form of the Betfair Exchange – owned by Flutter.

“The Betfair Exchange and what Kalshi and Polymarket are offering from a sports events contract standpoint are essentially the same thing,” says Cummings. “It’s peer-to-peer betting, where the operator takes a fee.”

“Once we strip away the abstract terms such as market-making, liquidity trading, etcetera, the revenue comes from customers spending and losing money sustainably,” says Tom Johnson, a former Betfair executive.

Industry experts say Flutter needs to get better at using the Betfair brand to see off the competition.

“They [Betfair] were the first big player in the exchange space,” one source says. “They have been neglected by Flutter in their stable of brands. Flutter should dominate the prediction markets space.”

For now, Betfair still leans towards traditional sports and racing, with a minor focus on politics and culture.

Prediction markets readily embrace the latter, offering punters otherwise unbothered by sports more novel reasons to gamble, says Ricky Gold, of betting platform Juice Reel.

“Prediction markets have increased the general opportunity of betting – there is just more there to bet on,” he says. “Two years ago you could never bet on what the president is going to say, and now you can, so there has been a major increase.”

They are also succeeding in luring in young people.

A survey of more than 3,000 consumers by research group The New Consumer found awareness of prediction platforms is far higher among younger cohorts: 17pc of Gen Z and millennials had heard of Polymarket and 13pc recognised Kalshi, compared with just 4pc and 5pc respectively among Gen X and older respondents.

In the same survey, 31pc of Americans said prediction markets would become an important part of culture.

The format – like a financial exchange – mirrors the trading interfaces younger investors already use on stock and crypto platforms. Reports from the US have described a growing cohort of mostly under-30 men treating the markets as a hybrid of betting and day-trading.

Traditional betting platforms in the US are already seeing punters voting with their wallets. Around 10pc of DraftKings users are said to be using Kalshi, and the latter’s app was downloaded four times as much as either FanDuel or DraftKings, according to data firm Apptopia.

That ease of access is one of the main reasons that comparisons with Betfair are flawed, says Shore’s Johnson.

“Where Betfair didn’t really work for some people was that it was a little overcomplicated for what they wanted from betting,” he adds.

“It assumes odds are the only reason people want to bet with you, when in reality free bets and promotions are also a big part of the appeal.”

Even in sports betting, where Betfair supposedly already offers the same product, analysis from the US suggests prediction markets could still chip away at larger operators’ market share.

Jordan Bender, of Citizens Bank, notes that 5pc of legal sports betting handle is going into prediction markets, equivalent to $8bn a year.

“We believe this is slightly negative for sports betting companies like the Score, Rush Street, BetMGM, Caesars, and bet365 without a prediction market offering,” he says.

All eyes will be on Matchbook’s trial of a prediction market if and when it reaches British gamblers, to see whether the UK gambling sector can withstand a new challenger.

Shore’s Johnson says there is a possibility that the market “could get squeezed”. “For the average person, a sports bet is a sports bet.”

Try full access to The Telegraph free today. Unlock their award-winning website and essential news app, plus useful tools and expert guides for your money, health and holidays.