Sports betting is specifically not a prediction market precisely because the players are banned by both law and extreme consequences from their leagues for participating.

You cannot have an open-ended prediction market with the same protections. It's just impossible from a practical standpoint, much less theoretical one.

I don't think these should be legal since it's just enabling more random gambling, fraud, etc. or even worse for no clear societal gain. But if they do exist, the only purpose for them is to lure out insider information into the open. Pretending they are just folks gambling on 'random' outcomes like a fair coin flip is naive at best.