Why though. This is a dead serious question, what is the difference in using financial derivatives and prediction markets. Both are a transaction between parties that is influenced by some other underlying event. Why is it ok for the event to be a stock price, but not ok for it to be a sports match?

The financial derivatives are (supposed to be) regulated, there's laws against insider trading that keep the market fair. For sports betting there's laws against match fixing.

The prediction market CEOs on the other hand seem to be actively encouraging insider trading and match fixing, it's practically their main selling point.

Because it isn't limited to seemingly innocent sports matches.