Really this applies to anything that you can bet on in these prediction markets. If X is an event that you can bet on, then you are potentially incentivizing someone to go out and make sure X actually happens.

It doesn't take a genius to see that this isn't a good thing.

Do you mean malicious actors could have an incentive to manipulate prediction markets, same as they do with stocks, commodities, etc? By committing a felony crime, in this case.