Foreshadowing the Legal Landscape of Prediction Markets in 2026

Prediction Markets Under Intensifying Legal Scrutiny

Last year saw prediction markets, federal preemption, and whether the offering of sports-related event contracts constitutes “swaps” become the hottest discussed topic throughout the gaming industry.

Though the underlying case that served as the impetus for the expansion of prediction markets based on the proposition that the Commodities Exchange Act supersedes the applicability of state gambling laws over Commodity Futures Trading Commission and designated contract markets has been dismissed, operators continue to face the brunt of state regulators who believe its offering of event contracts constitute illegal gambling.

These are the four topics expected to continue trending throughout 2026.

More Lawsuits for Prediction Markets

Kalshi as well as Crypto.com and its affiliates (i.e., Robinhood) remain in the throes of litigation, with the most advanced cases – Nevada and Maryland – currently being heard in their respective appellate courts. Most recently, cryptocurrency exchange Coinbase joined the fray by filing suits against regulators in Connecticut, Michigan, and Illinois, alleging imminent enforcement action against DCMs threatens Coinbase’s plans of offering event contracts (provided by Kalshi) in those states.

The outcome of earlier-filed lawsuits involving Kalshi as a named party will likely dictate future rulings provided in these spin-off disputes.

In addition to the well-versed preemption arguments submitted by prediction market operators, 2026 has the potential to bring in additional causes of action against the states. Certain gaming regulators have warned licensees against partnering with DCMs (in or outside their jurisdiction) for fear of having their ability to operate in the state revoked, with the Arizona Department of Gaming going so far as providing Underdog with a Notice of Violation and Intent to Revoke the company’s fantasy sports license due to its involvement with Crypto.com.

Underdog has already expressed its intent to oppose the ADG’s decision as regulatory overreach, and additional participants with licenses in other gaming verticals may feel the need to race to the courthouse in order to ensure their ability to conduct business remains unaffected while the legality of event contracts plays out in the judicial system.

More Voluntary Geofencing

Notwithstanding the outcome of pending litigation, 2026 will likely see an increase in new and current prediction markets voluntarily restricting states from accessing their platforms.

An early-stage litigation argument provided by Kalshi was that adopting geolocation tools would cause significant economic and irreparable harm to the company and threaten its position as a CFTC-regulated exchange. However, as cases have unfolded, operators have slowly begun to roll back offerings in certain jurisdictions. While Kalshi continues to operate unfettered across all 50 states, Crypto.com has ceased offering sports-related event contracts in hotbed states such as Arizona, Maryland, Massachusetts, Michigan, and Nevada.

Recently, DraftKings Predictions went live in 38 states (17 with sports-related event contracts) by limiting trading activity to those who are physically located in or residents of jurisdictions where such markets are made available. Furthermore, FanDuel Predicts launched in only five states, with the intent of slowly expanding throughout 2026, and Fanatics Markets has already announced plans of going live in 24 states, some of which include legal sports betting.

The trend of restricting certain states will likely continue as additional cases arise and/or new prediction markets enter the space while litigation continues.

New Prediction Market Entrants

Last year saw 12 organizations submit and/or otherwise become designated as a DCM, a 500% increase compared to 2024; this number does not include those who sought to become future commission merchants in order to offer prediction markets in partnership with DCMs.

This number should hold steady as new operators look to enter the space. On the heels of ProphetX’s application, other quasi-offerings such as social sportsbooks/sweepstakes (i.e., Rebet, Fliff, NoVig) may also look for protection within the confines of the CFTC.

Moreover, with the official entrance of sportsbooks and fantasy sports operators into the space (some of which have foregone sports betting licenses to do so), competitors of such products may look to partner with or offer their own exchange should they feel the legal landscape shifting into allowing sports-related event contracts in some capacity.

Though the threat of a state gaming regulator revoking a license remains, it may only take one legal challenge to a regulator’s authority to open the floodgates to those who remain apprehensive about the staying power of prediction markets.

Redefining “Sports-Related Event Contracts”

The current legal discussion surrounding sports-related event contracts focuses on whether such products constitute a “swap.” Crypto.com shutdown operations in Nevada based on the US District Court for the District of Nevada ruling that its sports-related event contract fall outside the realm of the CEA’s provisions due to not specifically relating to whether an event will occur or not occur, but on the outcome of such sporting event.

This ruling is currently the subject of Kalshi’s appeal in the Ninth Circuit.

DCMs could look to re-define the meaning of “sports-related event contracts” for the purpose of maintaining them as permissible offerings. Rather than focusing on markets that have caused the ire of regulators and land-based sportsbooks (i.e., “will x team beat y team”), prediction markets could shift into offering contracts not based on the outcome of games but specific events such as “will x player sign with y team” or “will x player average y for the 2026 season.”

Though the legality thereof may still be questioned, such event contracts differ from those currently being reviewed in courtrooms across the United States and could provide a model for sports-related event contracts offered by prediction markets in the long-term.