Regulatory Tug-of-War in 2025

For the U.S. betting industry, 2025 was not simply the year prediction markets surged – it was the year they collided, unequivocally, with state gambling law. As platforms secured federal approvals, launched sports-linked event contracts and struck deals with major financial media, regulators in states such as Connecticut and Nevada began questioning whether these products were genuine financial derivatives, unlicensed sports wagers, or something uncomfortably positioned in between.

The result is a regulatory tug-of-war that will shape 2026: federal derivatives oversight pushing in one direction, state gambling frameworks pulling firmly in the other. For operators, suppliers and investors, the stakes could not be higher.

Connecticut: 2025’s Defining Confrontation

Connecticut delivered the clearest clash of the year. In early December, the state’s Department of Consumer Protection issued cease-and-desist orders to Kalshi, Robinhood’s derivatives unit and Crypto.com, accusing them of offering unlicensed sports betting through event contracts. Regulators argued that a contract on whether a team wins, or whether a player exceeds a performance threshold, is functionally equivalent to a wager, even when framed as a derivative product.

Officials underscored that, under Connecticut law, only a limited group of licensees – including the tribal casinos and the state lottery – may offer online wagering. They also raised concerns about age verification, integrity controls, geolocation and responsible-gaming safeguards that apply to licensed operators but not, in their view, to platforms regulated exclusively under financial statutes.

Kalshi challenged the order in federal court, claiming its markets fall squarely under the jurisdiction of the Commodity Futures Trading Commission (CFTC) as regulated event-based derivatives and that state intervention threatens the primacy of federal oversight. Robinhood and Crypto.com expressed similar positions, while signalling their willingness to engage with state regulators when required.

The Connecticut action quickly became 2025’s reference case. Should the state’s position prevail, platforms offering sports-linked event contracts may be forced into the same state-by-state licensing system as sportsbooks. If the exchanges succeed in court, they could secure a clearer path to nationwide operation under federal rules alone.

Nevada: Cautious but Firm on Its Boundaries

Nevada adopted a more measured, yet equally consequential, stance. Throughout 2025, the state held public workshops and hearings examining event-contract trading within broader discussions on sports-betting integrity, data flows and compliance.

A turning point came in late November when a federal judge in Las Vegas ruled that Kalshi is subject to Nevada’s gaming laws for its sports-related contracts. The decision effectively allows the state to classify such products as sports wagering and restrict or prohibit them unless they comply with Nevada’s licensing and regulatory requirements. Kalshi has indicated it will appeal, maintaining that its sports markets are derivatives regulated by the CFTC rather than bets, but the ruling significantly reinforces state authority.

Simultaneously, Nevada regulators have increased scrutiny of digital risks following the high-profile casino cyberattacks of 2023. This enhanced supervisory posture makes it unlikely the state will tolerate betting-like products operating outside traditional licensing and audit structures. For B2B audiences, the message from Nevada in 2025 is clear: if customers experience a product as betting, regulators are inclined to treat it as betting, irrespective of its technical classification under federal financial law.

DraftKings and Railbird: A Sportsbook Steps Into Prediction Markets

One of 2025’s most notable corporate developments came from DraftKings. In October, the company announced the acquisition of Railbird Technologies and its CFTC-regulated event-contract exchange, Railbird Exchange. The deal was positioned as a strategic entry into prediction markets, expanding DraftKings’ reach into federally supervised event-driven products.

DraftKings plans to launch a dedicated “DraftKings Predictions” app enabling users to trade regulated contracts on real-world outcomes across finance, culture and entertainment, with scope to introduce sports-related markets where legally permissible. For the operator, prediction markets open an additional channel in states where online wagering is not yet authorised and broaden its product suite beyond traditional fixed-odds betting into dynamic, market-priced instruments.

For the gambling sector, the acquisition signals that established operators are no longer content to observe prediction markets from afar. Instead, they are beginning to build or acquire infrastructure that blurs the line between sportsbook and derivatives venue.

Fanatics Markets and Polymarket: Expanding National Presence

Alongside DraftKings’ pivot, 2025 saw the acceleration of dedicated prediction-market platforms with clear sports relevance.

Fanatics launched Fanatics Markets, a standalone prediction-market app available in around two dozen states by year-end. Built on a CFTC-registered futures broker acquired earlier in the year, the platform enables users to trade outcomes across sport, economics, finance and politics. Fanatics has emphasised that the app will not operate in states where its sportsbook is licensed, positioning event contracts as a national acquisition channel in territories without online betting.

Polymarket, for its part, returned to the U.S. market with a restructured, CFTC-compliant model and relaunched its app with a strong focus on sports-related markets while maintaining its established catalogue of political and macroeconomic contracts. Operating under a federal event-derivatives framework rather than seeking state-by-state gambling licences makes Polymarket one of the key tests of how far nationwide prediction-market platforms may grow in 2026.

Flutter Joins the Race: FanDuel Predicts

Late in the year, Flutter Entertainment confirmed its entry into prediction markets with the announcement of FanDuel Predicts, developed in partnership with CME Group. The rollout begins at the end of 2025 and continues through 2026.

As with Fanatics, Flutter has stated that FanDuel Predicts is intended for states where online sports betting remains prohibited and will operate separately from FanDuel’s sportsbook footprint. In practice, this allows Flutter to use event contracts as a parallel customer-acquisition channel under federal rules while preserving the integrity of its licensed wagering operations. The move brings one of the industry’s most influential sportsbook brands directly into the prediction-market space, adding significant commercial and political weight to the category.

Kalshi: Scale, Visibility and Scrutiny

Kalshi expanded rapidly in 2025, securing major new funding that elevated its valuation into the tens of billions of dollars and broadening its roster of markets, with sports contracts now sitting alongside economic indicators, weather events and political outcomes.

The company also signed multi-year data partnerships with major business news networks, meaning Kalshi probabilities will begin appearing across television and digital platforms in 2026. This mainstream visibility turns event-driven markets into a new layer of financial information and may, over time, place them alongside traditional sports-betting odds in public discourse.

However, prominence has brought heightened scrutiny. Between Connecticut’s enforcement actions and Nevada’s court ruling, Kalshi has become the central test case for how far federal pre-emption applies when sports outcomes are packaged as derivatives.

PredictIt: A Legacy Platform With Renewed Relevance

Alongside Kalshi and Polymarket, PredictIt remains an important point of reference. After a protracted legal dispute with the CFTC, a mid-2025 federal court ruling allowed PredictIt to continue offering political event contracts under an expanded, fully authorised framework. Its long-standing focus on elections rather than sports is frequently cited in policy discussions as evidence that prediction markets can operate within tightly defined boundaries, even as newer platforms push into broader commercial and gambling-adjacent territory.

Robinhood, Crypto.com and the Trading–Gaming Crossover

Beyond specialist exchanges, Robinhood and Crypto.com also entered the event-contract space during 2025, adding sports-linked markets to their wider retail-trading ecosystems. This crossover drew immediate attention from Connecticut regulators, who classified such products as unlicensed sports betting despite their integration within multi-asset trading apps.

For mainstream trading platforms, the lesson is unequivocal: event-based contracts, particularly those involving sport, can swiftly fall under state gambling law even when they comply with federal financial regulations. Any expansion into prediction markets now requires careful navigation of both legal environments.

A Divided Industry Heading Into 2026

The rise of prediction markets in 2025 not only triggered regulatory disputes; it exposed a deep and widening fracture within the gambling industry.

Some land-based casinos, state-licensed operators and traditional stakeholders argue that national exchanges offering sports-outcome contracts without state licences undermine longstanding exclusivity arrangements and erode consumer-protection standards.

At the centre of the conflict is the American Gaming Association (AGA), which has adopted a strongly critical stance on prediction markets. The AGA launched campaigns, including YouTube ads labelling prediction platforms as “still sports betting”, reinforcing its view that these companies are offering wagers without the regulatory oversight required of licensed sportsbooks.

In response, FanDuel, DraftKings and Fanatics have resigned from the AGA, arguing that the association’s position no longer aligns with their product strategies, especially as they move into federally regulated prediction markets.

Meanwhile, digital-first operators and event-contract platforms contend that prediction markets provide greater transparency, deeper liquidity and product categories that do not exist within fixed-odds betting. Many major groups remain undecided, weighing whether to enter directly, partner selectively or adopt a wait-and-see approach.

Conclusion: 2025 Set the Stage, 2026 Will Determine the Outcome

From Connecticut’s enforcement actions to Nevada’s ruling, from DraftKings’ acquisition of Railbird to the expansion of Fanatics Markets and Flutter’s FanDuel Predicts, prediction markets have evolved from a niche experiment into a structural issue for U.S. gambling.

What remains unresolved for 2026 is how this evolution will take shape. Courts and regulators must determine the reach of state gambling law over federally regulated event contracts; operators must decide whether prediction markets complement their core strategy or remain peripheral; and suppliers will need to align technology and compliance with a landscape in which the definition of a “bet” is no longer straightforward.

What is clear, after 2025, is that prediction markets have secured a permanent position in the strategic agenda of U.S. gambling. The next twelve months will reveal whether they consolidate as a complementary product line, emerge as full competitors to sportsbooks, or form a new hybrid category at the intersection of finance and gaming.