Sports prediction markets test U.S. betting framework

Sports prediction markets are creating more questions for U.S. lawmakers to wrestle with in 2026, as the nascent sector further disrupts the state-by-state sports betting framework built over the past seven years. As platforms like Kalshi and Polymarket dominate headlines and attract new participants, their expansion is beginning to ripple through sports betting policy, while the question of who regulates the markets remains unsettled in the courts and delicately sidestepped in Washington.

Once confined largely to political and economic events, prediction markets have moved aggressively into sports, offering contracts tied to game outcomes that mirror traditional betting markets but which they contend fall under federal oversight rather than state gambling laws. That shift is now colliding with a sports betting system built almost entirely at the state level since the Supreme Court struck down the Professional and Amateur Sports Protection Act, an overlap that is becoming harder for lawmakers to ignore.

Crypto.com and Kalshi first entered the space in earnest by offering sports event contracts tied to Super Bowl 59 in the weeks leading up to the game, moving forward despite the outgoing Commodity Futures Trading Commission urging the exchange to suspend trading while it reviewed whether the contracts complied with federal law.

Kalshi’s trading volume has grown over 100 times to $21.3 billion since February with sports markets accounting for roughly 87% of that, according to data reviewed by Legal Sports Report. A recent investment valued the company at $11 billion, more than double the $5 billion it was valued at in August.

Prediction markets disrupt post-PASPA policy

In overturning PASPA in 2018, the Supreme Court ruled that the federal government could not prohibit states from authorizing sports gambling, effectively returning regulatory authority to the states. In the years since, 39 states and Washington, D.C. have legalized some form of sports betting, each constructing its own licensing regimes, tax structures, and market rules.

Prediction markets challenge that system by arguing that sports-related event contracts are not sports betting at all, but federally regulated financial instruments governed by the Commodity Exchange Act and overseen exclusively by the CFTC. Kalshi advanced a similar argument in 2024 when a federal court rejected the CFTC’s attempt to block its political event contracts, allowing the exchange to proceed under the agency’s self-certification framework.

With no clear regulatory resolution, courts have become the primary arena where those jurisdictional questions are being tested, with inconsistent results.

Nevada, New Jersey, and Maryland have each moved to block Kalshi from offering sports prediction markets, alleging the contracts amount to unlicensed sports betting under state law. Kalshi has responded by filing lawsuits seeking to preempt those enforcement actions, arguing that federal commodities law supersedes state gambling statutes in this context.

Some courts have granted temporary relief to Kalshi, while others have declined to block state enforcement efforts. Coinbase has also filed lawsuits against Connecticut, Illinois, and Michigan challenging state actions aimed at restricting sports-related event contracts. More than 30 states and Washington, D.C. have filed amicus briefs supporting state authority, arguing that sports prediction markets should be treated as gambling subject to state regulation.

Sports betting priorities in review

That uncertainty leaves states facing a growing set of policy tradeoffs.

Some jurisdictions may consider legislation aimed more explicitly at prediction markets, particularly after moving quickly in recent years to restrict sweepstakes-style casinos and certain daily fantasy sports formats that regulators viewed as skirting sports betting laws.

At the same time, states may hesitate to act if such measures disproportionately affect licensed sportsbooks while prediction markets continue operating under a different regulatory regime, an approach that risks placing additional burdens on taxpaying operators without addressing the broader competitive imbalance.

The continued rise of prediction markets could also influence how states approach other sports betting policies, including tax rates and consumer protections. Jurisdictions such as Illinois, New York, and Massachusetts have continued to explore higher taxes and new restrictions on licensed sportsbooks even as alternative wagering products gain traction.

Federal policy follows political dynamic

At the federal level, there is little indication of imminent legislative action, but the issue has begun to surface more prominently in congressional discussions.

The CFTC, now under new leadership, has indicated it will continue operating under its existing self-certification regime while broader legal questions work their way through the courts. During recent House Agriculture Committee hearings focused on the agency’s funding and mandate, lawmakers openly questioned whether sports-related event contracts fall within the CFTC’s intended scope.

Former CFTC Commissioner Dawn Stump has raised questions about whether Congress fully contemplated sports-related event contracts when drafting provisions of the CEA that allow the agency to block contracts deemed contrary to the public interest.

The political backdrop has also shifted. The Trump administration has taken a more permissive posture toward prediction markets than the Biden administration, which had sought to restrict certain event contracts under the public interest standard. President Trump’s social media company, Truth Social, is partnered with Crypto.com to offer prediction markets, while his son, Donald Trump Jr. serves as a board adviser to both Kalshi and Polymarket.

Sportsbooks side-step state policy

The policy dynamics have become more complex as major sportsbook operators have entered the prediction market space themselves.

DraftKings, FanDuel, and Fanatics have each launched prediction market products, primarily targeting states where they do not offer legal sports betting. While some regulators have warned that offering such products could affect licensing decisions in other jurisdictions, those threats have yet to translate into broad enforcement action.

As major operators participate on both sides of the regulatory divide, the debate increasingly centers on how prediction markets fit within the broader U.S. sports betting ecosystem, rather than on the conduct of any single exchange. Their involvement also brings additional lobbying influence into a policy discussion that has historically been dominated by states, tribes, and traditional gaming interests.

Implications for legalization efforts

Prediction markets may also shape sports betting debates in states where wagering remains illegal.

A significant portion of trading volume on platforms like Kalshi, Crypto.com, and Polymarket is believed to originate from large states such as California, Texas, and Georgia. In California, tribes have long served as gatekeepers for sports betting legalization, and recent efforts to build consensus with commercial operators had been viewed as a potential path forward.

Those efforts now face new complications. DraftKings’ launch of prediction markets in California, with FanDuel expected to follow, has strained industry relationships and raised fresh enforcement questions, particularly after previous attempts by the state to restrict certain gaming products failed to halt operations.

The continued growth of prediction markets could either undermine incentives to legalize sports betting or prompt lawmakers to seek ways to capture tax revenue from activity already occurring within their borders. Which outcome prevails may depend on how aggressively states and tribal interests choose to respond.