US Struggles to Control Prediction Markets Amid State-Level Opposition

Challenges Facing Prediction Markets in the United States

The United States is navigating a complex landscape as it confronts the regulatory challenges posed by prediction markets. Once a small segment within the financial industry, prediction markets have grown into a multi-billion-dollar market that questions the boundaries of federal regulation and state gambling laws. Central to this debate is Kalshi, a platform that positions itself as a federally regulated exchange rather than a traditional sportsbook, despite offering betting options on sports events across the country.

State Regulators Push Back Against Prediction Platforms

Prediction market companies derive their legal standing from a critical distinction: they operate under the Commodity Exchange Act, supervised by the Commodity Futures Trading Commission (CFTC). This regulatory framework classifies their products as financial derivatives rather than gambling bets, allowing these companies to function nationwide, including in states where online sports betting is prohibited.

Kalshi has become a prominent figure in the US prediction market, especially by expanding into sports-related contracts involving NFL and NHL games. This expansion has provoked strong reactions from state regulators, who argue that Kalshi is exploiting its federal oversight to bypass state gambling restrictions by masquerading as a futures exchange.

The conflict has escalated into legal battles across several states. While Kalshi has responded with lawsuits against states such as Nevada, New Jersey, Maryland, and Ohio—sometimes obtaining preliminary court orders to maintain its operations—states like Massachusetts and several Native American tribes in California have taken assertive measures, claiming Kalshi’s sports contracts represent illegal gambling without proper licenses.

Ambiguity in Federal Oversight and Its Impact

A significant aspect of the ongoing dispute revolves around the question of whether futures trading legally extends to outcomes of events like sports games. The CFTC has remained non-committal on this issue, emphasizing that regulatory authority largely rests with individual states. Nonetheless, prediction markets continue to rely on federal regulation as protection against state-level enforcement of gambling laws.

This lack of decisive federal guidance has left state officials increasingly frustrated. The Pennsylvania Gaming Control Board has expressed concerns that prediction markets pose direct threats to established gaming frameworks. Similarly, regulators in Nevada have pledged to monitor closely and regulate any entities offering event-based contracts to residents.

Currently, platforms like Kalshi are expanding rapidly with minimal restrictions. Sports-related contracts now make up more than 90% of their trading volume, and their promotional efforts openly advertise sports wagering options across all 50 states. Notably, affiliations with figures such as Donald Trump Jr., who serves in advisory roles for Kalshi and Polymarket, highlight the growing influence and reach of prediction markets, despite ongoing opposition from regulators.