Prediction markets have become a focal point in the United States gambling sector as the year 2026 approaches, marked by significant growth and ongoing legal disputes. Originating with Kalshi’s introduction of election market offerings in November 2024, the industry has witnessed an expansive debate regarding the classification of sports event contracts—whether they are federally regulated derivatives or constitute unlicensed gambling. Entities like Kalshi, Robinhood, and Crypto.com are engaged in over 20 legal battles, including lawsuits and cease-and-desist orders from regulatory bodies and tribal entities. Despite these challenges, prediction markets are gaining prominence, forming media partnerships and securing substantial investment while introducing new products via sportsbook operators. Kalshi recently reported trading volumes exceeding $1 billion weekly, spanning over 3,500 markets, many focused on sports outcomes.
The surge of activity around prediction markets has not subsided even with the holiday season. Recently, 38 states backed Maryland in a lawsuit against Kalshi, as articulated in an amicus brief. This filing coincided with FanDuel’s launch of its prediction market product and the earlier entry of DraftKings Predictions into the market. These developments underscore the significant attention prediction markets have garnered in the gambling industry over the past year.
In December, Jay Atkins of FanDuel, speaking at the National Council of Legislators from Gaming States winter conference, highlighted the legal ambiguity surrounding sports contracts rather than the general legality of prediction markets themselves. Kalshi initially made headlines by offering prediction markets on the 2024 elections after a favorable legal ruling against the Commodity Futures Trading Commission (CFTC). The company, alongside Robinhood, further expanded into sports event contracts, which have drawn parallels to traditional sports betting but have also triggered regulatory scrutiny.
Regulatory challenges intensified as the Nevada Gaming Control Board issued a cease-and-desist letter to Kalshi in March, claiming the company was bypassing state authority to regulate gaming. Similarly, New Jersey and Maryland also issued similar orders. Kalshi countered these moves by filing lawsuits, arguing that its operations are federally governed by the CFTC, allowing nationwide operation without state interference.
By April, federal judges in New Jersey and Nevada issued preliminary injunctions to halt regulatory actions against Kalshi. However, a Nevada judge later reversed his decision, raising questions about the legal interpretation of prediction markets. Meanwhile, Massachusetts Attorney General Andrea Campbell filed a lawsuit against Kalshi, asserting it engages in illegal sports betting, supported by data indicating significant trading volume in sports predictions.
Complicating matters further, tribal entities have raised concerns over prediction markets, citing potential violations of the Indian Gaming Regulatory Act. A California court decision in favor of Kalshi, based on its regulation under the CFTC, has not quelled tribal opposition. The Oklahoma Indian Gaming Association has called for respect towards tribal jurisdictions, challenging the notion that federal regulation under the Commodities Exchange Act supersedes state and tribal laws.
The CFTC’s role remains under scrutiny, especially following leadership changes with the new administration. As commissioners left and appointments stalled, regulatory oversight faced uncertainty. The CFTC had planned a roundtable discussion, which was later canceled, adding to the opaque regulatory environment. Outgoing CFTC member Kristin Johnson expressed concerns over insufficient regulatory clarity and oversight in the prediction market space.
Investment in prediction markets continues unabated, with Kalshi achieving an $11 billion valuation after a recent funding round. Polymarket, having resolved previous regulatory issues, also attracted substantial investment, signaling investor confidence despite regulatory challenges.
The entrance of traditional sports betting operators into prediction markets introduces further complexities. DraftKings and FanDuel have both launched prediction products, prompting caution from state regulators. States like Ohio have warned operators about potential risks to their licenses if they offer sports event trading, while others, including Arizona, have taken enforcement action against non-compliant operators.
As prediction markets gain mainstream traction, partnerships with major sports leagues and media companies have expanded their visibility. The NHL’s partnership with Kalshi and Polymarket and integration deals with Google and Yahoo Finance reflect growing acceptance and integration into broader financial and media ecosystems.
Looking ahead, the legal landscape for prediction markets remains uncertain. As states and federal entities grapple with jurisdictional challenges, the outcome of ongoing lawsuits and regulatory actions could significantly shape the industry’s future. Stakeholders are closely monitoring potential Supreme Court involvement, which could ultimately clarify the legality and regulatory framework governing sports event contracts. As 2026 unfolds, prediction markets will likely continue to navigate these complex legal and regulatory waters while seeking greater acceptance and integration into the established gambling market.
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