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Sports prediction markets have the early leg up on traditional sportsbooks, despite the latter having decades-long headstarts. Favorable legislation, or the lack of legal restrictions, has allowed prediction markets to grow like weeds in recent years.
Sportsbooks are not going down without a fight, though, and regulatory hurdles could derail prediction markets’ early lead. Continue reading to learn more about the ongoing battle between prediction markets vs. sports betting operators and what could come next.
A Brief Look at the Legality of Prediction Markets
Prediction markets like Kalshi and Polymarket are legal, for now. These sites are designed to subvert laws that restrict traditional US casinos and sportsbooks.
It has not been smooth sailing for prediction markets, though. Polymarket, for instance, was investigated by the Commodity Futures Trading Commission (CFTC) in 2022. The CFTC determined that Polymarket was operating unlicensed markets.
Polymarket addressed some of its legal issues by acquiring QCEX, a CFTC-licensed exchange.
Additional probes include a 2025 investigation by the Department of Justice (DOJ) and CFTC into further illegal markets offered by Polymarket. However, these investigations were dropped in 2025 by Trump’s DOJ.
Polymarket is currently being investigated for facilitating insider trading. Allegedly, members of the site have used classified military intelligence to bet on the Iran War at Polymarket.
President Trump has helped protect prediction markets to an extent, especially since his son, Donald Trump Jr., invested heavily in Polymarket. The support of the first daily has helped prediction markets avoid legal scrutiny in recent years.
Arizona, Massachusetts, and Washington
Prediction markets for sports, politics, and entertainment skirt the traditional gambling laws. However, some states have begun fighting back against these sites by seeking to close the loopholes that enable prediction markets.
Arizona’s AG, for instance, filed criminal charges against Kalshi in March 2026 for violating the state’s gambling laws. However, less than a month later, US District Judge Michael Liburdi ruled that Arizona lacked the authority to enforce its laws against Kalshi, as it is regulated by the CFTC.
Massachusetts’ lawmakers have also acted against prediction markets, banning Kalshi from offering sports-related markets in the Bay State. The battle between Kalshi and Massachusetts lawmakers is currently playing out in court.
Washington made sports prediction market news when AG Nick Brown filed a lawsuit against Kalshi. According to the Washington State Gambling Commission, Kalshi violated the state’s strict anti-gambling laws and is seeking to ban the site entirely.
The Thin Line Between “Gambling” and “Trading”
Sports betting sites have exploded in popularity and accessibility over the last decade. However, even the most well-known sportsbooks are not as widely available at prediction markets.
What are sports prediction markets, and how are they different than sports betting?
Traditional trading, such as stocks, tends to be less taboo than gambling. Traders operate in a neutral market and use structured strategies backed by data to shift the odds in their favor.
Trading markets such as Kalshi and Polymarket, on the other hand, are much closer to sports betting. Instead of buying stocks or investing in ETFs, users “invest” on either side of a yes or no market for a variety of topics, including sports, the weather, and politics.
Research also shows that gambling and trading trigger the same dopamine response. In other words, your brain cannot tell the difference between placing a bet and making a trade.
One major difference that still remains between trading and gambling, though, is the regulatory agencies responsible for the two. States may set their own gambling regulations. However, trading is regulated by the CFTC, a federal agency with the power to overrule state gambling legislation.
Are Sportsbooks Fighting Back?
Prediction markets sports ventures have paid huge dividends, but the traditional oddsmakers are not going down without a fight. They have lobbied lawmakers and launched competing brands while facing new legal challenges.
Lobbying Lawmakers
Sportsbooks have backed state legislatures attempting to regulate prediction markets. Also, they have lobbied with federal lawmakers to push for laws regulating prediction markets as gambling rather than commodities.
Senators Adam Schiff (D-Calif.) and John Curtis (R-Utah), for instance, introduced a bipartisan bill called the Predictions Markets Are Gambling Act. If passed, the bill would prevent CFTC-licensed companies from offering contracts that resemble casino games or sports betting.
Likewise, the Gaming Advertisement to Minors Enforcement (GAME) Act aims to prevent prediction markets and sportsbooks from using digital advertisements targeting minors. The bipartisan bill was introduced by Senators Katie Britt (R-Ala.) and Richard Blumenthal (D-Conn.).
Launching Competing Markets
Another tactic sportsbooks have tried is launching their own prediction markets. These prediction-based apps are separate from their sportsbook and offer similar exchanges on politics, entertainment, and other non-sporting options.
Breaking into this new territory can help level the playing field. However, sports betting operators are largely trying to play catch-up. Operating their own prediction markets can also undermine their case against prediction markets.
Battling New Sports Betting Laws
In addition to battling prediction markets, sportsbooks also face other new hurdles. Trump’s Big Beautiful Bill, for instance, raised taxes on gamblers. This was a surprise after many thought the President, who owned multiple casinos before bankrupting them, would legalize gambling at a federal level.
Sportsbooks are at a disadvantage, too, as members of Trump’s family work closely with major prediction markets. Trump Jr. specifically is on Polymarket’s advisory board. He also serves as a paid strategic advisor for Kalshi and reportedly has plans to launch Truth Predict, a prediction market tied to Truth Social.
Prediction Markets and Insider Trading
Insider trading is nothing new for members of Congress. However, recent, timely trades on Polymarket have raised concerns about a new form of insider trading.
Namely, traders have allegedly used insider knowledge of the Iran War to make timely exchanges and cash in for millions of dollars. One suspect reportedly has a 98% win rate and has won $2.4 million trading on the Iran War so far.
Another incident involved a US soldier using insider knowledge ahead of the kidnapping of Venezuelan leader Nicolás Maduro to win $400,000.
The Senate has already passed legislation prohibiting members from using prediction markets. There is bipartisan support in the House for a similar bill, but it has not passed yet.
What are the Odds on a Prediction Market Crackdown?
Sports prediction markets are extremely popular, but legislators across the US are pushing for new regulations at the state and federal levels. Given the strong opposition from lawmakers and traditional sportsbooks, new regulations for prediction markets are likely in the near future.
On the other hand, the President and his family are heavily invested in prediction markets. Trump is unlikely to sign a bill that hurts his bank account. So, wide sweeping changes to prediction market regulations are not going to happen while Trump is in office.
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