US Struggles to Rein In Prediction Markets as State Frustration Mounts

While individual states have challenged prediction platforms in court, the CFTC’s unwillingness to ngake a definitive stance further escalates tensionsImage Source: Shutterstock.com

The United Statesis entering uncharted territory as it struggles to resolve the discrepancies surrounding prediction markets. What began as a niche segment of the financial market has now evolved into amulti-billion-dollar sectorthat is testing the limits of federal oversight and state gambling laws. At the forefront of this dispute is Kalshi, a platform that claims to be a federally regulated exchange rather than a sportsbook despite offering wagers on sporting events nationwide.

State Regulators Are Fighting Back

The legal advantage of prediction platforms stems from a simple yet powerful distinction. Such companies operate under theCommodity Exchange Act, overseen by the Commodity Futures Trading Commission (CFTC). This regulation categorizes the products of platforms like Kalshi as financial derivatives, rather than gambling bets. The distinction allows such companies to operate inall 50 states, even those that ban online sports wagering.

Kalshi has become the poster child of prediction markets in the US and has leaned heavily intosports markets, introducing contracts on NFL and NHL games. The move has triggered a swift response by state regulators who claim that Kalshi is abusing its CFTC certification to circumvent state gambling bansunder the guise of a futures exchange.

The dispute has already spilled into courts across the USA. After attempts in several jurisdictions to rein in Kalshi’s operations, the company has initiated legal action against the states of Nevada, New Jersey, Maryland, and Ohio, in some cases securing preliminary injunctions to keep its services active. Meanwhile, Massachusetts and some Native American tribes in California have seized the initiative, arguing that the platform’s sports contracts constitute unlicensed gambling.

The CFTC Appears Unwilling to Commit

According to legal experts, much of the controversy hinges on whether futures trading can legally extend to events such as sporting outcomes. The CFTC has refused to commit to a hard stance, insisting that the matter is up to individual states. However, prediction markets continue to use the federal regulator as a shield, circumventing attempts to hold it accountable under state gambling laws.

The regulatory vacuum has frustrated state officials. The Pennsylvania Gaming Control Boardrecently warned that prediction platforms directly threaten established gaming systems. Nevada regulators have also ngaken a strong stand,vowing to scrutinizeany operator offering event-based contracts to state residents.

For the time being, prediction markets like Kalshi continue to expandlargely unchecked. The company’s sports contracts now account for over 90%of trading activity, and marketing materials explicitly promote sports wagering options “in all 50 states.” WithDonald Trump Jr.holding advisory positions with Kalshi and Polymarket, prediction platforms continue to expand despite the opposition.