How 2025 pitted prediction markets against the US gaming industry

Prediction markets are heading into 2026 with states and operators on a collision course likely destined for the US Supreme Court following a year of nonstop growth and controversy.

What began with Kalshi’s election market offerings in November 2024 morphed into a nationwide fight over whether sports event contracts are federally regulated derivatives or unlicensed gambling. Kalshi, Robinhood and Crypto.com are battling more than 20 lawsuits and cease‑and‑desist orders from regulators and tribal interests.

Still, the prediction market industry continues to surge as operators enter the mainstream with media partnerships, massive fundraising rounds and new products from sportsbook operators. Kalshi reported this month its trading volumes are surpassing $1 billion each week, with users able to trade on more than 3,500 markets, many of which are sports outcomes.

The holidays have not slowed the news about prediction markets. Last week, 38 states filed an amicus brief in support of Maryland, where the state is embroiled in a lawsuit against Kalshi. The filing came a day after FanDuel launched its prediction market product, following the prior week’s debut of DraftKings Predictions. The barrage of headlines less than two weeks before the end of 2025 puts a bow on the year’s biggest gambling issue.

“Prediction markets are not illegal at all,” Jay Atkins, director of government affairs at FanDuel and former Missouri first assistant attorney general, said at the National Council of Legislators from Gaming States (NCLGS) winter conference this month in Puerto Rico. “Now, whether or not sports contracts are illegal is the question.”

Sports predictions markets emerge as focal point

Kalshi made its first major waves in this part of the industry last year, when it offered prediction markets on the 2024 elections after the operator won a court case against the Commodity Futures Trading Commission.

As 2025 rolled around, Kalshi and Robinhood began offering sports event contracts, including ones tied to the Super Bowl. In many cases, the event contracts closely mirror traditional sports wagers.

Shortly after the sports event trading began, regulatory pushback emerged. In February, US Rep. Dina Titus of Nevada sent a letter to the CFTC contending that sports events “bring this relatively new industry directly into conflict with state-regulated gaming operators”.

In March, multiple tribes and tribal groups sent a letter to the CFTC arguing that prediction markets violate the Indian Gaming Regulatory Act. That same month, the Nevada Gaming Control Board became the first regulator to send a cease-and-desist letter to Kalshi for circumventing “Nevada’s right to regulate gaming activity within its borders”.

New Jersey and Maryland followed shortly after, sending cease-and-desist letters to Kalshi and Robinhood. Kalshi responded by suing the regulators.

These regulators argue the prediction markets are offering gambling without proper licensing. Kalshi counters that it is federally regulated by the CFTC and can operate nationwide.

Prediction market lawsuits pile up

By the end of April, federal judges in New Jersey and Nevada granted Kalshi preliminary injunctions to prevent regulatory enforcement. Last month, however, the judge in Nevada reversed his initial decision.

“Kalshi has raised serious questions about how to properly interpret the statutory language, to divine congressional intent and to resolve the tension between what constitutes state-regulated gambling versus federally regulated derivatives,” US District Judge Andrew Gordon’s order read.

In Maryland, a judge sided with the state regulator and the case received last week’s amicus briefs in support of the state. Over the summer, 60 tribes, 34 state regulators and nine tribal groups sent amicus briefs in support of New Jersey’s legal case against Kalshi in the US Court of Appeals for the Third Circuit.

In September, Massachusetts Attorney General Andrea Campbell sued Kalshi, alleging the company offers illegal sports wagering. The complaint noted more than 75% of Kalshi’s trading volume in the first half of 2025 was on sports.

“The figures suggest that Kalshi makes a larger percentage of its money from sports than DraftKings or FanDuel — businesses that are synonymous with sports betting in the U.S.,” the suit reads.

Kalshi also sued regulators in New York and Ohio.

“Sports contracts and pork bellies aren’t the same,” Ohio First Assistant Attorney General Jonathan Blanton said at the NCLGS meeting. “With sports prediction contracts, one single individual can influence the outcome. The over-simplification is a massive issue. The quality among these contracts runs them contrary to the law. It’s a state regulatory issue for a portion [of prediction markets] and there is a slice that belongs to the state and we’ll fight for it.”

Kalshi also faces a class action lawsuit filed in New York last month. Plaintiffs from six states claim the operator violated state gambling laws and engaged in illegal deceptive activity.

Tribal fight also brewing for prediction market operators

On the tribal front, a California judge sided with Kalshi, ruling that because it is regulated through the CFTC, the Unlawful Internet Gambling Enforcement Act applies and Kalshi and its “internet contracts are not bets or wagers under the UIGEA and therefore do not constitute ‘unlawful internet gambling’ even if the contracts are received, placed or transmitted from persons on Indian lands where internet gambling is illegal”.

Tribes across the country are forming a front against the prediction markets industry, according to an NCLGS panel.

“I look at their arguments filed across many briefs, it’s preemption argument — ‘I don’t have to listen to states because I’m under the [Commodities Exchange Act],’” Oklahoma Indian Gaming Association Chairman Matthew Morgan said. “In tribal gaming, we have IGRA, a federal law. That argument does not hold water. We’re simply asking for due respect to not come on our jurisdictions without meeting with us.”

Sources across the gambling industry expect the question of the legality of sports event contracts to head to the Supreme Court in the coming years.

What is the CFTC regulating?

After the Trump administration took over in January 2025, the number of CFTC commissioners dwindled throughout the year as Biden appointees left their roles and the new president’s initial appointee to chair the commission, Brian Quintenz, went through the Senate approval process. Quintenz did not advance out of committee and Trump’s second nominee to become chairman, Michael Selig, was sworn in 22 December.

The CFTC announced a prediction markets roundtable in February but cancelled it in April. The CFTC received more than 40 letters from sports leagues, regulators, tribes and individuals about the issue.

In September, outgoing member Kristin Johnson said the CFTC has “too few guardrails and too little visibility into the prediction market landscape”. Johnson was the fourth member to leave the CFTC this year, leaving acting Chair Caroline Pham temporarily as the lone commissioner. Pham departed the CFTC after Selig was sworn in a week ago.

Also in September, a joint roundtable held by the SEC and CFTC barely addressed prediction markets. The roundtable included Kalshi CEO Tarek Mansour and Polymarket CEO Shayne Coplan.

Prediction markets go mainstream

In June, Kalshi received a $2 billion valuation from a $185 million Series C funding led by a crypto-focused firm. This month, Kalshi’s valuation jumped to $11 billion following investments from firms including Paradigm, Sequoia and Andreessen Horowitz.

Polymarket raised $2 billion from Intercontinental Exchange, the parent of the New York Stock Exchange.

Polymarket re-entered the US this year after leaving the market in 2022 as part of a CFTC settlement for having operated an unregistered prediction market.

Here come the sportsbooks, but at what risk?

The summer also saw sports betting operators begin dipping toes into prediction markets. DraftKings acquired Railbird to set up its newly debuted product. FanDuel, meanwhile, partnered with CME to ready its recently launched app.

Those moves caused Ohio regulators to issue a warning to sports betting operators that their licences could be in jeopardy if they offer sports event trading. Multiple other states including Michigan, Arizona and Massachusetts also issued similar warnings.

But as state regulators fight to control prediction markets, operators continue to push into the public consciousness. In October, the NHL became the first major sports league to embrace prediction markets, partnering with Kalshi and Polymarket. Other leagues distanced themselves, including the NFL.

Google announced a deal in November with the operators to integrate data into Google Finance. Yahoo Finance signed with Polymarket for a similar integration. CNN is using Kalshi data across its products, including a real-time data ticker during broadcasts.

Sports betting prediction markets bloom

With the regulatory warnings, sportsbooks offering prediction market products are wading carefully.

This month, Fanatics Markets launched in 24 states where it does not operate its sportsbook, including California and Texas.

DraftKings Predictions launched event contracts in 38 states. However, sports event trading is not available in every one of those markets.

FanDuel’s rollout was in just five states:

• Alabama
• Alaska
• North Dakota
• South Carolina
• South Dakota

FanDuel plans to expand into other states in 2026, according to a news release.

Both FanDuel and DraftKings forfeited licences or applications in Nevada to pursue prediction markets.

Daily fantasy sports operators PrizePicks and Underdog also launched prediction markets. Underdog’s launch resulted in Arizona pulling its fantasy sports licence. The Arizona Department of Gaming had warned operators about launching prediction markets, as it considers it an illegal product.

Pat Evans

Pat covers the legislation and regulation of online gambling in North and South America, having covered the US sports betting industry extensively since 2019.