Key Moments
- Sports event contracts have pushed prediction markets into mainstream attention and triggered legal pushback from states.
- Major companies, including Kalshi, FanDuel, DraftKings, and Robinhood, have launched or expanded event contract offerings.
- The Commodity Futures Trading Commission (CFTC), under-resourced as of recent reports, faces industry and state pressure over regulation.
Prediction Markets Collide With State Gambling Laws
Prediction markets, once viewed as a niche financial tool for speculating on economic indicators or central bank moves, have gained momentum by venturing into sports. These platforms offer event contracts and currently operate under the regulatory oversight of the Commodity Futures Trading Commission (CFTC), not state gaming agencies. Critics argue this distinction enables market participants to operate with guidance from a single federal body instead of navigating the complex landscape of state regulations.
This regulatory gap is now under legal examination nationwide. The entry of sports event contracts has triggered a wave of courtroom disputes and drawn attention from state authorities.
State and Federal Disputes Over Oversight
Kalshi, identified as a CFTC-approved contract market since 2020, expanded into sports event contracts in January 2025. This strategic shift quickly became integral to its operations. However, these moves prompted legal challenges in multiple states. In Nevada, a federal judge determined late last year that Kalshi’s sports contracts remain subject to state gaming laws. In Massachusetts, a recent ruling barred Kalshi from operating without a state license, reinforcing the expectation that sports betting platforms must adhere to local regulations.
This has resulted in a standoff: prediction markets maintain that their products are federally regulated derivatives, while state authorities insist that if these contracts resemble sports betting, they should be regulated as such.
Major Industry Players Embrace Event Contracts
The expanding roster of companies entering prediction markets underscores the sector’s evolution. FanDuel introduced FanDuel Predicts with CME Group in late December 2025, providing prediction products in five states and reaching areas where traditional sports betting is prohibited. DraftKings also rolled out a prediction market product designed to broaden its reach beyond its established sportsbook presence. Robinhood has increased its involvement through various partnerships, while crypto and media firms have begun to explore the space.
This growing participation challenges the narrative that prediction markets cater only to a niche audience.
The Legal and Regulatory Landscape
Polymarket, following a CFTC settlement in January 2022 that limited its U.S. access, sought reentry by acquiring QCX/QCEX and began accepting waitlist sign-ups in 2025. This return arrives at a time when U.S. states are taking a more assertive approach against sports event contracts, complicating the company’s relaunch efforts.
The CFTC currently oversees the sector, but recent reporting has highlighted the agency’s thin roster, potentially leaving it with only one commissioner. This has raised concerns about its ability to handle substantial regulatory responsibilities as event contracts proliferate.
Gambling in the CFTC Rulebook and Legislative Pressures
CFTC Regulation 40.11 addresses event contracts and empowers the commission to review contracts referencing various sensitive topics, including gaming. The regulation lists gaming alongside areas like war and terrorism, making it a contested piece of territory. The CFTC has issued proposals and public statements seeking greater clarity, as courts have scrutinized its application of event contract rules.
Additionally, political event contracts have entered the spotlight, especially after a controversial Polymarket trade linked to Venezuela. In response, Rep. Ritchie Torres introduced a bill targeting insider trading and restricting certain government officials from participating in contracts related to political events when they might possess nonpublic information. Kalshi CEO Tarek Mansour expressed support for these measures, distinguishing regulated exchanges from offshore platforms.
Industry Outlook and Ongoing Legal Battles
The trajectory is clear: as sports event contracts proliferate, states and tribal regulators are escalating their challenges, and the federal regulator remains under scrutiny and operational strain. The critical uncertainty is which regulatory authority will ultimately prevail. Recent state-level injunctions and decisions suggest resistance to federal preemption, while previous court outcomes, such as Kalshi’s election contract case, demonstrate that federal courts may rule in favor of exchanges over either the CFTC or state regulators, based on case specifics and statutes.
| Company/Regulator | Key Activity | Regulatory Context |
|---|---|---|
| Kalshi | Launched sports event contracts in January 2025 | Facing state-level legal challenges in Nevada and Massachusetts |
| FanDuel | Launched FanDuel Predicts with CME Group in December 2025 | Operating in five states, including non-traditional sports betting markets |
| DraftKings | Introduced a prediction markets product | Expanded reach beyond its conventional sportsbook |
| Robinhood | Expanded event contract offering through partnerships | Increasing involvement in the sector |
| Polymarket | Planned U.S. return via QCX/QCEX in 2025 | Operating amid rising state scrutiny of sports event contracts |
| CFTC | Federal oversight of event contracts under Regulation 40.11 | Reported challenges due to limited commissioner presence |
- Author
Daniel Williams
