Online prediction markets face mounting legal challenges across the United States as state officials launch lawsuits against major platforms including Kalshi and Polymarket. According to The Guardian, at least 20 federal lawsuits have been filed nationwide, with states alleging these online prediction markets operate as unregulated gambling operations rather than legitimate financial exchanges. While these platforms remain legal to use throughout the country, the growing wave of litigation signals increasing concern from regulators about their impact on consumers.
The legal disputes center on whether companies like Kalshi and Polymarket should be classified as federally regulated financial exchanges or state-regulated gambling operations similar to licensed sportsbooks. These platforms currently fall under federal commodities law and oversight by the Commodity Futures Trading Commission, allowing them to operate in all 50 states. However, state officials argue this regulatory framework is inadequate for what they characterize as gambling platforms disguised as prediction markets.
How Prediction Markets Operate
According to The Guardian, prediction market platforms allow users to trade on the outcome of virtually anything, ranging from sports and elections to award shows and public speeches. Unlike traditional casinos where players bet against an established house, users on these platforms bet against each other while the companies collect transaction fees. This business model has enabled rapid growth and mainstream adoption, though critics argue it exposes consumers to gambling-related harms without appropriate safeguards.
The platforms have become entrenched in mainstream culture and attracted vast sums of money, according to Wired. Polymarket was previously banned in the United States but was largely reinstated in 2025, adding to the regulatory uncertainty surrounding the industry. Meanwhile, other platforms continue expanding their offerings and user bases despite the legal challenges.
Nevada Takes the Lead in Legal Action
One of the most notable lawsuits is unfolding in Nevada, where state officials are attempting to block Kalshi through multiple courts, according to NBC News. Nevada authorities allege that Kalshi offers residents an illegal way to bet on sports through its prediction market contracts. However, the company maintains it operates strictly as a financial exchange platform subject to federal oversight rather than state gambling regulations.
Additionally, the prediction market companies are fighting back against state actions. In Massachusetts alone, Robinhood and Polymarket have filed lawsuits to block legal maneuvers by the state attorney general, Bloomberg Law reported. These counter-suits could complicate efforts by states to regulate or ban the platforms within their borders.
Political Divisions Over Prediction Market Regulation
The battle over prediction markets has escalated into a political war that does not follow traditional party lines, according to Wired. Liberals and conservatives have often found themselves arguing for the same positions on both sides of the debate. One faction argues the platforms break the law by operating as shadow casinos, while the other maintains they simply provide access to legitimate financial markets already subject to adequate government oversight.
However, the stakes extend beyond regulatory philosophy. According to The New York Times, early victories for challenges to sports prediction markets could prove devastating for the industry as a whole. Kalshi’s own data shows that $12.5 billion of its total trading volume comes from sports-related contracts, compared to just $4.7 billion from all other categories combined.
Future Implications for the Industry
The outcome of the 2028 presidential election could significantly impact prediction markets, particularly if Democrats regain control of the White House. Chad Beynon, a senior analyst at Macquarie Group, told The New York Times that companies in this space are working aggressively now knowing the regulatory environment could shift dramatically after 2028.
The legal battles are expected to continue moving through federal and state courts over the coming months, with no clear timeline for final resolution. Authorities have not confirmed when definitive rulings on the regulatory status of prediction markets might emerge, leaving both platforms and users in a state of uncertainty about the industry’s long-term viability.