Online prediction markets face mounting legal challenges across the United States as state officials file lawsuits against major platforms like Kalshi and Polymarket. At least 20 federal lawsuits have been initiated nationwide, with states arguing that these online prediction markets function as illegal gambling operations rather than legitimate financial exchanges. While these platforms currently operate legally under federal commodities law, state attorneys general contend they should be regulated like traditional sportsbooks.
The lawsuits dispute the classification of companies such as Kalshi and Polymarket, according to The Guardian. These platforms maintain they are federally regulated financial exchanges, but states claim they are gambling operations that harm residents and should fall under state gaming regulators rather than the Commodity Futures Trading Commission.
State Officials Challenge Prediction Market Platforms
The legal complaints focus on the broad range of activities users can wager on through these platforms. According to The Guardian, these companies allow users to trade on virtually anything, from sports and elections to award shows and even what someone might wear. Unlike traditional casinos where players bet against the house, users on prediction platforms bet against each other while the companies collect transaction fees.
However, the current regulatory framework allows these platforms to operate nationwide. Because prediction markets fall under federal commodities law and oversight by the Commodity Futures Trading Commission, they can legally serve customers in all 50 states, avoiding the state-by-state gaming regulations that govern traditional gambling operations.
Nevada Lawsuit Targets Sports Betting Contracts
Nevada has emerged as a key battleground in the fight against prediction market gambling. According to NBC News, the state’s effort to block Kalshi is progressing through multiple courts, with officials alleging the platform offers illegal sports betting through its prediction market contracts. Meanwhile, Kalshi maintains it operates solely as a financial exchange platform.
Additionally, the prediction platforms are fighting back against state actions. Bloomberg Law reported that in Massachusetts alone, both Robinhood and Polymarket have filed lawsuits to block legal maneuvers by the attorney general, creating a complex web of litigation on both sides.
Political Battle Lines Blur Over Betting Markets
The controversy extends beyond legal technicalities into political territory, though not along traditional partisan divisions. According to Wired, the political fight has escalated into a full-blown war where liberals and conservatives often find themselves on the same side of the debate. One faction argues these platforms operate as shadow casinos breaking the law, while the other insists they provide legitimate access to properly regulated financial markets.
In contrast to their disputed legal status, prediction markets have become deeply embedded in mainstream culture. Wired noted this transformation has brought vast sums of money into play, raising the stakes for both the companies and regulators seeking to control them.
Sports Betting Represents Majority of Market Activity
Early court victories for states challenging sports prediction markets could prove devastating for the industry overall, according to The New York Times. Kalshi’s own data reveals that sports-related contracts generate $12.5 billion of its total trading volume, while all other categories combined produce just $4.7 billion. This heavy reliance on sports betting makes the platforms particularly vulnerable to legal restrictions in that category.
Furthermore, the 2028 presidential election could significantly impact the future of online prediction markets. Chad Beynon, a senior analyst at Macquarie Group, told the Times that prediction market companies are moving aggressively now, knowing their operations could face stricter federal oversight if Democrats win back the White House and target these platforms.
The outcome of these legal battles remains uncertain as courts continue to weigh arguments from both state officials and prediction market operators. No timeline has been established for final rulings in most cases, leaving the future regulatory framework for these rapidly growing platforms in limbo.