Is It All Just Gambling? Prediction Markets, Sports Betting, and U.S. Real Money Gaming
By: Brian Schaller & Max Landaw
Few would have predicted that legalized state-licensed sports wagering might one day face competition in the previously niche commodities trading financial market. Prediction markets have taken the country by storm. Even in states where sports wagering is illegal, consumers are now making money off events traditionally associated with sports wagering such as the World Series or the Super Bowl (but operators aren’t calling it a bet).
Prediction markets are increasingly intersecting with U.S. real money gaming in ways that are drawing significant attention from state regulators. Where these products resemble traditional wagering in structure or use, they are being evaluated through that lens, raising questions about whether they may be treated as gambling and subject to the same regulatory and enforcement frameworks as sports betting.
What Is a Prediction Market Product?
A prediction market is not the same thing as legalized sports wagering. Rather, prediction markets allow users to buy and sell contracts based on the outcome of a future event. In simple terms, a user is taking a position on whether something will happen. This used to be a more niche financial instrument in commodities markets, such as predicting the price of corn. Now these markets are being used to predict all sorts of events such as whether a company will meet an earnings target, whether inflation will exceed a certain level, whether a specific economic indicator will move in a particular direction, and whether it will snow tomorrow in Denver. Each contract has a set value at settlement, and that value is determined by the outcome of the event. If the event occurs, the contract pays out at that fixed amount; if it does not, the contract may expire with little or no value. A user’s gain or loss depends on the price at which the contract is bought or sold relative to that final settlement value.
Users can also buy and sell these contracts before the event occurs, with prices moving based on what other users think is likely to happen. As more people believe an event will occur, the price of the contract typically increases, and if confidence drops, the price may decrease. This creates a market-driven price that reflects collective expectations about the outcome.
But Isn’t This the Same Thing as Sports Wagering?
Some believe that, from a user perspective, this looks and feels similar to placing a wager on an outcome. As discussed in more detail below, some regulators are failing to see any distinction.
Prediction Market operators argue, however, that prediction markets and sports wagering are completely different, namely that with prediction markets, the “betting” is peer to peer where users take yes/no contractual positions against other users in the market. Whereas with sports wagering, users place bets directly with a house or operator that sets the terms of the wager and assumes the opposing risk.
Prediction Markets are Licensed Via a Completely Separate Structure from Sports Wagering
Prediction market operators have increasingly framed their products as event-based commodities derivatives. That framing is intended to place the product within the jurisdiction of the Commodity Futures Trading Commission (“CFTC”), rather than state gaming regulators. The CFTC, however, is now taking additional regulatory steps with a different administration as the market for event-based contracts continues to develop.
The CFTC has confirmed that event contracts fall within its regulatory scope under the Commodity Exchange Act (“CEA”), but not without limits. On March 12, 2026, the CFTC staff issued an advisory focused on sports-related event contracts, including warnings regarding risks of manipulation in such event contracts. The same day, the CFTC announced an Advanced Notice of Proposed Rulemaking which included a question regarding the public interest and gaming (e.g. sports contests). Note that the CEA is the primary federal law governing derivatives markets in the United States. It provides the CFTC with authority to regulate futures, options, and swaps, and establishes requirements relating to registration and market oversight. In the context of prediction markets, a key question is whether event-based contracts fall within the scope of the CEA, which may subject them to federal regulation rather than state gaming law.
This creates a pathway to federal oversight, but, as we discuss in more detail below, not a safe harbor.
Round 1 Fight: The Federal Boundary
Federal regulation of prediction markets is still being defined on a near real time basis and it was not always the case that the CFTC would license these more modern prediction markets.
That uncertainty is reflected in the ongoing tension between federally regulated event contracts and state level gambling regulation. An early and important development came out of the District of Columbia Circuit in 2024, where a prediction market operator, Kalshi, successfully challenged the CFTC’s attempt to block certain event contracts tied to congressional elections, which the CFTC argued were effectively gaming or election gambling. The District Court ruled in favor of Kalshi, and the D.C. Circuit denied the Commission’s request for a stay pending appeal which allowed the contracts to proceed while litigation continued (the CFTC later dropped the appeal which happened after President Trump took office).
The district court ruling was a meaningful early win for prediction markets. It signaled that at least some courts are willing to scrutinize efforts to characterize these products as “gaming” or unlawful activity under the CEA. It also reinforced that event-based contracts can, under certain circumstances, fall within the federal commodity derivatives framework and not gambling.
At the same time, the decision did not resolve the broader question of how far that framework extends. The case highlights that even where a product is structured to fit within federal commodities regulation, that classification may still be contested.
More recent litigation underscores that point. In a separate federal case in Ohio, a court declined to find that federal law clearly preempts state gambling restrictions, holding that the operator had not demonstrated a likelihood of success on that issue.
Across these cases, the question is not just jurisdiction, but limits. Specifically, whether certain categories of event contracts raise public policy concerns that justify restriction, even if they otherwise resemble derivatives. These concerns about limits are also surfacing from sports industry stakeholders. For example, the NCAA recently sent a letter to the chairman of the CFTC noting the similarity between sport prediction markets and sports wagering and asking to “suspend collegiate sport prediction markets until a more robust system with appropriate safeguards are in place.”
The practical takeaway is that structuring a product as a financial contract may provide a pathway to federal oversight, but it does not guarantee that the product won’t be challenged, particularly by state regulators.
Round 2 Fight: The State Law Overlay
Federal positioning does not eliminate state law risk.
On top of the federal uncertainty, more recently state regulators and legislatures have begun to respond more directly to products that they see as resembling wagering but are offered outside traditional gaming frameworks, like prediction markets.
Recent enforcement activity underscores this point. The Arizona Attorney General filed criminal charges against Kalshi (KalshiEx LLC and Kalshi Trading LLC) for allegedly operating illegal gambling and election wagering. According to the Attorney General’s official press release, Kalshi sued the State of Arizona “preemptively in an attempt to avoid accountability under Arizona law” and “Arizona will not be bullied into letting any company place itself above state law.” On April 10, a federal judge blocked Arizona from continuing its criminal case against Kalshi via a temporary restraining order, stating that the Commodity Exchange Act preempts Arizona law when it comes to “swaps”.
Regulators in other states have also taken action, such as in Illinois and Nevada where cease and desist letters were sent regarding prediction markets.
These actions reflect a broader position that structuring a product as a prediction market does not place it beyond the reach of state law enforcement attempting to exert its influence and power. Prediction market operators are likely to claim that CFTC licensure federally preempts under the Article VI Supremacy Clause of the Constitution any violation of state law. In fact, CFTC Chair Michael Selig publicly announced the agency's intention to defend prediction market platforms against state enforcement, warning state regulators that the agency will fight to support its position.
But many states are not buying this preemption argument. Legislative developments point in the same direction. For example, proposed legislation in New Jersey (SENATE, No. 3692), Connecticut (H.B. 5038), and Hawaii (H.B. NO. 2198) expressly restrict or regulate certain prediction markets or event-based contracts, reflecting a broader effort by states to address products that they view as functioning like bets outside traditional state-regulated gaming systems.
This creates a layered risk environment:
A product may be permissible under a federal framework
The same product may still draw scrutiny at the state level
State action may focus on consumer access, marketing, or product structure
In some cases, that scrutiny may extend beyond civil enforcement and include the risk of criminal liability.
The result is not a clean division between federal and state authority, but a potential overlap where the boundaries are unclear.
How to Evaluate a Prediction Market Product
In practice, the analysis turns on substance rather than just labeling a product a predictive market or a betting platform.
Some considerations include:
Whether the platform operates as a neutral exchange or functions more like “the house” at a casino
How prices are determined and who bears economic risk
The types of events offered and how closely they resemble traditional betting markets
How the product is presented to users and what expectations that creates
Bottom Line
Prediction markets potentially sit at the intersection of two established regulatory frameworks, federal financial market regulations and state gambling laws. These frameworks are not displaced by prediction markets, and structuring a product as a prediction market does not avoid them. We predict that in the coming years, we will see some constitutional issues down the appellate pipeline.
For now, the current environment is not defined by a lack of rules, but by potentially overlapping frameworks which creates layers of uncertainty.
For companies evaluating this space, the central questions will revolve around how their products could be classified, which regulatory regimes may potentially apply, and the level of enforcement and potential criminal risk.
Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.