How prediction markets are shaking up sports gambling in America
Kalshi is spearheading a legal battle to expand access to online betting, with support from some in Trump’s circle
Sam Learner and Oliver Roeder in New York
Little in the 2024 US presidential election was predictable, certainly not the withdrawal of incumbent Joe Biden and his replacement on the ballot by vice-president Kamala Harris.
Polling and statistical models struggled to gauge the unusually chaotic race.
Into this empirical wilderness rushed prediction markets.
All they required to quantify the contest was a website and the wisdom of an eagerly depositing crowd.
On these platforms, bettors buy “shares” to trade against each other on the outcomes of win/lose events, with the prices fluctuating as more predictions are made.
Each winning share can be redeemed for $1 and so its market price can be read as a probability — a share priced at 25 cents, for example, implies a 25 per cent chance of the event occurring.
The markets’ operators make money through transaction fees.
Kalshi was the largest of those licensed to operate as “designated contract markets” in the US.
More than $500mn worth of presidential election contracts was traded in its main market.
On Polymarket, a rival crypto-based platform ostensibly off-limits to Americans, more than $3.6bn changed hands.
They both clocked Donald Trump as the favourite, and gained a certain glow when he won in November — netting millions of dollars for some bettors.
Both Kalshi and Polymarket have since established ties with the winning administration.
In January, Kalshi hired Donald Trump Jr as a strategic adviser; he is also an investor in Polymarket and sits on its advisory board.
The prior administration, however, was not so keen on allowing wagers on elections.
The Commodity Futures Trading Commission, the American derivatives regulator, had tried to halt Kalshi’s set of markets on congressional elections, setting up a legal battle the New York-based company won shortly before election day.
But betting on politics was always going to be a niche market — a far bigger prize for prediction markets is sports gambling, with Kalshi leading the way in taking a bite out of an industry worth $14bn in the US alone.
Early this year, the company offered its first sports markets on the Super Bowl.
Despite seemingly clear regulatory language banning markets that involve “gaming”, Kalshi and its rivals have received little pushback from the regulator under the new administration.
Brian Quintenz, President Trump’s pick to run the CFTC, sits on Kalshi’s board.
Other parties, however, are greatly concerned about the prediction exchanges’ offensive on sports gambling — putting Kalshi at the centre of a fresh battery of legal fights with a new set of adversaries, from states to gaming regulators to Native American tribes, who control much of the US gaming market.
Up for debate is the definition and future of sports gambling in the US.
To critics, the rise of the prediction markets is a new symbol of the Trump administration’s permissive approach to gambling in all its forms, alongside its embrace of crypto and memecoins and other digital tokens.
The prediction exchanges appear poised to offer even more options in the endless unpredictability of sports.
Sports betting in the US is currently legal in 39 states and Washington DC, most of whom legalised it following a 2018 Supreme Court decision that repealed the Professional and Amateur Sports Protection Act, or Paspa.
Heavily staffed state regulatory bodies issue licences, collect fees, enforce guidelines and monitor for problem gambling and integrity issues.
Since 2019, the US sports betting industry has grown from just under $1bn in total revenue to $13.8bn, generating nearly $3bn in tax revenue in 2024.
Kalshi’s markets steamroller through this intricate regulatory regime; the company has advertised itself as “The First Nationwide Legal Sports Betting Platform”.
On Kalshi, much like Betfair in the UK, odds reflect not the careful calculations of a bookmaker but the behaviour of traders.
For example, shares of Naomi Osaka in the US Open tennis semi-final last week traded at 9 cents as she trailed in the third set, implying a 9 per cent chance of victory.
The price wiggled with every point, increasing to 12 cents after she held serve.
Osaka eventually lost and her shares went to $0.
In total, more than $10mn in shares were traded on the match.
Markets like this one have prompted opposition by an array of established actors: states where gambling is illegal but residents can now access Kalshi; states where gambling is legal and Kalshi does not pay fees or recognise regulations; tribal groups meant to have exclusive rights to gaming on their territory; sports leagues that depend on regulation and monitoring; and, of course, traditional bookmakers who see themselves as suffering for following states’ rules.
“If Kalshi is correct, then it can offer unrestricted sports betting across the country,” the American Gaming Association wrote in a recent legal filing.
“That means no problem-gaming regulations, no state-level licensing requirements and no accountability to state regulators.”
Kalshi argues that it is subject to regulation by the CFTC, which sees no issue with its sports contracts.
But the American Gaming Association says this “elevate[s] the CFTC to the position of America’s sports-betting regulator — a role that Congress did not bestow upon the agency and that the CFTC has neither the experience nor the resources to undertake”.
The CFTC’s institutional roots are in agricultural futures, and it is well known today for regulating cryptocurrencies.
Its derivatives authority also gives it control over rapidly growing prediction markets, whose shares derive their value from future events.
Since Trump re-took office, the commission has been notably hands-off, particularly with sports-related markets.
Historically these had been considered among several kinds of forbidden event contracts, which the CFTC has taken action to quash.
This regulatory uncertainty comes as the agency is in a state of flux, even relative to other federal agencies who have seen their budgets slashed by the Trump administration.
Since January, three of five CFTC commissioners have resigned, with a fourth planning to leave the agency in the near future.
“That agency is in shambles,” says Democratic congresswoman Dina Titus, whose Nevada district includes the gambling mecca of Las Vegas.
“There’s really no oversight at all.”
In May, the CFTC dropped its appeal against Kalshi over the election markets.
Two months later, it and the Department of Justice ended a probe into whether Polymarket — ostensibly only available to overseas traders — had been accepting bets from Americans illegally.
(Polymarket did not respond to a request for comment.)
Quintenz, Trump’s nominee to lead the agency, also served as commissioner in Trump’s first term and is widely viewed as friendly towards prediction markets.
After an exchange attempted to list NFL game contracts, Quintenz wrote a supportive memo in March 2021.
Since leaving the agency in August that year, he has worked for venture capital firm Andreessen Horowitz, most recently as head of policy for its crypto division.
Quintenz has also served on Kalshi’s board since 2021, a position he has said he would resign from if confirmed to the CFTC post.
“Brian [Quintenz] could not have been more transparent through all of his hearings about relinquishing himself,” says Sara Slane, Kalshi’s head of corporate development.
“He’s been unequivocal that he would follow everything from the letter of the law to recuse himself in matters that had to do with Kalshi.”
Others see inevitable conflicts of interest.
“How can you appoint, even though it seems to be a hallmark of this administration, somebody to oversee an agency when they sit on [Kalshi’s] board?” says Titus.
“He said he’s not going to let that interfere with his decision, but I don’t know how you keep that from happening.”
Following a June confirmation hearing, Quintenz’s nomination to lead the CFTC has stalled, possibly due in part to opposition from the Winklevoss twins, who run a crypto exchange.
A committee vote on his nomination has yet to take place.
Neither the CFTC nor Quintenz responded to requests for comment.
Where federal regulators are declining to tread, individual states are stepping in.
At least seven have sent Kalshi cease-and-desist letters over markets.
The company has sought preliminary injunctions in three of these states — Maryland, Nevada and New Jersey — asking federal courts to find that they may list sports contracts.
Kalshi prevailed in Nevada and New Jersey but lost in Maryland; all three are being appealed.
A group of 34 other states filed an amicus brief in New Jersey, alongside briefs from the American Gaming Association, the Indian Gaming Association and others.
Groups representing federally recognised tribes also have sued in California and Wisconsin, arguing that Kalshi’s offering of sports contracts on tribal lands infringes on the Indian Gaming Regulatory Act, which gives them exclusive jurisdiction over gaming there.
This represents an important lifeline, with 60 per cent of the revenue — $44bn in 2024 — flowing back to tribes.
Gaming revenues have “made a tremendous difference for tribes that have gambling”, says Jason Giles, executive director of the IGA.
“That’s fire, water, police — all essential government services.”
For prediction markets “the endgame is the online casino”, adds Victor Rocha, the IGA’s conference chair.
“This is about churning up the speed of this to create a real gaming product.
There’s no money in prediction markets — there’s money in sports betting.”
The legal arguments hinge primarily on two questions.
First: are these sports contracts derivatives under the authority of the CFTC, or are they illicit betting afoul of state-level regulations?
Second: if they do fall under the CFTC, does that fact supersede state laws or the Indian Gaming Regulatory Act?
Event contracts broadly fall under the category of derivatives that the CFTC regulates under the 1936 Commodity Exchange Act.
A 2010 amendment, the so-called “Special Rule” 40.11, allows the CFTC to prohibit event contracts that it deems “contrary to the public interest” — namely those related to terrorism, assassination, war, unlawful activity or gaming.
A portion of Kalshi’s argument rests on the idea that, while the rule lists “gaming” as a type of prohibited contract, the CFTC has to actually make that determination — that the commission may take action.
They have not done so with Kalshi’s sports contracts and so, the company argues, it is not in violation of the rule.
Many of Kalshi’s opponents believe that sports contracts fall squarely into this prohibited gaming category and that the CFTC is delinquent in not prohibiting them.
“Under the authority of the CEA, we believe the CFTC to not be doing its job,” says Joe Maloney of the American Gaming Association.
“It is the CFTC’s decision to decide whether or not what we’re offering is gaming and, at this point in time, they have not, they have not said anything,” says Kalshi’s Slane.
“It is not the states’ decision.”
To some, this raises concerns that regulation by the CFTC could be selective or arbitrary, particularly in an industry where the president’s family has direct ties to companies.
“The reason [this situation] even exists is the election of Trump, followed by the complete, not just lax enforcement, but total inaction taken by the CFTC,” says Daniel Wallach, a lawyer who specialises in gaming law.
Wallach contrasted Kalshi’s situation with an attempt by an exchange affiliated with Crypto.com to list sports contracts in the final days of the Biden administration, which was quickly shut down.
“Within a 15-day period, you see the same agency, with the same commissioners, taking wildly different stances as to the very same activity.”
Slane called the new administration “regulatorily friendly, a more friendly environment than previously”.
Judges have split on central legal questions.
One issue at the heart of all three district court cases is whether the CFTC’s authority pre-empts that of state regulators.
Courts in Nevada and New Jersey were sympathetic to Kalshi’s argument that the commission supersedes the states; the court in Maryland was not.
The cases pit states against a federal agency, and also a federal agency against federal courts.
The State of Maryland argued that the court has the power to enforce the “special rule” prohibiting certain events contracts, citing last year’s landmark Supreme Court decision overturning the legal doctrine that previously granted federal agencies wide latitude to set standards.
Other observers highlight how ill-equipped the CFTC would be as a de facto nationwide gaming regulator.
There is little institutional expertise on the topic, and it is a responsibility that the agency was never staffed for, even before recent departures.
Maloney, of the American Gaming Association, points out that the CFTC’s entire workforce barely outnumbers the number of gaming regulators in Pennsylvania alone.
He highlighted monitoring of gaming integrity — including the possible manipulation of sporting events — as a concern the agency would be particularly hard-pressed to handle.
Major US sports leagues raised similar concerns in letters to the CFTC this year ahead of a roundtable on sports trading that was eventually cancelled.
The NFL, NBA and MLB all expressed concerns that the commission, as currently configured, lacks the sports-specific controls and expertise to protect against “integrity concerns”.
Slane says that Kalshi has been working with the leagues and that they share the same goals.
As for the commission’s ability to regulate gambling, she says: “The CFTC oversees a multitrillion-dollar derivatives market.
They are well positioned to look for irregularities and certainly protect integrity of many industries. I’m not sure how sports are any different.”
Should Kalshi win its legal battle, a range of competitors are waiting in the wings to potentially expand their offerings.
Designated contract market status with the CFTC has suddenly become precious for the 23 exchanges that hold it, five of which have been approved this year.
Others are eager to join them.
Polymarket, the largest platform during the 2024 election, has manoeuvred to legalise its service for American customers by purchasing DCM-approved QCEX for $112mn.
Its website advertises that the platform will “soon be available for US traders”.
In August, Polymarket announced that Donald Trump Jr’s firm, 1789 Capital, would invest in the company and that he would join its advisory board.
And the 11-year-old exchange PredictIt was awarded its DCM status last week after a series of legal fights, and plans to relaunch an expanded platform in October.
The company would not comment on any planned new products, including sports markets.
In addition, investment platform Robinhood has launched prediction markets in partnership with Kalshi and recently filed parallel lawsuits in Nevada and New Jersey.
DraftKings and FanDuel, the largest traditional US sportsbooks, have each sought to partner with DCMs, without enduring the approval process themselves.
As the American football season begins, the legal questions still loom.
Congress could pass legislation clarifying the ambiguities at the heart of these court cases, though it appears unlikely to do so.
Failing that, fresh lawsuits between exchanges and states or tribal groups are likely, and they will wind their way through federal courts.
“It’s very likely you end up with a split-circuit decision,” says Melinda Roth, a law professor at Washington and Lee University.
“It’s the fastest way to get in front of the Supreme Court.”
The parties are preparing for this final fight.
If the case does end up before the country’s highest court, the parties will be well funded, with much sports-related money on the line.
“Because of tribal gaming, we have the revenue to take this claim up to the Supreme Court if we have to,” says Rocha of the IGA.
“You get the justice you can afford in this country, and $50bn allows us to buy a lot of justice.”
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