NEW YORK – Prediction markets’ rapid expansion could jeopardize their long-term viability with state-level regulators, should their legality be overturned by courts, or challenged by political leaders, gaming industry figures stressed during a gaming industry conference Wednesday.
Key Takeaways
- Prediction markets’ rapid growth is creating legal and political risks that could threaten their long-term viability if courts or regulators rule against them.
- More than a dozen states are challenging sports event contracts in court, with many observers expecting the Supreme Court to ultimately decide their legality.
- Political shifts, including changes to the CFTC or Congress, could also restrict prediction markets and create conflicts with state-regulated sportsbooks.
Leading prediction markets including Kalshi and Polymarket have accepted tens of billions of dollars’ worth of event contracts in the past 12 months, with more than 80% coming from sports event contracts.
Both companies are reportedly raising funding that would put their respective valuations around $20 billion – while becoming a major factor in the more than 50% drop in stock prices for DraftKings and FanDuel’s parent company, the two U.S. market share leaders, over the past 12 months.
The Trump Administration’s support for these platforms and their argument they are subject exclusively to federal regulations have further bolstered their standing.
In response, DraftKings and FanDuel launched their own sports event contract platforms in December 2025. Though these could help compete in the booming prediction market space, some gaming industry stakeholders caution this move could lead to issues should pending court rulings go against the markets, or if a future administration takes a different regulatory approach.
Speaking during a panel of the NEXT Summit NYC gaming industry conference Wednesday, Play’n Go Chief of Government Affairs, Shawn Fluharty said prediction market launches by licensed sportsbooks could alienate state regulators and jeopardize their viability in the nearly 40 states with legal sports betting.
Enjoying Covers content? Add us as a preferred source on your Google account“It's a short-term bet, but it's a long-term problem that's not going to play well long-term,” Fluharty said.
Prediction market court challenges
Nationwide court battles have become a constant undercurrent of prediction markets.
More than a dozen states are challenging the legality of sports event contracts, arguing they circumvent state-level regulations and act as unlicensed sportsbooks. States with existing sports betting regulations such as Nevada and those that have prohibited books such as Utah have filed lawsuits or announced plans to do so.
The leading prediction markets, which allow users to trade on the outcome of sporting events, have maintained they are akin to asset exchanges and are subject exclusively to the federal Commodities Futures Trading Commission. The CFTC, whose chair was appointed by Trump, have fought to maintain this position in court.
The earliest we could see a Supreme Court case on prediction markets is late 2027, gaming industry lobbyist Bill Pascrell III said during today's NEXT Summit NYC
— Ryan Butler (@ButlerBets) March 11, 2026
Because the courts have not made a final ruling, these platforms remain technically legal. DraftKings and FanDuel have stressed that their markets don’t run afoul of any state where they are regulated – they both severed all gaming relationships in Nevada to assure that status.
But that could change in the eyes of the courts.
Conflicting rulings for and against the prediction markets in multiple courts have increased what appears to be an inevitable decision by the Supreme Court. Such a determination is unlikely until at least 2027 or 2028.
In the meantime, a potential sweeping legal ban hangs over the industry’s fate. Companies are investing hundreds of millions in the platforms, underscoring their confidence in an ultimate court vindication, but third-party observers agree a final determination remains uncertain.
Poltics play role
Politics will also play a role, Fluharty said Wednesday.
Prediction markets have grown in part because of the federal government’s strong support. Just as the current Trump Administration has supported these markets, a future administration in 2029 could go against them, Fluharty said.
The CFTC has allowed operators wide-reaching self-determination in the types of contracts they can offer. A future CFTC, within its regulatory purview, could give each contract far greater scrutiny – or seek to prohibit them entirely.
And though less likely, a future Congress could also take a more hands-on approach. Prediction markets have relied on an interpretation of current law that gives them the leeway to offer sports event contracts. While Congressional action is difficult, the body has the power to pass legislation that alters or eliminates that provision.
Through action by the courts, presidential administration or Congress, Fluharty said there are existential challenges that are not being properly accounted for by prediction market operators. A future limitation or ban could create a dilemma for the companies that offered these event contracts while looking to maintain their state-level licenses.
Prediction markets don’t pay state-level sports betting taxes. Fluharty, a member of the West Virginia House of Delegates, estimated that prediction markets had cost states $600 million in tax revenues since they launched sports event contracts in February 2025.
“How are states going to react to these companies that have essentially carved themselves out of regulations, or, that at best, are trying to play outside the bounds of policy that’s in place,” Fluharty said. “Don't you think they're going to be a little angry?
Actions already taken
It remains to be seen what, if any, action state regulators would take if prediction markets are forced so stop offering sports event contracts. Multiple state regulators have threatened license forfeiture for any prediction market operator, but none have acted against any legal sportsbook.
Prediction markets led FanDuel and DraftKings to leave the American Gaming Association, the nation’s leading industry advocacy group. The AGA has helped lead the pushback against sports event contracts, a position organization officials reiterated during Wednesday’s conference, again arguing sports bets are not comparable to derivatives trades.
"LeBron James recording 10 rebounds is not a financial derivative, it’s a sports bet." - American Gaming Association VP Tres York
— Ryan Butler (@ButlerBets) March 11, 2026
This sentiment is part of a growing trend across much of the legacy gaming establishment, particularly companies with significant brick-and-mortar assets such as MGM and Caesars. Representatives from those two companies, the largest operators on the Las Vegas Strip, reaffirmed during this week’s conference they had no plans to launch prediction markets while their legality remains unsettled.
As these stakeholders work to combat prediction markets in the courts, some are warning about the multifaceted risks they pose to the existing state-by-state sports betting structure that has accepted more than $300 billion in bets in the past two years. As well as the well-documented legal battles, the potential for drastic political changes also presents a sizable risk.
“We govern by guardrails and not blindfolds, and how we're doing this and how we're handling this right now is purely blindfolds,” Fluharty said. “At some point, the guardrails will come back into place.”
