Legislators are gonna legislate.
While prediction markets insist that they are federally regulated, state lawmakers are increasingly willing to wager that they have a say, too.
Bills have now popped up in several state legislatures that aim to regulate the activities of prediction markets and curtail the trading of sports-related event contracts, a controversial product offered by the exchanges that many states just see as online sports betting.
- Lawmakers in California, Kentucky, and Minnesota are introducing bills to regulate or restrict prediction markets, especially those tied to sports.
- Proposed measures include banning certain participants, taxing operators, limiting access for minors, and penalizing officials who might use insider information.
- Despite industry claims of federal protection, growing state-level action and legal challenges show increasing pressure on prediction markets’ future in the U.S.
In California, for example, two lawmakers recently introduced Assembly Bill 2617, the proposed "Protecting Kids from Online Gambling Act."
The legislation would prohibit companies from offering or advertising "online gambling activities or prediction market wagering” to someone under the age of 18. Before 2028, an operator would not be able to offer their services if they have "actual knowledge" a user is a minor, and then starting in 2028, they would need to "reasonably" determine someone isn't under 18 before allowing them to trade.
Failures to comply with the proposed law could result penalties that include a fine of $2,500 for each violation, as well as the possibility of legal claims by families for "three times the amount of the minor’s actual damages, including economic and noneconomic damages."
That seems reasonable enough, as 18 is the minimum age to use a prediction market like Kalshi anyway in California. However, another recently introduced California Assembly bill, 1840, would ban elected or appointed public officials in the state from making prediction market bets if it is "reasonably foreseeable" they have inside information on that subject.
While the California bills are still in the early innings in the legislature, other prediction market-related legislation in other states has made further progress.
Kentucky House passed a gaming reform bill that:
— Jessica Welman (@jesswelman) March 20, 2026
Taxes sports predictions at the same rate as sports betting
Prohibits any sportsbook in the state from partnering w/ a prediction market that offers ANY markets in KY for the next year
On Thursday, the Kentucky House of Representatives passed H.B. 904, which would prohibit horse racing, fantasy sports, and sports betting operators from participating in or partnering with prediction markets doing business in the state. The punishment for doing so could include the loss of a gambling license.
Starting July 2027, the prohibition on prediction market participation would expand to any participation, not just in Kentucky. Several state licensees have prediction markets of their own already, namely, DraftKings, Fanatics, and FanDuel.
Furthermore, the bill proposes a state-level tax on prediction market operators of 14.25% of their transaction fees, which would be the same rate that's used for Kentucky sports betting operators. So, not only would there be a ban on state licensees doing prediction markets, but there would be a tax added for prediction markets to boot.
But wait, there's more!
There are a couple pieces of prediction market-related legislation that have been introduced in the Minnesota legislature as well. S.F. 4511 and its House counterpart would make it a felony to offer "contracts that relate to the outcomes of specific athletic events or nonathletic sporting events or events within an athletic event or nonathletic sporting event or events."
A bill that aims to authorize online sports betting in Minnesota, S.F. 4139, would explicitly exclude “a peer-to-peer wager placed on a betting exchange” from legal status as well.
There is no guarantee any of the above becomes law, but the fact that these bills are being introduced at all suggests state lawmakers have plenty of concern and interest in doing something about prediction markets. The fact that prediction market operators have argued they exist above state-level regulation isn’t stopping that from happening.
BREAKING: Nevada state court issues TRO barring Kalshi from offering event-based contracts relating to sports, politics and entertainment to people within Nevada without first obtaining all required licenses. TRO remains in effect for 14 days pending hearing on PI motion. pic.twitter.com/IUOYT8VEA3
— Daniel Wallach (@WALLACHLEGAL) March 20, 2026
Moreover, all of this state-level legislation is in addition to proposed federal legislation for prediction markets. There is also the growing number of cease-and-desist letters and lawsuits that involve state gambling regulators and the exchanges. Time will tell whether prediction markets can claim they are broadly shielded by a federal umbrella forever.
For the moment, though, prediction markets remain active all over the U.S., and they are facilitating a lot of wagering on sports. Valuations are rising, and partnerships are forming that suggest people see a future for the exchanges.
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Everybody's doing it
The Commodity Futures Trading Commission, the federal regulator of prediction markets, has defended both its regulatory turf and sports event contracts in court.
Meanwhile, the fact that big, state-licensed brands such as DraftKings and FanDuel are getting involved in a big way as well (albeit while trying to avoid irking state regulators) suggests they see it as relatively safe to do so, at least for now.
“What they’re telling us is, by and large, they don’t foresee any immediate consequence,” said Josh Kirschner, partner at law firm Nelson Mullins, during a panel at the NEXT conference last week.
