As the legislative season approaches, the pro-sports betting crowd is preparing to brandish an old argument - but with a new twist.
- Federally regulated prediction markets enable de facto sports wagering nationwide, which may create pressure for states that still prohibit it to legalize and regulate the activity.
- Lawmakers in holdout states like Minnesota have been citing prediction markets as another reason for legalization.
- Despite the new talking point, some analysts don't expect new states to legalize sports betting in 2026.
For years, proponents of legalizing sports betting in any given state have argued that it’s already happening via offshore sportsbooks or illegal bookies, so better to regulate and tax it than not. That argument has been at least partly responsible for most states legalizing sports betting, 39 and counting.
However, that still leaves 11 holdouts, and lawmakers in some of those states are preparing again to debate sports betting in their upcoming legislative sessions. This year, they’ll at least have one more argument to make, or another example of unauthorized wagering to which they can point at more vigorously.
You probably guessed what it is already: prediction markets.
Yes, federally regulated prediction markets, which allow people to bet “yes” or “no” on certain event outcomes, are offering de facto sports wagering all over the U.S. The exchanges have now been doing so for about a year, garnering more customers, traction, and publicity along the way.
One consulting group, Eilers & Krejcik Gaming, said in a report last month that annual trading volume for U.S. prediction markets could top $1 trillion by the end of the decade, approximately 44% of which would be attributable to sports. And one prediction market, Kalshi, announced Tuesday that its trading volume has hit $100 billion on an annualized basis. Sports event contracts have been the biggest driver of Kalshi's growth.
We've crossed $100B in annualized volume
— Kalshi (@Kalshi) January 6, 2026
Next stop: $1T pic.twitter.com/4CH3FUapKr
Last year, prediction markets were even more nascent and could have easily escaped the notice of state lawmakers during the debates around whether to legalize sports betting. This year, though, when someone uses the “it’s already happening” argument, they could very well mean prediction markets, too.
Some believe that the argument will carry weight with lawmakers in the states that have yet to legalize sports betting.
DraftKings is one such believer. With the prediction market argument in mind, the online sports betting operator recently launched its own “Predictions” app that offers sports event contracts for trading in states without legalized sports betting.
“As growth in Predictions continues, this may also motivate more states to legalize online sports betting and iGaming with reasonable regulation and taxation," DraftKings CEO Jason Robins wrote in a letter to shareholders in November.
The big question now is how effective this line of thinking can be in getting lawmakers in holdout states to legalize new forms of gambling. Those legislators have proved resistant to arguments involving offshore sportsbooks, sweepstakes casinos, and other forms of unauthorized or unwanted wagering. Will prediction markets really be the key that unlocks the door?
It’s time to find out.
Bill szn is back
Bills are being carried over, drafted, and prefiled ahead of legislative sessions. And while Texans and Californians may have to wait until 2027 or 2028, respectively, to see any movement (the Texas legislature has no regular session this year, and California sports betting will need to be settled at the ballot box), there are opportunities for legalization in smaller yet still significant markets such as Minnesota and Georgia.
Still, state lawmakers have plenty of other things to worry about beyond online sports betting.
In Minnesota, for example, Gov. Tim Walz announced on Monday he won't run for a third term and will instead focus on fighting fraud for the remainder of his time in office. Walz has said in the past he’d sign a sports betting bill into law, but it’s possible sports betting takes a back seat to other legislative priorities.
“A common talking point is prediction markets will push states to legalize sports betting … but these processes take time, and education around sports betting in general is a work in progress,” Citizens analyst Jordan Bender wrote in a note to clients Monday.
Prediction markets are also facing legal and regulatory pushback from several states. The legality of their sports event contracts, which resemble state-regulated sports betting, is being challenged and may not last.
In the meantime, the safest assumption to make this year may be that no new state legalizes sports betting. That indeed is what Citizens is calling for, with the investment bank saying that its “base case” for legalization is “nothing.”
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Managing (nonexistent) expectations
Those low expectations are even with the prediction market argument waiting to be made.
“Lawmakers are taking notice and could be an upside catalyst to our estimates, but … these bills take time, and we have taken a view not to add in sports betting into our models,” Bender wrote.
Even so, the new(ish) “talking point” about prediction markets has already made a few appearances.
Bender added that the Wisconsin sports betting legislation debated last year (which would authorize statewide mobile wagering through Native American gaming tribes) saw one lawmaker, Rep. Tyler August, declare, “If we leave a gray area in state law, national prediction platforms will fill it without our compact framework, Wisconsin oversight, or Wisconsin consumer safeguards.”
Sports betting supporters in Wisconsin were already making the "it's already happening" argument. Prediction markets will now be part of the case being made, alongside offshore sportsbooks and otherwise, as Wisconsin lawmakers prepare to examine online sports wagering legalization again in 2026.
“Based on some of the data that we've seen, this is an activity that's not declining,” Republican Sen. Howard Marklein, a sponsor of the online sports betting bill, told a Wisconsin committee in November. “It's increasing. And I think that it's appropriate for us to deal with this now, before it gets even bigger.”
The House Study Committee on Gaming in the State of Georgia didn't make any recommendations about gaming in the state of Georgia:https://t.co/vlbGCGKNv2 @Covers
— Geoff Zochodne (@GeoffZochodne) December 10, 2025
Similar noises have been made in nearby Minnesota, where legalizing any form of sports betting has proved challenging in the past.
Democratic-Farmer-Labor Rep. Brad Tabke said during a conference in September that prediction market-related developments help the “case for passing a sports betting bill in Minnesota.”
It’s likely, then, that prediction markets will be part of the legalization conversation should one be had in Minnesota this year. The same goes for Georgia, where some local lawmakers on a gaming study committee were briefed about the prediction market phenomenon.
So, will the threat of a federally regulated form of sports betting (via the Commodity Futures Trading Commission) finally be what gets holdout states to authorize their own sportsbooks? For some lawmakers, it’s an argument worth trying, at least.
“I want us in the state of Minnesota to have control and the ability to do as much as we possibly can from a state level,” Tabke said.
