Surging prediction markets face legal backlash in US: ‘Lines have been blurred'

• Kalshi's January trading volume reached nearly $10 billion (mostly sports-related), with over $1 billion traded during Super Bowl Sunday alone, as major operators like FanDuel and DraftKings launch competing platforms
• Unlike state-licensed sportsbooks (available at 21+ with consumer protections), prediction markets operate nationwide for users 18+ without state gambling taxes, age restrictions, or responsible gaming mandates
• Trump's CFTC has reversed course from the Biden administration, with new chair Michael Selig signaling support for event contracts and creating an advisory committee including CEOs from Kalshi, Polymarket, Coinbase, and FanDuel

Summary: US Prediction Markets Face Mounting Legal Challenges

Key Development: Prediction market platforms Kalshi and Polymarket are facing at least 20 federal lawsuits across the US as state regulators and lawmakers argue these platforms constitute illegal gambling operations disguised as financial exchanges.

Market Scale: The sector is experiencing explosive growth, with Kalshi alone recording nearly $10 billion in January 2025 trading volume, primarily sports-related. Over $1 billion was traded on Super Bowl Sunday. Established sportsbook operators including FanDuel, DraftKings, and Caesars have launched competing prediction platforms.

Core Dispute: These platforms classify offerings as "event derivatives" under federal commodities law (CFTC oversight), allowing them to operate nationwide for users 18+. State regulators contend they're unlicensed gambling operations that should face state-level regulation, taxation, and consumer protections like traditional sportsbooks (typically 21+ age requirement).

Legal Battles: Multiple states have secured preliminary victories. Nevada courts temporarily barred both platforms, while Texas obtained an injunction against Kalshi. Companies argue federal CFTC jurisdiction pre-empts state authority. Legal experts predict the dispute may reach the Supreme Court.

Regulatory Shift: Under the Trump administration, CFTC chair Michael Selig has signaled support for event contracts, withdrawing restrictive proposals and creating an advisory committee including prediction market CEOs. Notably, Chicago's CFTC enforcement office reportedly has no remaining attorneys.

Congressional Response: 23 Democratic senators and representatives from Nevada and New York have introduced legislation to restrict these platforms. Hawaii is considering measures to ban contracts on real-world outcomes.

Industry Concerns: The American Gaming Association argues platforms circumvent state sovereignty. Problem gambling advocates warn of addiction risks, with clinicians reporting patients increasingly identifying as "investors" rather than "gamblers." Insider trading concerns persist after controversial betting patterns on political events.