For most of the post-PASPA era, the conversation around legal sports wagering in the United States has been straightforward. States legalize, operators launch, tax revenue flows.
The product is sports betting, the framework is gambling regulation – and the regulators are state-level gaming commissions. That neat picture is now under serious pressure. And the source is not a sportsbook, it is a CFTC-regulated derivatives exchange called Kalshi.
In 2025, Kalshi processed roughly $23.8 billion in total notional trading volume, a year-over-year jump of more than 1,100 percent. Combined with its rival Polymarket, the two platforms generated more than $44 billion in trading volume over the year, with Super Bowl 60 alone producing $1.63 billion across event contracts.
By early 2026, Kalshi’s weekly volume was consistently topping $2.3 billion. For comparison, the entire US legal sports betting industry handle in a typical week sits in a similar range.
Prediction markets, in other words, have reached gambling-industry scale almost overnight.
The legal grey zone that made it possible
The structural advantage that prediction markets have over traditional sportsbooks is regulatory classification. Kalshi has held CFTC Designated Contract Market status since 2020, meaning its event contracts are treated as derivatives under federal law rather than as gambling products under state law.
This distinction allowed Kalshi to argue, successfully in federal court in 2024, that its contracts fall under exclusive CFTC jurisdiction and that state gambling regulators cannot block them.
The practical effect is that Kalshi operates in all 50 states -including Texas, California and Utah – where traditional sportsbooks remain illegal. For a sports bettor in a non-legalized state, the choice in 2026 is no longer “offshore platform or no betting.” It is “offshore platform, sweepstakes casino, or fully legal CFTC-regulated prediction market on a major team’s game outcome.”
When discussing this subject with Ziv Chen, author at Casino.com, he had the viewpoint that the prediction market expansion is the most significant structural change to US sports wagering since PASPA fell, precisely because it routes around the state-by-state model that built the modern industry.
His observation aligns with what regulatory analysts at the CFTC and state-level gaming commissions have been working through since early 2025. The legal frameworks that govern sportsbooks and prediction markets were designed in different decades for different purposes and the convergence is forcing both sides to catch up at speed.
The states are fighting back
That catch-up is currently messy. Several states, including Nevada, New Jersey, Massachusetts and Ohio, have sent cease-and-desist letters to Kalshi or pursued litigation arguing that its sports event contracts amount to unlicensed sports betting under state law.
Massachusetts and New York have lawsuits underway.
The CFTC, for its part, has filed amicus briefs supporting Kalshi’s position, with the agency arguing that prediction markets fall under exclusive federal jurisdiction.
In May 2026, CFTC Chair Michael Selig told Axios that prediction markets and sports betting are “two separate things” and should be regulated as financial products rather than as gambling.
That position is not universally shared in Washington.
Senator Adam Schiff (D-CA), who sits on the Senate Agriculture Committee overseeing the CFTC, has called Kalshi’s sports contracts “pretty indistinguishable” from sports betting and is pursuing bipartisan legislation that would ban sports event contracts at the federal level and return jurisdiction to the states.
The outcome of that political fight is genuinely uncertain. The legal infrastructure currently favors Kalshi, but the political infrastructure has been moving in the opposite direction.
What it means for the consumer
For everyday users, the distinction between betting on a team to win at FanDuel and trading a “will the team win” event contract on Kalshi has become functionally invisible. The interface is similar, the outcome is identical and the money flows the same way.
The consumer protection frameworks, however, are not equivalent.
Sportsbooks operate under state-level affordability checks, deposit limits, self-exclusion programs and dedicated problem gambling funding. Prediction markets operate under federal derivatives rules that were not designed with consumer protection in the gambling sense in mind.
This is the underappreciated story for college-age users in particular, who are now able to access prediction market platforms in states where traditional sports betting remains illegal or restricted. The infrastructure that has been built around responsible gambling at the state level does not automatically apply.
Where this is heading
A few outcomes look plausible from here. One is that Congress eventually acts, either by accepting prediction markets as a federally regulated category with new consumer protections layered on, or by carving sports contracts out of CFTC jurisdiction entirely.
Another is that the courts continue to side with Kalshi and the duopoly with Polymarket consolidates, capturing a meaningful share of what would otherwise be sportsbook handle.
A third is some hybrid where states win partial wins on consumer protection while federal regulators retain the underlying authority.
What is no longer plausible is the assumption that sports wagering in the United States is purely a state-level question. The prediction market story has changed that – and the implications are only beginning to be worked out.
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