Prediction markets vs. sportsbooks
Sportsbooks are licensed by the states, and online sports betting is legal in 34 states and DC. Prediction markets are exchanges regulated by the federal Commodity Futures Trading Commission, and they sell contracts on game results in every state, including those where sports betting is illegal. States say that is unlicensed sports betting; 23 states are fighting it, and federal appeals courts have split.
How they differ
| Sportsbook | Prediction market | |
|---|---|---|
| Regulator | State gaming regulator | Commodity Futures Trading Commission (federal) |
| Where available | Only in states that license it (34 states and DC for online betting) | Nationwide, including states without legal sports betting |
| Who takes the other side | The sportsbook, which sets the odds | Other traders, matched by the exchange, which charges a fee |
| Price | Odds, with the sportsbook's margin built in | A contract price from 1¢ to 99¢ that pays $1 if the outcome happens |
| Getting out early | Cash-out at a price the sportsbook offers, where available | Sell the contract whenever there is a buyer |
| Minimum age | 21 in most states | Set by the exchange, often 18 |
| State tax | State gaming tax on revenue | No state gaming tax; Kentucky's 2026 excise tax is being challenged by the CFTC |
| Self-exclusion | Covered by state self-exclusion programs | Not covered by state programs |
How big each is
In August 2026, U.S. prediction-market exchanges traded $45.1B in contracts. Legal online sportsbooks in the 19 states that report it took $6.2B in bets. The figures aren't directly comparable: exchange volume counts each contract at its $1 payout, which both sides paid together, while sportsbook handle counts only the bettor's stake. Monthly chart →
Where states are fighting them
Status and state actions in every state → · Online sports betting by state →
The legal questions
| Question | Where the courts are |
|---|---|
| Does the Commodity Exchange Act's exclusive-jurisdiction clause preempt state gambling and sports-wagering law as applied to CFTC-registered sports event contracts? | Split. The Third Circuit held the CEA likely preempts New Jersey's gambling law as applied to Kalshi's contracts (KalshiEX v. Flaherty, Apr. 2026). The Ninth Circuit (KalshiEX v. Assad) and Sixth Circuit (KalshiEX v. Schuler) held the CEA does not preempt state gambling-law enforcement, reasoning the contracts are not swaps and, separately, that the Act does not occupy the field of gambling regardless. |
| Are sports event contracts "swaps" or futures on a "commodity" within the CEA, so that federal jurisdiction attaches at all? | Mostly against industry. The Ninth and Sixth Circuits, plus federal district judges in Iowa, Ohio and Nevada, have held sports-event contracts are unlikely to be "swaps"; the Third Circuit's Flaherty majority concluded they likely are. |
| Does CFTC Rule 40.11 and the CEA's "Special Rule" (7 U.S.C. § 7a-2(c)(5)(C)) bar sports event contracts as impermissible "gaming," independent of the swap question? | Largely untested on the merits. The D.C. district court's 2024 ruling for Kalshi addressed only election contracts, holding elections are not "gaming," and did not reach whether sports contracts are. |
| Does the Indian Gaming Regulatory Act give tribes exclusive authority over gaming reaching Indian lands that these exchanges violate, regardless of CEA preemption? | Mostly unresolved. In September 2026 the Ninth Circuit held the California tribes are likely to succeed on their claim that Kalshi's sports contracts are unauthorized Class III gaming when accessed from tribal lands, and sent the case back to the district court. The Wisconsin and New Mexico tribal suits were still pending. |
| Can a state tax or impose added conditions on CFTC-registered exchanges (e.g., Kentucky's 2026 excise tax and event-contract restrictions) without being preempted? | CFTC v. Kentucky was filed June 23, 2026; no ruling had issued as of October 2026. |
| Does a CFTC-registered exchange's "designated contract market" status let it override a state's own licensing requirement for anyone offering sports wagers? | Split along the same lines as the preemption question; no court has held DCM status alone displaces state licensing without also finding the contracts are federally regulated swaps. |
Cases, arguments on each side and the full timeline →
Questions
Are prediction markets legal?
They are federally regulated exchanges, but whether they can offer sports contracts in a state without a state license is being decided in court. 23 states have sued, sent cease-and-desist letters or otherwise contested them, and the federal appeals courts that have ruled are split.
What is the difference between a prediction market and a sportsbook?
A sportsbook takes your bet and sets the odds itself, under a state license. A prediction market lists contracts that pay $1 if an event happens, and you trade them with other people on an exchange regulated by the CFTC instead of a state.