Are Prediction Markets Legal? US Laws, State Rules & Platform Legality Explained

Prediction markets are legal at the federal level when operated on exchanges regulated by the Commodity Futures Trading Commission (CFTC), which holds exclusive jurisdiction over these event contract markets. However, legality varies significantly by platform, contract type, and state jurisdiction.

As of March 2026, a growing number of federal lawsuits (at least 20) have been filed nationwide, with a 37-state coalition actively challenging the industry's claim that federal oversight preempts state gambling laws. This ongoing litigation highlights the complex and rapidly shifting legal landscape.

This guide provides a comprehensive overview of how prediction markets are regulated, which platforms are legally operating, how legality differs by state, and the future direction of this innovative but contested business.

Note: This page provides educational information about the current regulatory framework. It does not constitute legal advice. Regulations change frequently; verify current laws in your jurisdiction before trading.

What Laws Govern Prediction Markets in the United States?

Prediction markets in the United States operate under a regulatory framework that spans federal derivatives law, state gambling statutes, and securities oversight. Understanding this framework is essential because the same product, an event contract, can be classified as a legal financial derivative, an illegal sports bet, or something in between, depending on who is interpreting the law.

Federal Regulation

At the federal level, most prediction markets fall under derivatives regulation overseen by the CFTC. The CFTC classifies prediction market contracts as event contracts, a type of financial derivative whose payoff is based on a specified real-world event, occurrence, or value. These contracts are structured as binary options: the contract pays a fixed amount (typically $1.00) if the underlying event occurs, and $0.00 if it does not.

Event contracts can be tied to a wide range of outcomes:

• Economic indicators: Federal Reserve rate decisions, inflation readings, GDP data
• Election outcomes: Presidential, congressional, and gubernatorial races
• Policy decisions: Government shutdowns, executive orders, Supreme Court rulings
• Sports outcomes: Game results, player performances, season awards
• Cultural events: Award shows, speeches, entertainment milestones

Under the Commodity Exchange Act (CEA), event contracts must be listed and traded on CFTC-registered Designated Contract Markets (DCMs) and cleared through a Derivatives Clearing Organization (DCO). This subjects them to the full range of CFTC market-integrity rules, including surveillance, reporting, and protections against market manipulation such as wash trading and spoofing.​

The Gambling vs. Derivatives Debate

Not all prediction markets are treated the same. The central legal question is whether certain event contracts, particularly those tied to sports outcomes, constitute "gaming" under Section 5c(c)(5)(C) of the Commodity Exchange Act. This section authorizes the CFTC to prohibit event contracts that involve gaming, terrorism, assassination, war, or activity that is unlawful under federal or state law.

The definition of "gaming" is where the legal battle begins. State regulators argue that contracts on sporting events are fundamentally wagers, money staked on the outcome of a contest, and should be regulated under state gambling laws. Platform operators argue their products are financial derivatives regulated exclusively at the federal level and are fundamentally different from sports bets offered by licensed sportsbooks.

This distinction matters because it determines who has the authority to regulate prediction markets: the federal government or the states.

The Role of the CFTC in Prediction Markets

The Commodity Futures Trading Commission (CFTC) is an independent federal agency that has regulated U.S. derivatives markets since 1974. Under the Commodity Exchange Act, the CFTC has broad authority over contracts based on commodities, a term Congress defined expansively to include virtually any good, article, service, right, or interest.

Why the CFTC Regulates Event Contracts

The CFTC's authority over prediction markets traces back to 1992, when it first recognized event contracts by allowing the Iowa Electronic Markets, a futures market at the University of Iowa where traders could buy and sell contracts pegged to presidential elections and corporate earnings. Congress later codified this authority through the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which expressly granted the CFTC comprehensive authority over contracts based on commodities, including event outcomes.​

The CFTC determines whether a specific event contract is permitted under federal law by evaluating whether it falls within the prohibited categories of Section 5c(c)(5)(C). In 2024, under the Biden administration, the CFTC proposed a rule that would have broadly prohibited sports-related and political event contracts by defining them as "gaming".

The 2026 Policy Reversal

In January 2026, newly appointed CFTC Chairman Michael S. Selig fundamentally changed the agency's direction:

• Withdrew the 2024 proposed ban on sports and politics event contracts​
• Rescinded a 2025 staff advisory that had cautioned platforms against offering sports-related contracts​
• Announced new rulemaking to establish "clear standards for event contracts that provide certainty to market participants"​
• Asserted exclusive federal jurisdiction over prediction markets, directing staff to intervene in court cases where states attempt to regulate CFTC-registered exchanges

On February 5, 2026, the CFTC filed an amicus brief in the U.S. Court of Appeals for the Ninth Circuit supporting Crypto.com against Nevada's enforcement action, arguing that "states cannot invade the CFTC's exclusive jurisdiction over CFTC-regulated designated contract markets by re-characterizing swaps trading on DCMs as illegal gambling".​

This policy shift represents the most significant change in prediction market regulation in years. However, it does not resolve the underlying legal battles; it intensifies them.

Platforms that operate as CFTC-registered DCMs, such as Kalshi, are legal at the federal level and can technically offer contracts in all 50 states. However, several states have taken enforcement action, arguing that certain contracts (particularly sports-related ones) violate state gambling laws, regardless of federal registration.

Platforms that operate outside the CFTC framework, historically including Polymarket before its 2025 restructuring, exist in a legal gray area where federal and state regulations may not provide clear authorization.​

The core unresolved question is one of federal preemption: Does the CFTC's exclusive jurisdiction over derivatives automatically prevent states from regulating prediction markets as gambling? Federal courts in different jurisdictions have reached opposite conclusions: a Nevada court ruled that federal law preempts state gambling law, while a Maryland court ruled that the CEA preserves state authority. This split makes it increasingly likely the question will reach the U.S. Supreme Court, though a definitive ruling may not come until 2027 or later.

Prediction Markets Legal by State

Even when a platform is federally regulated, state laws can restrict or prohibit access. States with legal, regulated sports betting industries have been the most aggressive in challenging prediction markets, arguing that sports event contracts bypass state licensing requirements, consumer protections, tax structures, and age restrictions.

As of March 2026, the state-by-state landscape falls into several broad categories:

Why Prediction Market Regulation Is Controversial

The debate over prediction market legality touches on fundamental questions about the boundaries between financial markets and gambling.

The Case That Prediction Markets Are Gambling

State regulators, tribal gaming interests, and gambling-harm advocacy groups argue that prediction markets are functionally identical to sports betting:

• Users stake money on the outcome of real-world events, the defining characteristic of a wager
• Sports event contracts produce the same financial outcome as a sports bet: win or lose based on a game result
• Prediction market platforms allow 18-year-olds to trade, while most states require bettors to be 21
• Platforms use marketing and UX patterns similar to sportsbooks, raising addiction concerns
• The products bypass state licensing, taxation, consumer protection, and integrity frameworks that took years to establish​

Nevada Gaming Control Board Chairman Mike Dreitzer summarized this position: "It's our perspective that this is sports betting, pure and simple. Money is wagered based on the results of sporting events, which constitutes sports betting outside of state oversight".​

Utah Governor Spencer Cox was more direct: "These prediction markets you are vigorously defending are gambling, plain and simple. They are ruining the lives of families and countless Americans, particularly young men".​

The Case That Prediction Markets Are Financial Instruments

Platform operators, the CFTC, and the Coalition for Prediction Markets argue that event contracts are derivatives, not gambling products:

• Event contracts are structured as swaps traded on CFTC-regulated exchanges with full market-integrity oversight​
• Traders can exit positions at any time (unlike locked-in sports bets), making them functionally similar to futures contracts​
• Prediction markets serve legitimate economic functions: hedging event-driven risk, managing portfolio exposure, and providing public information about the likelihood of future events​
• The CFTC has recognized event contracts since 1992, and Congress expressly granted it authority over these products in the Dodd-Frank Act​
• A patchwork of 50 different state regulations would create inconsistency, push activity offshore, and reduce consumer protections​

The Coalition for Prediction Markets argues that "state casino regulators are attempting to impose gambling-style oversight on federally supervised prediction markets, creating confusion and undermining the existing federal framework".​

The Political Dimension

The debate has become increasingly partisan. The CFTC under Chairman Selig (appointed by the Trump administration) has taken an aggressively pro-market stance, asserting exclusive federal jurisdiction and filing court briefs against state regulators. Meanwhile, the "Gambling Is Not Investing" coalition launched in March 2026 to push back, arguing that prediction markets promote unlawful sports wagering and need state-level oversight.

Separately, the U.S. Attorney for the Southern District of New York, Jay Clayton, announced in February 2026 that his office is scrutinizing prediction markets under fraud statutes, warning that "placing a bet through a prediction market doesn't insulate you from fraud". This signals that even beyond the state vs. federal debate, operators face potential DOJ enforcement around insider trading and market manipulation.​

Congressman Ritchie Torres introduced the "Public Integrity in Financial Prediction Markets Act of 2026" to prohibit government employees with access to material non-public information from trading on event contracts.​

The Future of Prediction Market Regulation

The regulatory environment for prediction markets is at an inflection point. Several developments will determine the industry's trajectory over the coming months and years.

Imminent CFTC Rulemaking

The CFTC has signaled it will soon advance a formal rulemaking proposal for event contracts. Chairman Selig's January 2026 remarks outlined a four-part regulatory agenda focused on withdrawing prior restrictions, asserting federal jurisdiction, establishing clear standards, and supporting responsible market development. This rulemaking is expected to draw significant industry comment and could face judicial challenge regardless of its content.

Escalating State Litigation

With at least 20 federal lawsuits filed, and a 37-state coalition plus DC formally opposing federal preemption, the legal battles are intensifying rather than cooling. Key cases to watch:

• Ninth Circuit (Nevada): CFTC filed amicus brief supporting federal preemption; ruling could set precedent for western states​
• Fourth Circuit (Maryland): 37-state coalition filed amicus brief supporting state authority​
• Massachusetts state and federal courts: Multiple parallel cases involving Kalshi, Polymarket, and Robinhood

Potential Supreme Court Resolution

Legal analysts widely believe the federal preemption question will ultimately reach the U.S. Supreme Court. Federal courts in different circuits have reached contradictory conclusions, a classic trigger for Supreme Court review. However, a definitive ruling may not come until 2027 or later as cases work through the appellate process.

Growing State Legislative Activity

States are not waiting for courts. Hawaii, Connecticut, New York, and Illinois have all advanced legislation to restrict or ban prediction markets in 2026. If Hawaii's HB 2198 passes, it would become the first state to enact a legislative ban on prediction markets.

Industry Expansion Despite Uncertainty

Despite the legal headwinds, the industry continues to grow. FanDuel is prepared to invest $300 million in prediction markets. DraftKings launched in 38 states. Polymarket reentered the U.S. with CFTC approval. Prediction market trading volumes reached $44 billion in 2025. The gap between industry growth and regulatory clarity is widening, which is precisely what makes the current moment so significant.

The most likely near-term outcome is continued uncertainty: a patchwork of court rulings, state enforcement actions, and federal rulemaking that creates different rules in different jurisdictions. For users, this means checking the current legal status in your specific state before trading and monitoring developments as the regulatory landscape evolves.