how are prediction markets legal (2026)
Prediction markets like Kalshi and Polymarket operate legally in the United States because they’re regulated as commodities derivatives markets under federal law, specifically the Commodity Exchange Act, rather than as gambling under state law. The Commodity Futures Trading Commission (CFTC) oversees these platforms the same way it oversees futures exchanges, and that federal framework is the legal foundation the entire industry rests on. States that treat betting on sports or elections as gambling see it differently, which is why lawsuits and cease-and-desist orders have become part of the story.
The legal framework: commodities law, not gambling law
Gambling in the US is regulated almost entirely at the state level. Sports betting, for instance, only became widely legal after the Supreme Court struck down the federal sports betting ban in Murphy v. NCAA (2018), and each state since then has had to pass its own laws and issue its own licenses.
Prediction markets took a different route. Instead of asking states for gambling licenses, platforms structure their products as “event contracts,” a category of derivative the CFTC already regulates under the Commodity Exchange Act (CEA). A derivative contract that pays out based on whether a specific, verifiable event happens or not fits the CFTC’s existing legal definitions, similar to how a futures contract pays out based on the price of oil or corn.
What makes an event contract different from a bet
Legally, the distinction the CFTC and the platforms draw is:
- A sportsbook takes the other side of your wager, sets odds, and pays out based on a fixed line.
- An event contract is a tradable share, priced by the market itself (between roughly 1 cent and 99 cents), that pays exactly $1 if the underlying event happens and $0 if it doesn’t. Traders buy and sell shares to each other on an exchange, and the platform earns fees rather than acting as the house.
That structure lets the platforms argue their product looks and functions like futures trading on the Chicago Mercantile Exchange, not like a parlay bet at a casino sportsbook.
How platforms actually get approved
To legally list these contracts, a platform generally needs to operate as a CFTC-registered exchange, either as a Designated Contract Market (DCM) or through a similar registration category. Kalshi holds DCM status, which lets it list new contracts through a process called self-certification: the exchange files the contract terms with the CFTC and can list it unless the agency objects within a set review window.
This is a lighter-touch process than getting a new gambling product approved state by state, and it’s a major reason these platforms scaled to all 50 states quickly while state-licensed sportsbooks are still rolling out market by market.
The carve-out that’s fueling the current fight
The CEA gives the CFTC authority to prohibit event contracts tied to certain categories, including gaming, war, terrorism, assassination, and activity that’s “unlawful” under state or federal law. For years, that provision kept prediction markets away from sports betting and, at times, elections.
That changed after Kalshi sued the CFTC over its attempt to block election-related contracts. In 2024, a federal court sided with Kalshi, and the CFTC (under new leadership in 2025) largely stopped contesting the listing of election and, later, sports-related event contracts. That decision opened the door for Kalshi and Polymarket to list contracts tied to NFL games, college football, the Super Bowl, awards shows, and similar sports outcomes.
Why states are pushing back
Several state gaming regulators, including in Nevada, New Jersey, and Maryland, sent cease-and-desist letters to Kalshi arguing that sports event contracts are functionally sports betting and require a state gambling license, which Kalshi doesn’t hold. Some states have gone further with lawsuits or attempts to block the platforms outright.
The platforms’ counterargument is federal preemption: because the CEA gives the CFTC exclusive jurisdiction over commodities and derivatives, state gambling law can’t override a product that’s legally structured and federally approved as an event contract. That’s the live legal question courts are working through right now, and outcomes are inconsistent state to state while cases proceed.
Where things actually stand for traders
The practical result is a patchwork:
- Election, weather, economic, and pop-culture markets are broadly available nationwide with little state-level pushback.
- Sports contracts are live in most states but suspended or contested in a handful where regulators or courts have intervened, and that list changes as litigation moves forward.
- Access can differ by platform. Kalshi and Polymarket don’t always have the same footprint in the same state, since each has faced different legal challenges.
Anyone using these platforms should check current availability directly on the app rather than relying on a snapshot, since a state’s status can flip after a court ruling or a new regulatory filing.
What to check before you trade
- Age and ID verification. Platforms require users to be 18 or older and complete identity verification tied to a US address.
- Contract terms. Read how the contract resolves, what source determines the outcome, and when trading closes, since these details are set by the exchange, not negotiated with another bettor.
- Tax treatment. Gains on event contracts are generally taxable, and platforms typically issue tax forms similar to other trading accounts, separate from how casino or sportsbook winnings get reported.
- State status. If you’re in a state with active litigation against sports contracts, that market may be paused or geofenced even if your account is otherwise active.
