From the gray area to the mainstream track? The war for the legalization of sports prediction markets and the future landscape.

Original Title: New Battlegrounds: Can Prediction Markets Stir the Deep Waters of American Sports Commerce?

Original author: Zen

Source of the original text:

Reprint: Daisy, Mars Finance

As Kalshi and Polymarket further extend their business focus into the sports sector, the prediction market has reached a turning point this year with both volume and price on the rise: media reports that Polymarket is negotiating a new round of financing with a target valuation of $12-15 billion; Kalshi completed new financing in the middle of the year, with a company valuation of about $2 billion.

At the same time, the monthly transaction volume and daily active users of leading platforms have significantly increased. According to The Wall Street Journal, the combined transaction volume of the two major platforms surged by over 90% month-on-month in October; and most of Kalshi's trading volume growth comes from sports contracts, making sports prediction the main engine of its growth.

Under the dual drive of industry and capital, Kalshi and Polymarket began seeking official cooperation and endorsement from major sports leagues.

Take the first shot, NHL takes the lead in partnering with prediction market.

The early adopter of the emerging category of prediction market is the National Hockey League (NHL), which has the lowest commercial value among the four major North American sports leagues.

In late October, the NHL announced a multi-year partnership with two prediction market platforms, Kalshi and Polymarket, becoming the first major sports league to collaborate with such platforms.

This collaboration is seen as a signal that prediction markets are increasingly being valued by the sports industry. Through this milestone agreement, the NHL grants Kalshi and Polymarket the rights to use the league's official data, logos, and names, and allows them to display branding during live game broadcasts.

NHL President of Business Keith Wachtel stated that, for the time being, the prediction market has not negatively impacted the league's existing 10 official sports betting partners, but rather has brought incremental growth to the entire ecosystem. Sara Slane, Head of Business Development at Kalshi, claimed that this move validates the legitimacy of their business model.

The operation of prediction market platforms differs from traditional sports betting companies. These platforms allow users to buy and sell “yes/no” contracts on the outcomes of specific events (including sports matches), with prices fluctuating dynamically based on market expectations.

For example, on Kalshi, users can trade contracts like “whether a team can win the championship,” with prices fluctuating based on the progress of the game and probabilities. This trading mechanism is similar to how betting companies adjust odds based on game conditions, but prediction contracts are positioned as financial derivatives regulated by the Commodity Futures Trading Commission (CFTC), rather than as gambling bets. This regulatory difference allows Kalshi and Polymarket to operate without obtaining sports betting licenses in various states, making prediction markets theoretically available to local users even in areas like California and Texas where sports betting is prohibited.

Therefore, the HNL alliance believes that introducing prediction markets will help attract a new audience proficient in technology and finance, allowing more fans to engage in the game in new ways. Through formal cooperation, the NHL can also have a say in market contracts related to the league on the platform, preventing the emergence of betting types that could harm the integrity of the game. For example, given that certain markets related to individual performances or lineups may provoke insider information and moral hazards, the NHL can have more say over the types of markets related to the league through official cooperation.

In addition, the NHL has requested that Kalshi and Polymarket adhere to the same integrity monitoring standards as its official betting partners, including measures such as using league-approved data providers and monitoring systems for unusual betting patterns. NHL President of Business Keith Wachtel emphasized that collaboration with prediction markets allows the league to better maintain sports integrity, as “we, as a league, can participate in deciding which markets can be launched, which benefits the NHL and all sports organizations.”

Questions and observations regarding the NBA, NFL, and MLB

Compared to the NHL's open attitude, the other three major professional sports leagues in the United States—NBA, NFL, and MLB—appear cautious and resistant regarding prediction market issues.

The three major leagues have not only failed to establish official partnerships with any prediction markets but have also expressed their concerns about such platforms through various channels. Earlier this year, the NBA, NFL, and MLB each sent letters to the CFTC, emphasizing the importance of protecting the integrity of sports in this emerging market.

The stance of the NFL is quite representative. Jonathan D. Nabavi, the NFL's public policy chief, emphasized in his written comments to the CFTC that such contracts “effectively simulate sports betting but lack the full integrity and consumer protection mechanisms that regulated sports betting has.”

At the same time, NFL Sports Betting Vice President David Highhill stated in a media interview that the league will treat prediction markets as regulated gambling and is concerned about issues such as “manipulation or price distortion if regulation is insufficient”; therefore, it should have the same level of protection and risk control standards as state-licensed sports betting.

The NBA and MLB also hold a similar attitude. Although neither has publicly elaborated on their position yet, it is clear from their communication with the CFTC and industry feedback that the core concern of these two major leagues lies in game integrity and regulatory vacuum. They question: If fans and investors can bypass state laws to bet on game outcomes on these platforms, how can the leagues ensure that insider information is not exploited and that game results are not manipulated?

The cautiousness of the three major leagues is not without reason. Especially with the NBA experiencing a series of scandals in the past two years, there have been significant incidents involving the use of non-public injury and attendance information, such as “whether to play/when to leave the game,” for betting arbitrage.

From a more realistic business perspective, the three major leagues have deep cooperative relationships with traditional bookmakers, investing a significant amount of resources to form a standardized gambling system. The “grey area” gameplay of the prediction market platform seems to bypass state laws and league agreements, which naturally raises the vigilance of the management of the three major leagues.

However, the temporarily closed doors still have the possibility of opening. Historically, the NFL strongly resisted the legalization of sports betting before 2018, and then gradually established cooperative relationships with the compliant betting ecosystem, indicating that its attitude will adjust as regulatory and risk control conditions mature.

NBA President Adam Silver's views may be more open-minded. He has advocated for recognizing and regulating the betting market since the early days of gambling legalization. Therefore, his attitude towards prediction markets is likely not to be rigid, and the key may lie in whether there is a clear regulatory framework and a controllable operational model.

The gaming industry association strongly criticizes, stating that it focuses on the risks of sports integrity.

Compared to the wait-and-see attitude of sports leagues, the U.S. gambling industry is the most reactive camp. The authoritative organization in the industry, the American Gaming Association (AGA), holds a strong critical stance towards prediction market platforms like Kalshi and Polymarket.

After the NHL announced its collaboration with Kalshi and Polymarket, AGA Chairman Bill Miller publicly stated that the move is “extremely disappointing and very dangerous.” He denounced these prediction markets as “backdoor gambling schemes disguised as 'financial products',” warning the NHL that this sends a bad signal to the outside world: as if integrity, responsibility, and clear legality have become optional in the field of sports betting.

AGA stated that its primary concerns are the integrity risks of sporting events and consumer protection issues. The association pointed out that the United States has spent seven years establishing “the most robust and transparent legal sports betting market in the world,” which includes strict integrity monitoring, responsible gambling measures, and consumer rights protection.

Both Kalshi and Polymarket operate nationally by circumventing state regulations, effectively avoiding state-level scrutiny and restrictions. Miller questions the lack of stringent compliance reviews and player protection mechanisms required by state gaming regulators on these platforms, which may become breeding grounds for illegal activities.

For example, how can we ensure that minors do not participate in trading without state regulation? How can we prevent behaviors such as betting for profit using insider information or large-scale market manipulation? AGA believes that these are all unresolved risk points.

AGA further stated that commodity futures regulators do not have the deep event monitoring and violation enforcement capabilities that state gaming regulators possess, and placing sports betting under CFTC jurisdiction may struggle to effectively maintain the integrity of the competition.

In addition to criticizing prediction markets for exploiting legal loopholes, the AGA has also actively sought to engage the three major sports leagues. Shortly after the NHL announced its partnership, the AGA sent letters to the NFL, NBA, and MLB urging them to avoid commercial partnerships with “insufficiently regulated prediction market platforms.” The letter strongly stated that aligning with such regulatory loophole platforms would “undermine the legitimate market gains built over the past few years and expose the leagues themselves to reputational and legal risks.”

It is foreseeable that AGA will continue to lobby regulators, legislative bodies, and sports leagues to tighten policies on prediction markets, ensuring that there is no “regulatory vacuum and gray area” in the sports betting sector.

Regulatory and legal challenges continue, prediction market is caught in a lawsuit storm.

In the face of industry skepticism and resistance, Kalshi and Polymarket are actively seeking cooperative endorsements on one hand, while on the other hand, they have long faced regulatory and legal disputes. In recent years, these two platforms have experienced multiple enforcement and litigation incidents with the U.S. Commodity Futures Trading Commission (CFTC) and regulators from multiple states, and the legal positioning of the prediction market has always been a subject of controversy.

In early 2022, the CFTC initiated enforcement action against Polymarket's operating company Blockratize, Inc., pointing out that the platform had been offering event contract trading without registration since June 2020, in violation of the Commodity Exchange Act (CEA). These contracts cover various aspects such as political elections, economic indicators, and even popular culture, essentially constituting a form of binary options swap trading. However, Polymarket is neither a registered exchange (DCM) nor has it obtained a swap execution facility (SEF) license. Ultimately, Polymarket chose to settle with regulators, agreeing to pay a $1.4 million fine and shutting down all non-compliant markets on its website to avoid crossing regulatory lines again.

Compared to Polymarket, Kalshi's legal gaming is more complex and still ongoing. Kalshi is currently the only prediction market registered with the CFTC as a “Designated Contract Market” (DCM), which grants it the qualification to launch event derivative contracts at the federal level. Since the beginning of this year, Kalshi has launched multiple contracts related to sports events (such as whether a team will advance or win the championship, etc.) and has been trading without facing any rejection from the CFTC.

However, these products have crossed the red line of several state gambling laws. Regulatory agencies in multiple states, including New York, New Jersey, Massachusetts, and Ohio, have issued cease-and-desist orders to Kalshi, claiming that its sports contracts are equivalent to unlicensed sports gambling and must immediately stop providing services to residents within their states.

Kalshi has not chosen to back down but has counter-sued these state regulators, seeking judicial resolution in federal court. The core legal dispute is: Does the federal Commodity Exchange Act take precedence over state gambling laws? Kalshi argues that, as a federally recognized exchange, the event contracts it offers fall under federal regulation, and the CFTC has exclusive jurisdiction over these products, with states unable to interfere using local gambling laws. Kalshi claims in the lawsuit that state regulators are attempting to forcibly suspend federally licensed trading through state law, which goes against Congress's intention—establishing the CFTC was precisely to avoid fragmented regulation of the interstate derivatives market.

Currently, Kalshi's legal battle with the states has extended to the federal appeals court. In June of this year, a case of Kalshi v. New Jersey Division of Gaming Enforcement was appealed to the U.S. Court of Appeals for the Third Circuit, with as many as 34 state attorneys general joining in a submitted amicus brief to support New Jersey.

The consensus reached by legal officials from states that have legalized gambling, such as New York and Michigan, as well as those that have completely banned gambling, such as Utah and Idaho, is that the contracts offered by Kalshi “are essentially sports bets, just disguised as commodity contracts.” Their interpretation of federal law aims to circumvent state gambling regulations and encroaches upon the long-standing regulatory sovereignty of the states. They emphasize that allowing Kalshi to continue this model would undermine the regulatory framework established by the states since the repeal of PASPA in 2018, eroding state law's authority in the field of sports betting.

The gambling industry stakeholders mentioned above are naturally on the opposite side of Kalshi in the legal battle. The American Gaming Association, as an industry representative, submitted opinions in the aforementioned case, emphasizing that the CFTC lacks the appropriate expertise to regulate complex sports betting and should not allow federal commodity law to cover sports wagers. Some sports league officials also worry that if Kalshi prevails, any exchange in the future could imitate and launch its own customized sports betting contracts, making it impossible for states to regulate, thus posing a significant risk to sports integrity.

In contrast, Kalshi insists that its contract design helps the market “hedge” sports risks, provides liquidity, and criticizes the regulatory authorities' tough stance as “stifling innovation.” Kalshi CEO Mansour even described the multi-state blockade as a “censorship regime,” arguing that prediction markets should be protected like free speech, which sparked a strong rebuttal from officials.

The legal game between Kalshi and state regulators is still evolving. The outcome of the ruling not only affects its own business survival but will also determine the positioning of the sports prediction market within the U.S. legal system. In the short term, the uncertainty of the law itself has become a major obstacle to the expansion of these platforms.

Entering and attacking, traditional gambling giants are also targeting emerging markets.

In the face of the rise of prediction market platforms, traditional sports betting operators are not all firmly resisting; some gambling giants have also realized the new business opportunities contained in prediction markets, choosing to enter the field through investment mergers or independent development to avoid falling behind in the new round of competition.

The leading online gaming company in the United States, DraftKings, has recently taken some eye-catching actions. In October 2025, DraftKings announced the acquisition of Railbird Technologies and plans to launch a new platform named “DraftKings Predictions” to provide users with contract trading services based on real-world events.

In addition, DraftKings also announced a partnership with Polymarket, which will serve as the designated clearinghouse for DraftKings' prediction market product, responsible for trade matching and fund settlement. DraftKings CEO Jason Robins stated that the introduction of Railbird's technology and Polymarket's underlying support will “enable us to win in this newly added market.”

Rather than resist opposition, it is better to participate. Some analysts believe that this foray into the prediction market not only helps DraftKings expand into states where gambling has not yet been legalized (by providing products through the CFTC), but it is also a defensive strategy: instead of watching competitors like Kalshi divide users, it is better to lay out a strategy in advance. From the stock price reaction, DraftKings' stock price rose about 2% on the day the announcement was made, indicating that the capital market recognizes its strategy.

In addition to DraftKings, industry giants like FanDuel are also closely monitoring developments in this field. According to ESPN, FanDuel is “ready to enter the prediction market space” and is conducting internal technical and compliance evaluations.

In the competition between tradition and innovation, who will prevail?

Overall, the expansion of prediction market platforms in the sports sector is triggering a tug-of-war between supporting and opposing forces. Supporters include daring leagues (such as the NHL) and opportunity-focused capital (like DraftKings), whose argument is that prediction markets provide innovative ways for fan interaction and financial risk hedging tools, which can coexist and flourish alongside traditional betting as long as regulation is appropriate and integrity measures are in place.

Opponents mainly consist of the majority of sports organizations, gambling regulators, and vested interests, who warn that prediction markets are “growing wildly” outside the existing legal framework and may undermine the long-established integrity safeguards and consumer protection nets. Both sides hold firm opinions on issues such as sports integrity, legal jurisdiction, and market fairness, leading to intense debates.

In the future, as the courts make rulings on the Kalshi litigation, the attitudes of regulatory agencies become clearer, and more alliances express their positions, the fate of the sports prediction market in the United States will gradually become clearer. If all parties can find a compromise (for example, introducing federal standards while respecting state rights), this new phenomenon may integrate into the mainstream and inject new vitality into the sports industry; however, if conflicts escalate, it is possible that the prediction market may be forced to withdraw and narrow its ambitions in the sports field.

As a neutral observer, PANews will continue to pay attention to the developments of Polymarket and Kalshi: whether they can break through regulatory challenges, gain more alliance support, or ultimately adjust their strategies in the face of resistance, this competition between tradition and innovation is still unfolding. The outcome of the games among all parties not only concerns the rise and fall of the two companies but may also influence the future integration of sports betting and financial markets.