I. Introduction

In the 2010s, prediction markets like PredictIt began to emerge, with said platform receiving a no-action letter in 2014 from the Commodity Futures Trading Commission (CFTC). In 2015, a Time Magazine report on PredictIt’s rise noted that, as the platform grew, “insider trading could prove to be an issue”. At the time, the platform boasted 37,000 active traders, who together “wagered $9.4 million” on public events. Today, Kalshi and Polymarket together boast over 100,000 markets alone, with the former boasting a user base around 650,000 as of May 2026. Even as scrutiny of the platforms’ mounts, the markets are expected to grow. By one estimate, prediction markets will be a $1 trillion dollar market by 2030, an outcome that would effectively institutionalize gambling. 

When the CFTC accommodated PredictIt via a no-action letter, the platform was treated as a small-scale and nonprofit academic project. At the time, investments were capped at $850 per participant per contract, with participation in each event contract being limited to 5,000 total. The rules additionally implemented bans on operator compensation and commissions. In contrast, today’s prediction markets receive headlines over specific users making seven-figure profit through likely insider trading. Per the New Jersey Attorney General, sports-related betting constituted around 95% of Kalshi’s 2025 revenue, a peculiar statistic for a company that claims it is not a sportsbook. 

The second Trump administration has been a driver in the emergence of prediction market gambling as a mainstay. Under CFTC chair Michael Selig, a steadfast ally of prediction industry interests, the commission has moved to treat sports wagers as federally-protected derivatives. Alongside proposed restrictions on gaming-related event contracts, these amount to major policy coups for the increasingly powerful prediction market lobby. As the CFTC recedes from its role in protecting consumers from prediction market-related harms, states are quickly emerging as a bulwark against the industry’s malfeasance. This aligns with a broader trend of state attorneys general (AGs) taking action to protect consumers amid the Trump administration’s deregulation drive.

II. Prediction Marketing Gambling's Rise & Pushback

REGULATORY EFFORTS BY STATE OFFICIALS

State lawmakers are increasingly pushing to reform laws governing prediction markets. Per analysis by the National Conference of State Legislatures (NCSL), “at least fifteen states have addressed prediction markets legislation;” the NCSL additionally counted six states in total that enacted legislation governing prediction markets. Despite platforms’ insistence they are not sportsbooks, state attorneys general are increasingly taking aim at unregulated sports-betting offered by the platforms. In March 2026, Arizona Attorney General Kris Mayes (D-AZ) filed charges against Kalshi, with the suit focusing on its role in sports-related gambling as well as event contracts concerning elections. Additionally, States including Massachusetts, Rhode Island, Nevada, Washington, and Michigan have additionally taken their own actions against betting markets. 

In New York, Kalshi’s legal defeat in its challenge to the New York Gaming Commission was openly celebrated in July by both Gov. Kathy Hochul and Attorney General Letitia James. In the same month, Hochul and James publicly announced a lawsuit over Kalshi facilitating an “illegal gambling operation.” In response to the lawsuit, Kalshi would claim it could generate $10 billion in tax revenue in the state of New York. This instantiated claim, based on the premise it could help New York’s budget woes, was met with immediate criticism from observers.

Beyond rules governing gambling, Polymarket has further displayed a disregard for New York state law through apparent evasions of state labor laws. An investigation by Business Insider in September found that the company has received at least two warnings from the state’s labor department over its failure to comply with pay transparency rules. At the municipal level, New York City has engaged in its own scrutiny of the platforms. In August 2026, the City Council initiated an investigation into Kalshi and Polymarket over deceptive advertising and apparent targeting of young users. 

PUSHBACK BY CFTC, PREDICTION MARKET INTERESTS

In Utah, Gov. Spencer Cox (R-UT) has criticized the platforms, arguing they amount to gambling operations that harm families and young men. The state’s attorney general, Derek Brown, defended the state’s authority to enforce its constitutional gambling prohibition amid a legal challenge by Kalshi. A federal judge rejected the platform’s effort to prevent Utah from enforcing its gambling laws. In August 2026, a federal court would side with Nevada in its own effort to enforce gambling laws to regulate Kalshi’s sports-betting contracts. Days later, New Jersey petitioned the U.S. Supreme Court to review a conflicting Third Circuit decision that favored Kalshi in the state’s legal battle. 

The New York Times has described Minnesota as the major flashpoint for prediction market regulation. Minnesota, the first state to pass legislation banning these markets, has been sued by the Trump administration’s CFTC, which claims exclusive authority over regulating the platforms. As we noted in May 2026 analysis, the CFTC received significant pushback during a recent prediction market rulemaking, a clear show of the issue’s newfound salience. 

III. Conclusion

Prediction markets have built a business model rooted in ignoring state gambling laws, and their continued success is predicated on a favorable environment in Washington. Their decision to firmly ally themselves with the Trump administration, particularly through their alliance with a CFTC favorable to the industry’s aims, is likely to result in diminishing returns given the president’s unpopularity. Despite this, on social media, individuals affiliated with the companies have increasingly shown their willingness to fight public battles with Democrats including New York Gov. Hochul. Like other tech platforms, prediction markets have wagered that sheer economic scale, and the policy influence it buys, will allow them to bend the law to their will. But as concerns mount over the companies’ role in mainstreaming sports gambling and enabling insider trading in politics, it is unclear if this wager will hold.