How prediction markets work
Every contract is a yes-or-no question, such as whether a team wins tonight or whether the Fed cuts rates. A correct contract pays $1 and a wrong one pays nothing, and the price in between, from 1 to 99 cents, works as the market’s guess at the probability. If you buy “yes” at 25 cents, you risk 25 cents to win 75. You trade against other users rather than against the platform, which makes its money from fees.
Why the courts can’t agree
The platforms are registered with the CFTC, the federal regulator for futures, and they argue their contracts are financial “swaps” that only the federal government can regulate. That would keep state gambling laws out. In April 2026 the Third Circuit accepted that argument in a case against New Jersey. Later in the year two other appeals courts went the other way. The Ninth Circuit said in August that Kalshi’s sports contracts are “sports gambling, regardless of whether Kalshi calls them swaps”, and the Sixth Circuit ruled in September that Ohio and Tennessee can enforce their gambling laws. New Jersey has asked the Supreme Court to settle it.
The fight isn’t only in court. 44 state attorneys general told the CFTC in July 2026 that it has no authority over sports contracts, while the CFTC itself sued several states to defend the platforms. Outside the US it’s simpler. The UK Gambling Commission says these products look like betting exchanges and can’t be labelled non-gambling, and France and Spain have ordered Polymarket blocked.
The argument that it isn’t gambling
The platforms have a fair point that they don’t work like a bookmaker. There’s no house setting odds and limiting winners, and markets on weather or interest rates can be useful for hedging and forecasting. The problem for that argument is what people actually trade. About 80% of Kalshi’s 2026 volume has been on sports, and a sports contract that pays out if your team wins is very hard to tell apart from a bet.
What it means for you
Whatever the courts decide, trading on sports outcomes carries the same risks as betting on them, which is also the view of the US National Council on Problem Gambling. Most users lose, and the platforms accept users from 18, younger than most sportsbooks. If you use them, set a budget and treat it as gambling money.
Questions people also ask
Are prediction markets legal in the US?
They operate under federal law as CFTC-regulated exchanges, but around 20 states are challenging their sports contracts, and federal appeals courts are split on whether states can enforce their gambling laws against them. New Jersey has asked the Supreme Court to decide.
How old do you need to be?
Usually 18 on the federally regulated platforms, compared with 21 at most US sportsbooks. That age gap is one of the main complaints from states.
Do most users win or lose?
Most lose. Studies of Kalshi and Polymarket accounts find somewhere between 69% and 84% of users lose money, and a tiny share of accounts takes most of the profit.
Sources
- ANJ, Prediction market platforms are illegal in France (2026)
- ANJ, Promotion of illegal gambling services, blocking of the Polymarket website (2026)
- Spanish Ministry of Consumer Affairs, proceedings and block against Polymarket and Kalshi (2026)
- KalshiEX v. Flaherty, Third Circuit (April 2026)
- KalshiEX v. Assad, Ninth Circuit (August 2026)
- KalshiEX v. Schuler, Sixth Circuit (September 2026)
- New Jersey petition to the Supreme Court, Flaherty v. KalshiEX, No. 26-299
- CNBC, 44 states say the CFTC has no authority over sports prediction markets (2026)
- UK Gambling Commission, prediction markets, here's what you need to know (2026)
- National Council on Problem Gambling, consumer protection and prediction markets (2026)
- Kalshi help centre, how prices are determined
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