Are Prediction Markets Legal?

🛑 States with cease and desist orders

⚠️ Summary of key filings and disputes

Predictions betting sites have rapidly surged in popularity. They offer exchange-traded markets where users can buy and sell shares on the outcome of a future event, such as the winner of a sporting event or a political election. 

Sports betting is legal in at least some form in 38 states plus Washington, D.C. Prediction sites are available across the US. As interest in prediction markets has soared, legality questions have amplified, with several states taking action.

❌ Database of operators and markets

The table below provides an overview of prediction sites and state restrictions. The list of operators could grow in the coming months. Sports Illustrated has announced its intent to launch SI Predict, while “DraftKings Predict” has been registered with the National Futures Association. 

✅ States with prediction sites

The table below shows the current status of prediction sites in the 50 US states and Washington, D.C. This situation is fluid and will continue to evolve. This page will be updated accordingly as new developments arise, such as individual states taking action or operators entering and exiting various markets. 

💡How it works: Event-based contracts and peer-to-peer betting

Event-based contracts are offered for speculating on the outcome of specific events. Examples include the results of an election or the winner of a professional sports championship. They function like a traditional commodities exchange, where popular attractions that are regularly traded at heavy volume include Crude Oil, Gold, and Wheat.  

Are event-based contracts the same as betting on sports? From an operator perspective, they’re trading instruments, akin to other commodities, and do not fall under the sports betting umbrella. As interest soars in prediction markets, several states have pushed back, setting the stage for legal showdowns with operators.     

Peer-to-peer betting allows individuals to place bets directly among themselves without a bookmaker involved. The absence of a third party in the middle of the transaction means there’s no “vig” charged by the house, and is thought to lead to fairer odds with no house edge. Terms and pricing are agreed upon by the parties involved in the wager. 

Learn more: How prediction markets work – Sports contract pricing vs. sports betting odds

📊 Tax implications on winnings

Winnings from prediction markets are taxable. Just like traditional gambling winnings from a casino or sportsbook, they are treated as ordinary income for tax purposes. Prediction market operators such as Kalshi send out annual 1099-MISC forms that list the net profits. 

Regardless of the receipt of such a form, gambling winnings are required to be reported to the IRS on annual tax returns. Failure to do so could lead to trouble down the road in the form of penalties and interest. Many states also levy taxes on gambling winnings.    

The best practice for winnings is to carefully track your wins and losses and keep records. We highly recommend consulting with a tax professional for reporting and tax obligations on winnings.  

⚖️ Background on CFTC ruling on predictions

In 2023, Kalshi submitted a request for its Congressional Control Contracts to be approved under the Commodity Exchange Act. The CFTC rejected the request, stating that the contracts violated state gaming laws and public interest. Kalshi responded by filing suit. 

The U.S. District Court for the District of Columbia ruled in favor of Kalshi in September 2024, but the legal wrangling continued. An appeal from the CFTC secured an emergency stay, but the D.C. Circuit then denied the motion in October.   

This opened the door for Kalshi to offer contracts before the 2024 US elections. The platform attracted considerable interest and accepted over $250 million in contracts. Litigation has continued for KalshEx vs. CFTC. 

Oral arguments were presented to the U.S. Court of Appeals for the District of Columbia in January 2025. The court expressed concerns about both arguments while also appearing skeptical of the CFTC’s broad interpretation of its regulatory authority.     

The case remains unresolved, but prediction markets have moved forward. Kalshi expanded its offerings to include sports contracts in January. CFTC Acting Chairman Caroline D. Pham has expressed interest in moving toward resolution as a planned prediction markets roundtable approaches. 

“As I have long said, the CFTC must take a forward-looking approach to shifts in market structure to ensure our markets remain vibrant and resilient while protecting all participants,” she said. “Innovation and new technology has created a renaissance in markets that presents new opportunities that are accessible to more people, as well as risks. The CFTC will get back to basics by hosting staff roundtables that will develop a robust administrative record with studies, data, expert reports, and public input. A holistic approach to evolving market trends will help to establish clear rules of the road and safeguards that will promote U.S. economic growth and American competitiveness.”