Sports Betting vs. Prediction Markets: The Next Legal Showdown

 

In 2026, a new competition is reshaping the sports betting landscape and it has nothing to do with athletes or teams. Instead, it is a legal and regulatory conflict between state-licensed sports betting operators and a new class of federally regulated prediction markets.

In this episode, Prof. C explores how this dispute could redefine sports betting regulation, shift billions of dollars in tax revenue, and permanently alter the balance of power between state governments and federal regulators.

  • 00;00;07;24 - 00;00;42;14
    Mark Conrad
    Hello and welcome to the Sports Business Podcast with Prof C, the podcast that explores the world of professional, collegiate, amateur, and Olympic sports. I'm Mark Conrad, or Prof. C from Fordham University's Gabelli School of Business, where I serve as Professor of Law and Ethics and the Director of the Sports Business Initiative. Fans look at sports as athletic competitions. For example, who will win the Super Bowl,

    00;00;42;16 - 00;01;14;12
    Mark Conrad
    World Series, Stanley Cup, or Olympic Gold Medal? No doubt these are great examples of competition, but there is another competition in the world of sports business and law in 2026. And it's not between athletes. It is not between teams. It centers on sports betting companies versus prediction markets. It is also a legal conflict between states and the federal government.

    00;01;14;15 - 00;01;48;03
    Mark Conrad
    It pits sets of powerful competitors: sports betting firms and the states that license them versus prediction market companies and the federal agency that regulates them. And the stakes are high.  Some background: After the Supreme Court allowed states to legalize sports betting, about two-thirds of the states enacted laws and regulatory schemes that required licenses for gaming companies to operate in their states.

    00;01;48;05 - 00;02;18;17
    Mark Conrad
    Depending on the state, various forms of sports betting, including mobile betting were permitted. Billions have been bet since these states got into the betting business with states raking in tax and licensing money. Those who like to gamble found a legal and easy way to do so via their mobile devices. However, some states have not legalized the practice, including California and Texas.

    00;02;18;19 - 00;02;51;27
    Mark Conrad
    Nevada, the more prominent home of legal gambling, restricts sports betting to casinos only.
     Now we have a set of disruptors: companies that offer a different way to wager. Known as prediction markets, these companies argue that their services are akin to financial derivatives regulated by the Federal government rather than sports betting. They are more investor-oriented than pure gambling and not subject to state law.

    00;02;51;29 - 00;03;36;10
    Mark Conrad
    Prediction markets were created just a few years after DraftKings and FanDuel entered the then dominating sports business market. The two prediction market platforms Kalshi and Polymarket allow users a platform to invest on outcomes from sports to politics. They are categorized as federally regulated derivatives exchanges in which users buy and sell financial products known as event contracts. Investors (or betters depending on your point of view) seek to use these companies to wager on all sorts of events through the investment contracts.

    00;03;36;13 - 00;04;06;09
    Mark Conrad
    Examples range from whether a team will win the World Series to whether the president would annex Greenland. There are some differences between traditional betting firms and prediction platforms. Pure betting companies pay out the winnings and keep money from the losing bets. They are the house. In prediction markets, there is no house, but money is made on the fees taken from or collected by the participants.

    00;04;06;12 - 00;04;44;26
    Mark Conrad
    Prediction markets make their money on volume, not on odds. The more bets winners or losers  the more profits. So Kalshi and Polymarket argue that they are not gambling companies, but options investment services. The federal government agrees, and they are regulated by the Commodities Futures Trading Commission, a federal agency, rather than states. So, Kalshi and Polymarket can and do operate in the states which ban sports betting, notably California and Texas as well as every other state in the country. 

    00;04;44;28 - 00;05;14;12
    Mark Conrad
    And that is what creates the dilemma. Are these firms engaged in betting subject to state regulation or are they different and can operate nationwide, as the CFTC permits them to do? Adding to the problem is that prediction markets allow users as young as 18 to participate while most states with sports betting have set a minimum age of 21. So conflicts abound.

    00;05;14;15 - 00;05;42;13
    Mark Conrad
    Are prediction markets a way to skirt state gambling laws? At least some states think so. The Nevada Gaming Control Board  which regulates gaming in the state  has sued, seeking to block Polymarket from offering unlicensed wagering in the state. Kalshi is now the subject of lawsuits from Nevada, Massachusetts, New Jersey, and Maryland. There may be more.

    00;05;42;15 - 00;06;16;25
    Mark Conrad
    The question is not only important for the future of betting regulation, but also for the relationship between state power to control gambling and Federal regulation of derivatives. The U.S. Supreme Court may have to render the final decision on the future of sports betting regulation. The stakes are huge if other gambling companies organize as investment firms like Kalshi and Polymarket, the states may be out billions of dollars and the federal government will be in control.

    00;06;16;27 - 00;06;28;11
    Mark Conrad
    Its too early to say. For the Sports Business Podcast at Fordham's Gabelli School of Business, I'm Mark Conrad, or Prof. C. Have a great day!