The polarizing legal war pitting prediction markets and the Commodity Futures Trading Commission against states continues to dominate US courts. The parties are locked in a battle over whether or not sports-related prediction market contracts constitute gambling.
But lawyers say this thorny legal question may just be the start of a complex regulatory conundrum. More legal hurdles and regulatory challenges, they say, await prediction markets further down the line.
As Kalshi, Polymarket, and the like continue to grow, Macquarie Equity Research has recently forecast prediction market volume will grow to a staggering $1.5 trillion by 2030. But critics continue to hit out at operators, with analysts flagging tens of thousands of transactions as possible instances of insider trading.
Legal experts think this could be the next legal battleground that Kalshi et al must navigate.
“These platforms now carry billions in monthly volume on sports outcomes with no equivalent of the surveillance infrastructure that took securities markets decades to build,” Braden Perry, partner at Kennyhertz Perry LLC and a former CFTC senior trial attorney, told CasinoBeats.
“Insider trading rules for event contracts are unsettled,” Perry said. “One good match-fixing scandal tied to a prediction market changes the politics of this industry in a week.”
Prediction Markets’ Legal Battle Just Beginning, Say Experts
Experts have previously told CasinoBeats that the CFTC and prediction markets may have the edge over the states in any forthcoming Supreme Court showdown.
But even a Supreme Court victory may not prove decisive, say the experts.
“Even if prediction market operators prevail against the state gaming regulators, the battles will not end,” Linda Goldstein, a partner at CM Law, told CasinoBeats. “They simply shift.”
And like Perry, Goldstein expects regulators to intensify their focus on allegations of market manipulation.
“This has already become an area of major focus,” Goldstein said. “And it is likely to gain momentum as the industry grows and greater segments of the population have access to insider information.”
Influencers & Rule-Making
In March, the Wall Street Journal reported that Kalshi had paid university-aged influencers to talk about their prediction market gains on their social media pages. Most of the influencers, the newspaper wrote, did not tell their followers the prediction market operator was paying them.
Goldstein said she expected more scrutiny to follow as the authorities examine operators’ “use of influencers who allegedly are not complying with Federal Trade Commission regulations.”
“There was recently an action brought by the National Advertising Division of the Better Business Bureau against [a prediction market operator], based on its failure to disclose the use of paid influencers,” said Goldstein.
“The FTC and state attorneys general could become more active here even if the underlying products remain under CFTC jurisdiction,” she continued.
Away from influencers and insider trading allegations, the CFTC’s own rulemaking could also unexpectedly clip operators’ wings.
The commission has seemingly sided with sports leagues that have protested against prediction-market contracts related to injuries and referees.
“The June proposed rule would define which contracts ‘involve’ gaming and bar categories like officiating calls and player injuries,” Perry said. “That sounds technical, but it’s broad. Sports contracts drive the vast majority of volume at these platforms. A final rule that trims contract types trims the business model.”
Mid-Terms & 2028
The CFTC and the President Donald Trump administration remain firmly on the side of the prediction markets. But with the midterms just months away and November 2028’s Presidential Elections growing ever nearer, the question is now: How long will this last?
“Whatever this commission finalizes, the next one can reverse,” Perry said. “Operators built on a permissive agency posture are one election away from a different agency.”
The prediction market issue has developed a political angle, lawyers warn. And this means some people on the other side of the political spectrum from Trump now have it in their crosshairs.
“The CFTC did a complete 180 and went from opposing the prediction markets to vigorously defending them when a new Chairman appointed by Trump took over,” said Goldstein. “With a change in the administration, there could be a change in the CFTC’s position.”
And even before the midterms, congressional pressures are building, she warned, with growing concerns over market manipulation prompting the introduction of bipartisan bills.
“As the industry continues to grow, so do Congressional pressures to further regulate,” Goldstein said.
The Industry’s Response
With all these potential legal storms brewing, prediction markets will inevitably be preparing a response. But what shape will it take?
Enhanced compliance could be a winning strategy, say the experts. Working more closely with federal regulators and Congress may also pay dividends.
“[Operators should] engage the rulemaking rather than fight it,” Perry said. “A clear federal rulebook, even a narrower one, is worth more than the current uncertainty.”
Building compliance protocols ahead of requirements could help, the experts agreed.
They said this could include a focus on monitoring, improved Know Your Customer (KYC) protocols, and the incorporation of problem gambling controls.
“Regulators reward operators who show up already looking like the rule,” Perry said.
“[Operators could] develop formal information sharing agreements with the leagues and other organizations,” said Goldstein. They could also use IT-powered tools to ensure minors cannot access their platforms, she added.
Perry suggested that diversifying contract types, with a focus away from sporting events, could help keep sports betting-related controversies to a minimum.
“A platform that is 80% sports volume is not a prediction market,” concluded Perry. “It is a sportsbook with a preemption argument.”
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The polarizing legal war pitting prediction markets and the Commodity Futures Trading Commission against states continues to dominate US courts. The parties are locked in a battle over whether or not sports-related prediction market contracts constitute gambling. But lawyers say this thorny legal question may just be the start of a complex regulatory conundrum. More
The post Prediction Markets Must Engage With Regulators or Face Legal Heat, Warn Lawyers appeared first on CasinoBeats.