A fight that has been building all year
The clash between prediction markets and sports betting has moved from a niche legal curiosity to one of the defining regulatory stories of 2026. At its centre is a simple but consequential question: are sports event contracts offered by platforms like Kalshi and Polymarket federally regulated financial products, or are they sports gambling in a different wrapper, subject to state licensing like any sportsbook?
Traditional operators are not sitting on the sidelines either. FanDuel, DraftKings and Fanatics have all moved to build prediction market style contracts into their own products, effectively hedging their bets on which side of the legal line eventually wins out. The field of prediction market operators has also widened well beyond the two best-known names, with newer entrants including Novig, ProphetX and ROLR all competing for the same regulatory grey area.
Two circuits, two different answers
The reason this has become such a live issue is that US appeals courts have now split on the question, which almost never happens without the Supreme Court eventually stepping in. In April 2026, the Third Circuit sided with Kalshi, holding that the Commodity Exchange Act preempts state laws that would otherwise interfere with contracts listed on a CFTC-licensed exchange.
Then, on 28 August 2026, the Ninth Circuit went the other way. Ruling in a case brought by Kalshi against the Nevada Gaming Control Board, a three-judge panel affirmed a lower court decision that dissolved an injunction protecting Kalshi’s operations in the state. Judge Ryan Nelson put it plainly in the court’s opinion: “The substance of the sports event contracts offered on Kalshi’s DCM is sports gambling.” The panel also found that existing CFTC rules already prohibit designated contract markets from listing gaming-related contracts in the first place, rejecting the argument that federal commodities law gives exclusive jurisdiction here.
The Nevada ruling is not the end of the story on its own, either. The same reasoning could undermine preliminary injunctions currently protecting prediction market operators from Arizona regulators, and similar cases are still pending in the Fourth Circuit and elsewhere, meaning further rulings, in one direction or the other, are likely before the Supreme Court question is even settled.
States are not waiting for the Supreme Court
While the legal question works its way up, several states have moved to act on their own reading of it. Nevada, Michigan and Washington have all restricted Kalshi’s operations within their borders, and New Jersey has gone further, pursuing legal action against the platform directly. All of them are working from the same basic position: that sports-related event contracts are gambling products requiring state licensing, whatever federal label they carry.
The Commodity Futures Trading Commission has also weighed in on the format of these products, warning prediction market operators against using familiar American odds formats and pushing them towards pricing conventions that look more like a financial market than a sportsbook. That distinction matters more than it might first appear. The closer a prediction market’s presentation looks to a traditional sportsbook, the harder it becomes to argue in court that the product is fundamentally a financial instrument rather than a repackaged bet, which is exactly the argument the Ninth Circuit rejected in the Nevada case.
How sportsbooks are responding
Rather than waiting to see how the legal fight resolves, the major sportsbook operators are hedging directly. FanDuel, DraftKings and Fanatics have each moved towards building prediction market style contracts into unified “super app” products, so that whichever structure eventually wins regulatory approval, they are already positioned to offer it.
Why this matters beyond the courtroom
The scale involved explains why operators are taking this so seriously. Prediction market transaction volumes are reported to have grown roughly 393-fold between January 2024 and January 2026, reaching around 12.6 billion dollars, with sports contracts making up the dominant share. In regulated jurisdictions, prediction markets are now estimated to account for close to 7 per cent of traditional sports betting handle, a meaningful slice for a category of product that barely existed in its current form two years ago.
With the Third and Ninth Circuits now in direct conflict, and a certiorari petition from New Jersey due by 3 September 2026, the circuit split makes Supreme Court review a real possibility. Whatever the eventual ruling, it stands to settle, for years to come, whether prediction markets can offer sports-related contracts nationwide under federal oversight, or whether they need to play by the same state-by-state licensing rules as everyone else in the wider betting sector.
This is a story worth tracking closely, and it is one of several regulatory flashpoints covered in more regulatory insights on how the sector is adapting to a fast-moving legal landscape.
