Assessing Prediction Markets’ Recent Legal Losses

U.S. prediction market operators have taken some legal and regulatory hits lately, as certain states take aim at what are technically federally overseen exchanges offering what looks a lot like sports betting. 

This would probably be an ominous thing for most businesses. A state-led siege of litigation and regulatory pushback just seems bad on the face of it, when all you’re trying to do is acquire customers and make a bit of money. 

But prediction markets aren’t your typical business, and they have some pretty powerful friends. So, a few legal losses may not be totally apocalyptic. There are other positive signs for the exchanges, and even data that suggests prediction markets continue to gain traction with bettors.

First, a brief recap, though. 

Prediction markets are federally regulated exchanges that let people bet “yes” or “no” on certain event outcomes tied to economics, politics, and sports, among other things. This means they are able to offer de facto sports betting in all 50 states, which has several of those states stirred up. It is they, these states contend, who will determine what gambling they will permit, if any.

On Tuesday, a Massachusetts court granted the state a preliminary injunction against Kalshi, a prediction market operator, “seeking to enjoin Kalshi from offering and accepting sports wagers while this action is pending, unless and until it obtains a [sports betting] license” from the Massachusetts Gaming Commission. 

“The Court has made clear that any company that wants to be in the sports gaming business in Massachusetts must play by our rules – no exceptions,” Massachusetts Attorney General Andrea Joy Campbell said in a statement. “Today’s victory marks a major step toward fortifying Massachusetts’ gambling laws and mitigating the significant public health consequences that come with unregulated gambling.” 

While it’s not the end of the legal road for Kalshi in Massachusetts (did somebody say “appeal”?), it doesn’t look ideal.

Sporting events, it should be said, account for the majority of trading volume at prediction markets at the moment; analysts at investment bank Citizens have estimated sports-related contracts are responsible for 80% to 90% of their business. So, if people are using Kalshi in Massachusetts, there’s a decent chance they’re making what are de facto sports bets on the platform.

Kalshi’s top metros (by share % of average of Weekly Average Users) in Dec 2025

New York*
Chicago*
Los Angeles
Boston*
Philadelphia*
Dallas-Ft. Worth
Atlanta
Miami- Ft. Lauderdale
San Fran.- Oakland-San Jose
Denver*

*Competitive sports betting markets

[Info via @SensorTower]

— Ryan Butler (@ButlerBets) January 21, 2026

And, as Campbell’s office noted, the court’s order will throw up a legal roadblock for Kalshi in the commonwealth, “prohibiting Kalshi from accepting online sports wagers and related events contracts from Massachusetts customers until the company follows the state laws that govern sports gaming, including licensure by the Massachusetts Gaming Commission (MGC).”

The Massachusetts sports betting decision follows other not-ideal legal decisions in other states. By gaming attorney Daniel Wallach’s count, prediction markets have taken six straight legal losses versus state governments.

What’s more, the Nevada Gaming Control Board (NGCB) announced last week that it is expanding its enforcement efforts to another prediction market operator, Polymarket, which is still in a weird, one-leg-in-one-leg-out regulatory situation in the U.S. While it’s making its way back into the U.S. regulated market, it hasn’t gone all-in yet, and maintains a significant offshore presence.

That’s 6 straight losses for PMs vs. State governments:

– MD (Kalshi)
– NV (Crypto)
– NV (Kalshi)
– NV (Robinhood)
– MA (remand order)
– MA (PI grant to MA)

Tide turned on Aug. 1st.

— Daniel Wallach (@WALLACHLEGAL) January 20, 2026

Nevertheless, the NGCB has had enough. The Nevada sports betting regulator has sued Polymarket and is asking a state court “for a declaration and injunction to stop Polymarket from offering unlicensed wagering in violation of Nevada law.”

So, it’s easy to perceive that things are going badly for prediction markets right now, at least in the courts. There are a lot of angry lawyers and regulators, and a lot of paperwork saying very serious things.

To boil it down as best as possible, the oversimplified explanation of what’s going on right now is that there’s a legal fight over whether prediction markets are offering sports betting and whether they are subject to state gaming rules. Some states say yes and yes, while the prediction markets the states are targeting say no and no. 

It’s mostly the sports-event contracts offered for trading by prediction markets that is irking state regulators and lawmakers. We could be years away still from a definitive answer from the U.S. Supreme Court on the legality of those contracts. So, in the meantime, you could be forgiven for thinking it looks ugly. Because, well, it looks like a lot of legal losses and lawyer fees.

Plot twist

And here’s where you hear the record scratch sound, because … is it all ugly? While the recent headlines scream YES, there are other headlines that suggest, well, maybe it’s not all bad for prediction markets right now.

Let’s start with the money. Do lawsuits cost money? Yes. Are prediction markets running out of it? Well, they have raised a fair bit.

Kalshi, for example, announced in December it had raised another $1 billion from investors at a valuation of $11 billion. That could pay a lot of legal bills. It also suggests there are folks with deep pockets who believe these businesses will be with us for the foreseeable future. 

Prediction markets keep making allies in the media, too. Polymarket, for instance, could point to recently announced partnerships with the owner of the Wall Street Journal and the sports streaming service DAZN. Again, more friends and possibly more money for prediction markets. 

Furthermore, the longer prediction markets are able to operate as they currently do, including offering a de facto form of sports wagering across the entirety of the United States, the more customers they acquire. Citizens reported this week that Kalshi’s prediction market app has been downloaded 4.4 million times during the NFL season, roughly the same number of times as FanDuel, arguably the biggest online sports betting operator in the U.S.

So, according to Citizens, Kalshi’s prediction market app has been downloaded around 4.4 million times during the NFL season, roughly the same number of DLs as FanDuel and more than DraftKings. Kalshi DLs during the NFL playoffs alone are ~1M, Citizens said in a note. pic.twitter.com/XvZ4RgogLL

— Geoff Zochodne (@GeoffZochodne) January 21, 2026

It makes me think of Uber, which exploded onto the scene with its ridesharing service and continued to grow in popularity despite the outrage and irritation of taxi companies and local lawmakers and regulators. Maybe some rules were broken along the way, but people really liked using Uber. And now it’s basically an institution. 

It’s not inconceivable that prediction markets, which are taking bets in states that don’t even allow sports betting, could carve out a similar niche. The longer they hang around, the more ingrained they could become.

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Digging a regulatory moat

Then there is the entity that is supposed to be regulating prediction markets, the federal Commodity Futures Trading Commission (CFTC). The CFTC under the Trump administration has taken what could fairly be called a hands-off approach to the betting exchanges, which explains their boldness and the resulting conflicts with state gambling regulators. 

The CFTC also has a new chairman, Michael Selig, who just so happens to be the only CFTC commissioner left. So, what does Selig say about prediction markets?

On Tuesday, Selig announced a “Future-Proof” initiative at the CFTC. In doing so, the chairman noted that “prediction markets have exploded in popularity as broad swaths of market participants seek to hedge portfolio risks and test their abilities to forecast truth.”

That seems to bode well for prediction markets. So, too, does Selig’s pledge that “the agency’s policymaking divisions will develop clear rules of the road for market participants that will be codified through notice-and-comment rulemaking to ensure that the regulatory requirements do not change wildly from administration to administration.”

For prediction markets, then, could there be rules that allow them to offer sports-event contracts that can’t be easily undone by, say, a Democratic administration? 

On Twitter/X, Selig added that “[i]n the days ahead, we will announce additional policy changes at the CFTC designed to Future-Proof it against rogue regulators.”

Who are these “rogue regulators,” exactly? The next generation of CFTC commissioners? Could they include state gambling watchdogs, like those in Nevada? Presumably, we’ll get clarity about that soon enough. 

I haven’t even mentioned yet that Kalshi and Polymarket count a member of the Trump family as a close ally. But, yes, let’s throw that in there now, too. 

California Nations Indian Gaming Association Chairman James Siva just released a statement applauding Kalshi’s recent legal loss in Massachusetts: “The law is clear, and it is past time that Kalshi and other prediction markets abide by it.” pic.twitter.com/uUJQk294mX

— Geoff Zochodne (@GeoffZochodne) January 21, 2026

Naturally, though, just as I’m putting the finishing touches on this story, another ugly headline has arrived for prediction markets, courtesy of California Nations Indian Gaming Association chairman James Siva.

CNIGA and Siva, who are no friends of prediction markets, applauded the recent decision by a Massachusetts judge to block Kalshi from offering sports-related bets in the state. 

“Courts across the country are waking up to the threat these companies pose,” Siva said in a statement. “[Tuesday’s] decision … follows a ruling late last year by a Nevada federal court that cleared that state to pursue potential criminal charges against Kalshi for offering illegal sports betting. The law is clear, and it is past time that Kalshi and other prediction markets abide by it.”

So, yes, the legal fortunes of prediction markets right now have taken a turn for the worse. Those fortunes may not improve. But it may take more to derail what prediction markets are doing, and even more still to undo what they’ve done. 

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