Independent T&C analysis of US prediction market platforms — how they work, what federal law says, and which states are fighting back.
Prediction Markets Operating in the US
Prediction Markets in the US: How They Work and Why They're Being Challenged
Prediction markets are financial contracts whose value is tied to the outcome of real-world events. They have existed in academic and research contexts for decades, but the emergence of consumer-facing platforms like Kalshi and Polymarket has brought them into direct conflict with state gambling regulators across the US. The central legal question — whether federal commodity law preempts state gambling law for these platforms — remains unresolved.
What is a prediction market?
A prediction market is a platform where users buy and sell contracts that pay out based on whether a specified event occurs. For example, a contract on a US presidential election might pay $1 if Candidate A wins and $0 if they lose. The price of the contract at any point — say, $0.62 — reflects the market's implied probability of that outcome (62%).
Prediction markets cover a wide range of event types: elections, economic data releases (Federal Reserve rate decisions, CPI figures), sports outcomes, entertainment awards, and geopolitical events. The breadth of markets offered varies significantly between platforms and is constrained by their regulatory authorisations.
Kalshi, the largest CFTC-regulated prediction market, operates as a Designated Contract Market (DCM) — the same category as the Chicago Mercantile Exchange. This federal registration is at the centre of the preemption argument against state enforcement actions.
Are prediction markets legal in the US?
The legal status of prediction markets in the US depends on the platform and the state. For CFTC-registered Designated Contract Markets like Kalshi, the platform's position is that federal commodity law (the Commodity Exchange Act) preempts state gambling law — meaning states cannot regulate or ban them. This argument has been accepted by the Third Circuit (for Kalshi in New Jersey/Pennsylvania/Delaware) but is contested by other circuits and several states.
| State / Jurisdiction | Kalshi Status | Key Development |
|---|---|---|
| New Jersey | ⚠ C&D — Kalshi appealing | Third Circuit ruled FOR Kalshi Apr 2026 |
| Nevada | ✗ Service halted | Court order active; Ninth Circuit ruling pending |
| Maryland | ✗ C&D active | Fourth Circuit hearing; ruling pending 2026 |
| Arizona | ✗ Criminal charges | 20-count criminal information filed Mar 2026; CFTC counter-sued AZ |
| Illinois | ✗ C&D active | CFTC + DOJ sued IL Apr 2026 (Case 1:26-cv-03659) |
| Minnesota | ✗ Felony ban | SF4760 signed May 2026; CFTC injunction sought; effective Aug 1 |
| Kentucky | ⚠ Tax challenged | HB 695 excise tax; coalition lawsuit filed Jun 12 2026 |
Source: Court records, CFTC press releases, and state legislature records. June 2026. Full circuit split analysis →
How is a prediction market different from sports betting?
Sports betting and prediction markets both involve staking money on the outcome of events, but they operate under entirely different legal frameworks in the US.
| — | Sports Betting | Prediction Markets (CFTC DCM) |
|---|---|---|
| Legal basis | State gaming licence (post-PASPA 2018) | Federal CFTC registration under Commodity Exchange Act |
| Regulator | State gaming authority (e.g. NJ DGE, PA GCB) | CFTC (federal) |
| State availability | 30+ states with active licences | Contested — varies by platform and active litigation |
| Sports contracts available | Yes — core product | Limited — CFTC has restricted sports event contracts |
| Market structure | Fixed odds, set by the operator | Exchange model — prices set by market participants |
| Wager Layer affiliate links | Yes — on licensed operator profiles | No — not currently |
What should I check before trading on a prediction market?
1. Whether the platform is available in your state
Kalshi has halted service in Nevada following a court order and faces active enforcement actions in Arizona, Illinois, Maryland, Minnesota, and Connecticut. Check the platform's current terms for the excluded states list before creating an account. This list changes as litigation progresses.
2. Fee structure — maker vs taker
Prediction markets charge fees differently from sports books. Kalshi charges a percentage of winnings — typically 7% for takers — rather than a spread baked into the odds. Understanding the fee structure is essential for calculating real returns, particularly on high-frequency trading strategies.
3. Market resolution rules
The terms governing how markets resolve — particularly in ambiguous or disputed outcomes — are among the most consequential clauses in any prediction market agreement. Kalshi's member agreement (v1.6) grants the platform significant discretion in resolving disputed markets. The 2025 Bernie Sanders rally dispute and the MrBeast Khamenei market resolution were both contested under these provisions.
4. Withdrawal terms and minimums
Prediction market withdrawal terms are generally more straightforward than sweepstakes casino redemption conditions — there are no wagering requirements on winnings. However, minimum withdrawal thresholds, processing times, and supported withdrawal methods vary. Check the current member agreement for specifics.
5. The platform's regulatory stability
The prediction market sector is in active legal flux. Kalshi faces criminal charges in Arizona, a halted service in Nevada, and ongoing enforcement across six states. While the CFTC's federal preemption argument may ultimately prevail, the litigation timeline is measured in years. Funds held on prediction market platforms during a potential forced service shutdown would be subject to the platform's terms for account closure — worth understanding before depositing significant amounts.
Prediction Market T&C Risk Scores
Wager Layer does not currently publish affiliate links for prediction market platforms. Scores reflect T&C analysis only. Last updated June 2026.
| Platform | T&C Score | Regulatory Status | Full Analysis |
|---|---|---|---|
| Kalshi | 6.0 / 10 | CFTC DCM registered. Active enforcement in 6+ states. | read the Kalshi T&C analysis → |
| Polymarket | Not yet profiled | Re-entered US market late 2025 via QCEX acquisition | Profile in development |
Additional prediction market profiles — including Polymarket and PredictIt — are in development. Subscribe to the Wager Layer newsletter for updates.
Follow the litigation
The prediction market legal picture changes fast.
Our regulatory analysis tracks every circuit court ruling, state enforcement action, and CFTC filing as they happen.
All T&C Risk Scores are set by Wager Layer's editorial team based on primary document analysis conducted at the date shown on each platform profile. Wager Layer does not currently publish affiliate links for prediction market platforms. This page does not constitute legal or financial advice. Last reviewed: June 2026.
Profiles Live
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Active Court Cases
9+
States Challenging
6
Circuit Split
3-way
Active regulatory conflict — 2026
Three federal appeals courts are currently adjudicating whether state gambling laws are preempted by the Commodity Exchange Act for CFTC-regulated prediction markets. The Third Circuit has ruled for Kalshi. The Ninth and Fourth Circuits are expected to rule in 2026, likely creating a circuit split that pushes the question to the Supreme Court. Read the full circuit split analysis →