Why the Fight Over Prediction Markets Could Reshape Sports Betting in America

A couple of weeks ago the Ingram County Circuit Court ordered Kalshi to stop offering sports betting in the state of Michigan. The order was signed by the Michigan Attorney General’s office after the Michigan Gaming Control Board (MCSB) issued a complaint against Kalshi saying they were operating illegal unlicensed sports betting. In a press release, MSCB Executive Director Henry Wiliams stated:

"Kalshi is targeting Michigan's most vulnerable residents with sports betting dressed up as investing — and without intervention, the harm will keep getting worse. Our licensed sportsbooks follow strict rules designed to protect consumers — verifying that bettors are at least 21 years old, offering responsible-gaming tools, and protecting patron funds. Kalshi has refused to play by the same rules, and our agency will continue to use every regulatory and legal tool available to make sure Michigan families, our schools, and our first responders are protected from this unchecked exploitation.”

The MCSB also pointed out that revenue from sports betting and other forms of gambling go to help with schools, economic development and city and state services and infrastructure, while the revenue from Kalshi, along with other prediction sites like Polymarket, only go to the bottom line of the companies. As a result of that ruling and a further ruling by Michigan courts to geofence Michigan natives and cancel futures contracts (an issue that will be discussed later) by August 12th, Kalshi has decided to stop offering its services to Michigan.

Additional states seeking injucntions

Several state gambling boards also issued rulings against Kalshi although courts in those states have overturned any injunctions pending an appeal, so in Arizona, Illinois, Maryland, Montana, and New Jersey, Kalshi is available, although the issue is before the courts. Kalshi has agreed not to offer sports betting in Massachusetts since their objection was only regarding sports, but the rest of Kalshi’s offerings are available in that state.

Ban in Minnnesota

The one state I didn’t mention was Minnesota, which in May enacted a statutory ban on all forms of prediction markets with penalties of up to $10,000 and five years in jail for violating the ban. The action is set to start in two weeks on August 1st, and the fine and jail time is aimed not only at Kalshi, but any business that helps promote, advertise or enable prediction markets to continue what the state says are illegal actions. Consequently, Kalshi will not block Minnesota until at least July 31st, although it has been reported that many advertisers have pulled their ads for Kalshi believing the ban is inevitable.

CFTC fights back

Kalshi and the Commodity Futures Trading Commission (CFTC) have launched lawsuits to fight each action even if they have temporarily stopped offering their service, saying that the CFTC has exclusive jurisdiction to enforce trading on swaps and that every form of market Kalshi, Polymarket and other prediction sites offer fall under the regulation of the CFTC.

As mentioned earlier, the Michigan court not only ordered Kalshi to stop offering their markets but also ordered Kalshi to void all futures contracts that are outstanding, while the CFTC ordered Kalshi not to cancel any of the contracts. The CFTC chairman Mike Selig stated  "The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.” As a result Kalshi finds itself in a bad situation. If it cancels the contracts it will be fined or sanctioned by the CFTC but if it doesn’t cancel them they can be fined and possibly even jailed by the state of Michigan.

Lawsuits destined to reach the Supreme Court

There’s no question that the decision on whether prediction sites have the right to offer sports or related contracts will end up in The Supreme Court and it’s not certain how the courts will rule. In other countries like Canada, the UK and Australia where prediction market sites are illegal, it’s because there is no separation between who controls betting and who controls  trading. In each case the states or provinces have the exclusive right to control all forms of gambling or commodities trading. And in those countries the authorities have indicated that for sports, at least, they are one and the same.  At a recent gambling conference a lawyer that represents a gaming regulator said that prediction markets are absolutely a form of gambling based on the old principal that if it looks like a duck, walks like a duck and quacks like a duck . . . then it’s a duck. He said there are some markets that these places can offer that may not be gambling, like what will be the closing price of oil or gas, but whether Spain or Argentina will win the World Cup is without question gambling.

Gambling vs. Trading

In normal circumstances the courts use the reasonable person rule to decide issues like this and would agree that what Kalshi and Polymarket offer on sporting events is betting, but it seems that rule has gone out the door.

Prior to 2024 the CFTC actually agreed that election contracts offered by Kalshi were a form of gambling and the CFTC tried to block Kalshi from offering them saying that these markets were a form of gaming and contrary to the public interest. Kalshi sued the CFTC in federal court in 2023 and in 2024 the courts ruled for Kalshi saying the CFTC overstepped its authority. Nevertheless, the CFTC appealed the ruling but then dropped their objection in May 2025 and instead became the defender of everything Kalshi did. This decision coincided with Trump appointing Selig as the head of the CFTC. Trump said he chose Selig because he was a cryptocurrency pioneer and Trump made it clear he wanted the U.S. to be the cryptocurrency capital of the world. It was not unnoticed that Trump introduced his meme coin $TRUMP in January 2025, four months before making Selig chairman, so Trump had a vested interest in making sure that crypto went forward without any restrictions. Selig has also been very supportive of prediction markets calling it the future and of course the Trump family operates a prediction market site with Truth Predicts.

Angry states make case

Politics aside, states are rightly upset about prediction markets for the same reason Michigan stated, namely states rely on tax revenue from legal forms of gambling but they get no taxes from prediction markets. After SCOTUS repealed PASPA in 2017 states got their ducks in order and spent millions of dollars to help create a gambling market to offer sports betting if not online casinos as well, and their states have prospered as a result. Fan Duel and DraftKings in particular have cornered much of the sports betting space in every state, and in 2025, New York collected over $1.3 billion in tax revenue thanks to their sports betting market. So the big concern with many states is that prediction market betting could outpace sports betting and cannibalize sports betting.

And they could be right.

Recent reports indicate that total handle in 2026 will be about $165 billion on sports betting and $288 billion on prediction markets, and the $165 billion is a slight drop off almost certainly due to prediction markets. More important, companies like FanDuel, DraftKings and BetFanatics have set up their own prediction market sites and other sports betting giants are looking to add prediction markets also. The concern there is that a lot of these companies will start cutting back on advertising and investments in their sports betting products because there is more to be made with prediction markets. I spoke off the record with someone at one of the those sites and he said the company is loving the new opportunity with prediction markets.

“The administrative costs and taxes on sports betting is considerable and we struggle to be profitable. But with prediction markets we don’t have to pay up to 50% in taxes to states, and we get a lot of bang with very little advertising on prediction markets. Our partners due the grunt work.  Best of all we can book bets in states where we can’t offer sports betting. While California, for example, refuses to legalize online sports betting due to fighting between the state and Indians, we can offer pretty much the same bets there by way of our prediction markets and there is nothing the state can do because it’s federally regulated. And we don’t have to give the state a penny. Also off the record (note I didn’t use the name or company for the article), this gives us a lot of future bargaining power with states like New York, Illinois and Pennsylvania. We can tell them that we are getting our bets booked one way or another and if they want to keep getting tax revenue from us for sports betting they better drop the tax rate to a percentage where we can be profitable such as 20% which is the norm.  It’s not a threat, but it is reality.”

So what happens next? Who knows? The issue will go before the courts and most likely state courts will rule for their gambling boards while federal courts will rule for the CFTC. The only question is how quickly will this get to the Supreme Court of the United States?

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