Prediction market: When bets become commodities

A Kalshi advert on a New York street display promotes live election contracts between Trump and Harris, illustrating how federally regulated event‑contract platforms are marketing political markets in public spaces while their legal status is still being contested. Photo by Imago / Alamy.

Why is this happening?

First, the regulatory door is at least partly open. The CFTC has treated certain “event contracts” listed on designated contract markets as permissible derivatives under the CEA, provided they do not violate its “gaming” and public‑interest prohibitions, enabling Kalshi to offer markets on politics, economic data, and sports within a federal derivatives framework. CFTC staff describe event contracts as derivatives based on the “occurrence or non‑occurrence of future events,” which may be listed on DCMs if they are not found to be contrary to the public interest. Federal courts in Nevada and New Jersey have, at the injunction stage, found that the CEA’s grant of exclusive jurisdiction to the CFTC pre‑empts those states’ gambling laws for contracts traded on Kalshi. In contrast, a Maryland court has reached the opposite conclusion, and appeals are ongoing, so the scope of pre‑emption remains contested rather than settled.

Second, the economics are attractive for several types of operators. A CFTC‑regulated venue can, in principle, serve customers in many or all states under a single federal regime. In contrast, sportsbooks must secure separate licences, pay local taxes, and adapt to state‑specific product and marketing rules. That makes event contracts a way to test demand for trading on sports and political outcomes without first obtaining a separate sportsbook licence in every state that has legalized online sports betting. For a platform like Truth Social, embedding a prediction exchange adds a potential new revenue stream on top of advertising and subscriptions, increases time‑on‑site, and creates a transactional layer around political and sports content, while allowing Crypto.com to plug its existing US derivatives infrastructure into an engaged user base. For DraftKings and FanDuel, which continue to run state‑licensed sportsbooks but have left the AGA while developing prediction‑style products, the same structure might offer a complementary channel: they can keep taking traditional bets where they hold licences and, if their contracts are approved, use event markets to reach or pre‑position in states where online sports betting is restricted or not yet legal.

Third, there is a political overlay. Kalshi’s markets already cover elections, congressional control, and policy outcomes, and Trump Media’s planned “Truth Predict” ties those markets to a highly partisan media platform, allowing users to trade on political and policy events while consuming related content. The involvement of Donald Trump Jr. as a strategic adviser to Kalshi and as an investor or adviser in other prediction operators places event contracts within a broader conservative political and media ecosystem, which in turn has drawn attention from regulators, legislators and advocacy groups. Commentary around prediction market often notes that this mix of federal regulation, contentious subject matter and commercial innovation has historical echoes: histories of US gambling policy describe how new formats such as state lotteries, riverboat casinos and early online wagering opened legal avenues to monetise existing behaviour, typically triggering disputes between state and federal authorities over who should regulate and tax the activity, and similar patterns appear in sectors such as cannabis and financial derivatives.

The legal and regulatory basis

In the US, traditional online sportsbooks are regulated at the state and tribal levels. Operators must obtain individual licences in each state, follow local product, marketing, and responsible‑gaming rules, and pay state gaming taxes and fees.

Event‑contract venues such as Kalshi, by contrast, are regulated at the federal level as designated contract markets (DCMs) under the Commodity Exchange Act, supervised by the CFTC with a focus on market integrity, clearing, reporting, and a specific “gaming” and public‑interest test for individual contracts.

The CEA gives the CFTC exclusive jurisdiction over transactions on DCMs within the federal derivatives framework, and Kalshi’s DCM status since 2020 means its event contracts are treated as derivatives under federal law rather than as wagers under state codes.

A November 2025 article from Stinson LLP notes that federal courts in Nevada and New Jersey have, at the injunction stage, accepted this position and temporarily blocked state regulators from acting against Kalshi’s sports event contracts on pre‑emption grounds, while a Maryland court and a later Nevada ruling have refused similar relief and ordered certain contracts halted, emphasising that state gambling powers remain significant.
Separately, a Washington, DC, court held in KalshiEX LLC v. CFTC that the Commission exceeded its authority when it tried to ban Kalshi’s congressional‑control contracts under its gaming and public‑interest powers, and the CFTC dropped its appeal, leaving that decision in place for now. Legal commentators describe these mixed outcomes as an emerging “prediction market pre‑emption” problem: the same statute that grants the CFTC exclusive jurisdiction over DCMs also requires it to consider gaming and public‑interest concerns, including conflicts with state gambling policy, and different courts are drawing the line in different ways. FanDuel and DraftKings continue to operate state‑licensed sportsbooks and, by developing CFTC‑based prediction products, are positioning themselves to participate in both regulatory systems.

At the same time, appellate courts and regulators are determining how far the event‑contract model can sit outside traditional gambling law.

FanDuel and DraftKings already have millions of US users through their sportsbook and fantasy apps, and both companies are now developing prediction‑style products alongside their state‑licensed operations, positioning themselves to operate in both traditional sportsbook markets and the developing CFTC‑regulated event‑contract space. Photo by Koshiro K / Alamy.