Facts on BUSINESS May 2026

Prediction Markets: How Institutional Money and Political Pressure Are Driving Each Other

As Kalshi courts Wall Street and the Senate bans its own members, the forces accelerating prediction markets and the forces pushing back against them are no longer separate stories.

The Pressure Building

The CFTC’s Advance Notice of Proposed Rulemaking, issued in March 2026 and covered in our BETS OFF Tests Jurisdiction piece, set a deadline for public comment that has now passed. What that deadline produced is a map of how divided the institutional landscape actually is. The MLB, NBA and NCAA each filed comments with the Commission. The NFL and NHL declined to comment. A lobbying firm representing players associations weighed in separately. On the state side, a bipartisan coalition of 41 attorneys general filed a formal comment telling the CFTC that jurisdiction over sports gambling belongs with the states and that any distinction between a sportsbook bet and a prediction-market contract is, in their words, illusory.

That coalition — spanning Alabama, California, New York, Texas and 37 others — represents the broadest coordinated state response the prediction-market sector has faced. Its argument is not novel; individual states have been making versions of it since New York sent Kalshi a cease-and-desist in October 2025, as we examined in A New Animal. What is new is the scale and the formal procedural posture. By filing within the CFTC’s own rulemaking process, the states are not just litigating in courts — they are attempting to shape the administrative record the Commission will rely on when it writes its final rules.

The courts are moving at the same time. In early May 2026, the Massachusetts Supreme Judicial Court heard oral arguments on whether Kalshi’s sports contracts can be blocked under state law. Chief Justice Scott Kafker described the contracts as a way to gamble on a game and said that if Congress intended to displace state gambling law in this way, it would have said so more clearly. Justice Gabrielle Wolohojian asked Kalshi’s counsel to explain in what way the contracts differ from what would colloquially be known as a bet. Nevada secured a court-backed injunction against Kalshi in late April. Legal analysts tracking the litigation map across multiple federal circuits describe the conditions for a circuit split as increasingly present: the Third Circuit has ruled in Kalshi’s favour on preemption, while courts in the Sixth and Ninth Circuits have signalled scepticism of the same arguments, with state courts in Nevada and Massachusetts now producing further divergent readings.

Congress has moved from introducing bills to passing them. The Senate voted unanimously to ban its members and staff from trading on prediction markets, with Senate Democratic leader Chuck Schumer arguing that members should never be able to gamble on wars, economic crises or elections. Judicial transparency advocacy group Fix the Court has called for a parallel ban covering federal judges and their staffs, noting that users can currently place bets on when justices will retire and how pending Supreme Court cases will be decided. A Senate Commerce subcommittee hearing on sports betting integrity, explicitly including prediction markets, is scheduled for 20 May 2026.

In late April, the Department of Justice charged a US Army soldier, Gannon Ken Van Dyke, with insider trading on Polymarket, alleging he used material non-public information about the removal of Venezuelan President Nicolás Maduro to generate more than $400,000 in profit — the first criminal insider trading case brought in connection with a prediction market.

While Kalshi has introduced voluntary platform measures — including FaceID defaults, selfie verification for higher-risk accounts, and a social transparency feature called Inner Circle — the National Council on Problem Gambling has identified a more structural gap. In our interview with NCPG’s Cole Wogoman, he described the regulatory structure around prediction markets using a triangle: one corner is the individual, one is the operator — which holds all the behavioural data and can see when patterns change — and one is the regulator, which sets the player-protection rules the operator must follow. In prediction markets, he said, the regulator is now a grey spot, or in his words there is no regulator in the sense of a body that sets player-protection rules the way state gambling regulators do for sportsbooks. His concern is grounded in what counsellors are reporting: that it is possible to access Polymarket with a crypto wallet when you are under 18 years of age. Wogoman is careful to present this as what counsellors have heard, not as the finding of a formal study — but he combines it with the broader research on young men, online sports betting and early gambling to reach NCPG’s consistent position: from a problem-gambling standpoint, betting on these futures is functionally gambling for many users, and regulators should act on that before more severe cases accumulate. For iGaming operators who have spent years building KYC and age-gating infrastructure to meet regulatory requirements, the existence of a parallel gambling-like product with no equivalent obligations is directly relevant to the competitive and reputational landscape in which they operate.

What This Means for Operators Considering the Space

Jefferies analyst David Katz, in his interview about predicition markets made a point that has gained rather than lost relevance in the months since. He described prediction markets as a difficult and narrow space, and argued that two forces are routinely underestimated in the debate: the political and economic power of tribal gaming entities in key US states, and the expectation of professional sports leagues that new gambling-adjacent products will sit inside established integrity monitoring and consumer-protection frameworks rather than outside them. His third structural concern — active litigation — has since multiplied across five federal circuits.

Katz’s broader argument was that operators best positioned for long-term value are those who stay in clearly regulated lanes, rather than those who chase loosely defined products on uncertain legal ground. The subsequent months have done nothing to undermine that view. The 41 attorneys general filing, the Senate ban, and the first criminal insider trading charge are not the markers of a category settling into regulatory clarity. They are the markers of a category in which the rules are still being written — simultaneously across multiple forums by parties with competing interests.

For licensed iGaming operators, this creates a specific brand-risk question. A sportsbook or casino operator that has spent years meeting responsible gambling obligations — KYC, age verification, deposit limits, self-exclusion, AML — now operates alongside platforms offering functionally similar experiences with none of those obligations in place. Whether an operator enters the prediction-market space or not, the regulatory response to that gap will shape the environment in which they operate.

If prediction platforms are brought inside gambling-style regulation, the competitive field levels. If the outcome is a patchwork of state bans, federal rules and ongoing litigation, the uncertainty itself becomes a cost. If regulators in Europe and elsewhere look to the US debate as a reference point — as the BETS OFF piece noted the UK Gambling Commission is already beginning to do — the question of what standards prediction-market products should meet will arrive on desks well outside Washington.

The Unanswered Question

The question we have returned to throughout this series — whether prediction markets will ultimately be governed as derivatives, as gambling, or under a new hybrid framework — remains unanswered. What has changed is the urgency and the number of institutions now invested in shaping that answer. The CFTC’s rulemaking is the central process, but courts in Massachusetts, Nevada and potentially other circuits will produce rulings before the Commission finalises its rules. The 41 attorneys general have put their collective weight behind the states’ position in the administrative record. The DOJ has demonstrated that existing fraud law already covers prediction-market insider trading without requiring any new statute.

For operators and compliance professionals, the practical implication is that the assumed safe harbour — federal derivatives law provides a clear shield against state gambling regulation — is being tested on multiple fronts simultaneously.
The money flowing in is accelerating that timeline. So is the political pressure it is generating. Both tracks are, at this point, running at full speed. Where the line eventually falls and who draws it remains the question the industry is waiting to have answered.