Prediction Markets: Are Sites Like Kalshi Legal To Use?

A prediction market is a form of betting platform where participants buy and sell “event contracts” based on their predictions of real-world events. Platforms such as Kalshi have built entire exchanges around this concept, offering contracts tied to events.

The model raises a legal question that regulators and courts are still working through. Before creating an account or placing a trade, it is important to understand where the law currently stands, why the legal status of these platforms remains under active debate, and when to seek legal help.

What Are Prediction Markets?

Prediction markets allow people to trade on the likelihood that real-world events will happen. They can bet on sports events, politics, pop culture, weather, economics, and more. Some of the most well-known of these derivatives betting apps are FanDuel, DraftKings, Kalshi, and Polymarket.

These apps work by selling shares in prediction contracts. Participants will purchase either “yes” or “no” shares based on their beliefs about the event’s outcome. Each share is assigned a value based on the likelihood of the outcome, ranging from 0 to 100 cents. So, a price of 40 cents would represent a 40% of the event occurring.

This differs from traditional sports betting because it uses a different fee model and takes a user-versus-user approach rather than betting against “the house”.

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Are Prediction Markets Legal in the United States?

The legality of prediction markets in the United States generally depends on their classification under federal law. While states can regulate activities within their borders, federal law controls over state law. The Commodity Exchange Act allows trading in certain event contracts, but they must be traded on a registered exchange and meet regulatory standards.

These markets fall under the oversight of the Commodity Futures Trading Commission (CFTC), which supervises derivatives trading and determines which contracts are allowed. Exchanges like Kalshi operate as Designated Contract Markets. They must stay in compliance with federal regulations. At the same time, the CFTC has the authority to block or remove contracts involving topics such as gaming, terrorism, or war when they raise broader public-interest concerns.

Why Some Regulators Say Prediction Markets Are Gambling

Some regulators view sports prediction markets as a modern version of a traditional sportsbook, which places them squarely within existing state gambling laws. State gaming regulators are responsible for overseeing betting activity within their borders, and many have taken the position that letting users trade contracts on game outcomes closely resembles wagering.

This has led to cease-and-desist actions against certain platforms, with regulators arguing that offering sports contracts without proper licensing violates state law. The debate has drawn attention from lawmakers, who are now examining whether current statutes adequately address these platforms.

At the center of the issue is whether bettors participating in these markets are engaging in gambling or using an investment tool designed to trade contracts based on real-world outcomes.

Federal vs. State Authority Over Prediction Markets

The legal battle over prediction markets highlights a continuing dispute between federal and state authorities.

The CFTC maintains that platforms like Kalshi offer event contracts that qualify as federally regulated derivatives under the Commodity Exchange Act. That means they fall under federal oversight. State regulators in several states, including New Jersey, Nevada, and Massachusetts, have argued that these markets resemble gambling and fall under state gaming laws.

This disagreement has led to cease-and-desist letters, lawsuits, and conflicting court rulings, with some courts temporarily blocking state enforcement and others allowing it to proceed. As a result, the question of whether federal law preempts state regulation remains unresolved, leaving prediction markets in a legally uncertain position as litigation continues nationwide.

Regulators in New York and Ohio have taken the position that certain event-based contracts, particularly those associated with sports or other outcomes resembling wagers, may fall under state gambling laws rather than federal derivatives regulation. Like New Jersey and Nevada, these states have issued scrutiny or enforcement actions against platforms such as Kalshi, arguing that offering these contracts without proper state authorization could violate gaming statutes.

Even when a platform claims federal oversight through the CFTC, state gaming commissions continue to assert their traditional role in regulating betting and consumer protection within their jurisdictions, leading to a patchwork of laws that shape prediction markets nationwide.

Are Prediction Market Platforms Safe and Legal for Consumers?

Whether prediction markets are safe and legal for consumers depends on several moving pieces. Platforms operating under the supervision of the Commodity Futures Trading Commission may offer approved contracts that are lawful at the federal level, but that does not guarantee uniform treatment across the country.

State regulators may still challenge these platforms. The result could be a patchwork of rules. Users also face practical risks. There could be sudden changes to available markets. Platform regulations could change. Disruptions from ongoing legal disputes can create spotty access. This mixture of federal approval and state-level uncertainty makes participation less straightforward than it may appear.

The Future of Prediction Market Regulation

The future of prediction market regulation remains uncertain. The CFTC may issue additional guidance to clarify how event contracts are regulated. Congress has begun to explore whether new laws are needed.

Ongoing disagreements between state and federal courts could eventually bring the issue before the U.S. Supreme Court. Despite these open questions, adoption continues to expand sports wagering.

The National Football League (NFL) has taken steps to restrict prediction markets from advertising around its major events, such as the Super Bowl. This is a different approach from Major League Baseball (MLB), which signed a multi-year partnership with Polymarket. The National Hockey League (NHL) and Major League Soccer have both partnered with prediction market platforms.

Seek Legal Guidance

Prediction markets challenge traditional legal categories, which is why their regulation remains a matter of ongoing discussion.

If you have questions about the legality of participating in a prediction market or need advice related to financial or gaming regulations, speaking with an attorney can help you better understand your options. To find a qualified lawyer, explore the listings in the Super Lawyers directory.