Prediction Markets Face Scrutiny Over Election Betting

Federal regulators are intensifying oversight of prediction markets that allow users to wager on U.S. elections and sporting events, according to officials familiar with the matter.

The Commodity Futures Trading Commission has signaled it will examine whether platforms operating as event contracts violate existing gambling laws. The CFTC previously blocked a 2023 proposal by Kalshi to list federal election contracts, ruling political outcomes did not serve a legitimate hedging purpose under the Commodity Exchange Act.

That stance fractured after offshore operators entered the domestic conversation. Polymarket, which operates outside U.S. jurisdiction, processed more than $3 billion in volume tied to the 2024 presidential race alone, according to blockchain analytics firm Dune Analytics. The surge forced state attorneys general and federal agencies to confront a regulatory gap they had largely ignored since the industry’s emergence.

Sports betting represents a parallel pressure point. Prediction market industry executives argue their products function as derivatives rather than traditional wagers. State gaming commissions disagree. At least four states have issued cease-and-desist letters to unlicensed platforms offering contracts on NFL games and college basketball tournaments since early 2025, according to public records reviewed by Reuters.

The legal distinction matters financially. Licensed sportsbooks pay effective tax rates between 10% and 51% depending on the state. Platforms classifying identical activity as event contracts currently owe nothing to state gaming funds.

Congressional lawmakers introduced bipartisan legislation earlier this year that would explicitly prohibit financial contracts on election outcomes. The bill remains stalled in committee. No floor vote is scheduled.