What Are Prediction Markets and How Are They Changing U.S. Sports Gambling?

If you’ve been paying attention to betting conversations lately, prediction markets keep popping up. I’ve noticed it more and more over the past year, especially around football season. What started as something tied to politics and economics is now sitting right in the middle of sports gambling discussions across the country.

Prediction markets aren’t sportsbooks, at least not by name. They don’t frame what they offer as bets. Instead, users trade event contracts tied to real-world outcomes. If the outcome happens, the contract pays. If it doesn’t, it expires worthless. The mechanics are simple, and in practice, it looks a lot like placing a wager.

The real difference is regulation. Traditional sportsbooks operate under state laws, which means licenses, taxes, and rules that change depending on where you live. Prediction markets fall under federal oversight through the Commodity Futures Trading Commission. That distinction has allowed platforms like Kalshi and Polymarket to offer sports-related contracts nationwide, including in states where sports betting still isn’t legal.

That gap became much more important in 2025. After Kalshi cleared a major legal challenge, sports markets expanded quickly. NFL games, tennis matches, and futures-style outcomes began showing up alongside contracts tied to economic data and political events. Once football season arrived, trading volume followed almost immediately.

The growth has been hard to miss. Monthly activity across prediction platforms jumped from under $100 million in early 2024 to more than $13 billion by the end of 2025. Sports now make up a large share of that volume, particularly during the NFL season. For many users, the experience feels closer to trading than gambling, which is part of the appeal.

Not everyone is thrilled about it, and that’s where I’ve seen the pushback really start to pick up. State regulators and gambling groups argue that prediction markets are skirting rules that sportsbooks are required to follow. That includes state licensing, consumer protections, and tax obligations. Several states have issued cease-and-desist orders, and legal challenges are now working their way through federal courts with mixed early results.

Tribal gaming groups have also stepped into the fight. They argue that sports-related event contracts violate agreements that grant them exclusive gaming rights. With billions of dollars in annual revenue tied to those agreements, this is not a small dispute. Many observers expect the issue to eventually land in front of the Supreme Court.

Sportsbooks are watching closely. When prediction markets started pulling in serious volume, shares of companies tied to traditional sports betting dipped. The concern is straightforward: if bettors can access similar markets without going through a sportsbook, some of that activity is going to shift.

That said, prediction markets aren’t replacing sportsbooks overnight. Parlays, live betting, and in-game wagering still belong mostly to traditional operators. And they aren’t standing still. Some sportsbooks are already exploring partnerships with financial exchanges to launch contract-style products of their own.

What this really comes down to is a question that never fully got answered when sports betting expanded in the U.S. Where does gambling end and financial trading begin? Prediction markets sit squarely in that gray area. With Congress unlikely to step in anytime soon, the courts may end up deciding how wide that lane really is.

For bettors, the change means more access and more ways to engage with sports markets. For regulators and operators, it’s a high-stakes adjustment period. Sports gambling just happens to be where the pressure showed up first.