The short answer: yes, prediction markets are legal at the federal level. The longer answer involves a jurisdictional battle between federal regulators, state gambling commissions, Congress, tribal gaming authorities, and the courts — one that could ultimately reach the Supreme Court. If you're trading on Kalshi, Polymarket, Robinhood, or OG, this is what you need to know about the legal landscape in 2026.
The Federal Framework: Why Prediction Markets Are Legal
Prediction markets in the United States operate under the regulatory authority of the Commodity Futures Trading Commission (CFTC). The CFTC is the federal agency that oversees commodity futures, options, and derivatives markets — the same body that regulates oil futures, agricultural commodities, and financial swaps.
The platforms you're most likely to use — Kalshi, Polymarket, Robinhood (via Kalshi's exchange), and OG (via Crypto.com's CDNA) — are registered with the CFTC as designated contract markets (DCMs) and/or operate through CFTC-licensed exchanges and clearinghouses. This means they're subject to federal rules on transparency, market integrity, customer protection, anti-manipulation, and financial safeguards.
Under this framework, prediction market contracts are classified as event contracts — a type of financial derivative where the payout depends on whether a specific real-world event occurs. You're not "betting" in the legal sense that state gambling laws use. You're trading a CFTC-regulated financial instrument. At least, that's the argument the industry and the current CFTC leadership are making.
The Commodity Exchange Act (CEA) — the federal statute that governs the CFTC's authority — contains preemption language stating that the act "shall supersede and preempt the application of any State or local law that prohibits or regulates gaming." This language is central to the legal battle playing out across the country.
The CFTC's Evolving Position
The CFTC's stance on prediction markets has shifted dramatically in a short period.
Under previous leadership, the CFTC was actively hostile to certain prediction market activities. In 2022, the agency charged Polymarket with operating without proper registration and forced the platform to pay a $1.4 million fine and block US users. The CFTC also fought Kalshi's attempt to list election contracts, a legal battle that Kalshi ultimately won in court.
Under Chairman Michael Selig — appointed by President Trump and confirmed in December 2025 — the CFTC has reversed course entirely. Selig has publicly declared the agency's "exclusive jurisdiction" over prediction markets and has taken aggressive steps to defend that position.
On March 12, 2026, the CFTC made two significant moves. First, it issued a staff advisory to regulated prediction market firms, laying out guidelines for how DCMs should get trading products cleared and emphasizing that platforms should only handle contracts that aren't susceptible to manipulation. The advisory also encouraged sports contract platforms to communicate with relevant sports governing bodies. Second, the CFTC launched a formal rulemaking process through an Advanced Notice of Proposed Rulemaking (ANPRM), seeking public comment on how prediction markets should be regulated going forward. This is the first formal step toward establishing dedicated prediction market regulations.
Selig has also filed "friend of the court" briefs supporting prediction market platforms in active litigation — most notably in the Nevada case involving Crypto.com. In a video posted on social media, Selig warned state regulators directly: the CFTC will defend its authority in court.
This is notable because Selig is currently the sole commissioner on what is meant to be a five-person body, giving him extraordinary unilateral authority to set the agency's direction. The four remaining seats are vacant.
The State-Level Challenge: Where It Gets Complicated
While prediction markets are legal under federal CFTC regulation, multiple states argue that sports prediction contracts — specifically — constitute gambling and fall under state gambling laws, not federal financial regulation.
This is the core legal question: does the CFTC's exclusive federal jurisdiction over derivatives preempt state gambling laws when the derivative in question is tied to a sporting event?
States say no. They argue that prediction markets offering sports contracts are functionally indistinguishable from sports betting — an activity that states have the power to regulate, license, and tax under the Supreme Court's 2018 Murphy v. NCAA decision.
The platforms say yes. They argue that event contracts are financial instruments regulated by the CFTC under the Commodity Exchange Act, that traders are trading against each other (not against a house), and that the exchange model is fundamentally different from a sportsbook.
States That Have Taken Action
As of March 2026, the enforcement landscape is extensive and rapidly evolving. At least 11 states have issued cease-and-desist orders to prediction market companies. Litigation is active in at least eight states. Court rulings have been mixed — with courts reaching conflicting conclusions on the same fundamental legal questions.
Here's a summary of the most significant state-level actions:
Nevada has been the most aggressive state. The Nevada Gaming Control Board sued Kalshi and Polymarket, alleging they operate unlicensed sports betting operations. A federal judge issued a temporary restraining order against Kalshi. The case is now before the Ninth Circuit Court of Appeals, where the CFTC has filed an amicus brief supporting Kalshi.
Massachusetts sued Kalshi in September 2025, alleging the platform evades sports gambling laws. A state Superior Court rejected Kalshi's argument that its contracts are CFTC-regulated swaps, calling the position "overly broad," and granted an injunction. However, the Appeals Court stayed the injunction and ordered expedited briefing. The case is expected to reach the Massachusetts Supreme Judicial Court.
Tennessee issued cease-and-desist letters to Kalshi, Polymarket, and Crypto.com/OG. On February 19, 2026, a federal court in Tennessee ruled in Kalshi's favor, granting a preliminary injunction and finding that sports event contracts are likely "swaps" under the Commodity Exchange Act, subject to exclusive federal jurisdiction. This was a significant win for prediction markets.
New Jersey challenged Kalshi through its Gaming Commission. A federal court granted Kalshi a preliminary injunction in April 2025, supporting the federal preemption argument. However, more than 60 tribal gaming authorities and 34 state attorneys general have filed amicus briefs supporting New Jersey's position. The Third Circuit ruling in this case will likely be the most consequential appellate decision on the preemption question.
Maryland challenged Kalshi, and a federal court denied Kalshi's request for a preliminary injunction, finding that state gaming authority applies and that CFTC field preemption does not automatically override state gambling laws.
Ohio ruled that Kalshi's sports contracts are categorically not "swaps," directly contradicting the Tennessee ruling. Kalshi has appealed.
Michigan has seen Polymarket file a counter-suit after the state attorney general took action against the platform.
Utah is on the verge of passing legislation (HB 243) that would expand the state's gambling ban to include proposition betting — directly targeting the type of sports contracts offered by prediction markets. Kalshi preemptively sued the state in late February, asking a federal judge to block enforcement.
Other states that have taken enforcement action or issued cease-and-desist orders include Connecticut, Arizona, Illinois, and California (where the Digital Financial Assets Law takes effect in July 2026, potentially adding another layer of regulation).
The Scoreboard: Courts Are Split
The pattern is clear: federal courts have reached directly conflicting conclusions on the same legal question. Tennessee and New Jersey have ruled in favor of federal preemption (supporting prediction markets). Nevada, Massachusetts, Maryland, and Ohio have sided with state authority (supporting state gambling regulation). This circuit-level split is exactly the kind of legal conflict that could eventually reach the Supreme Court — a possibility legal analysts consider likely, potentially in 2027 or 2028.
Congressional Activity
Congress hasn't been quiet either. Multiple bills have been introduced in response to the growth of prediction markets, though none have passed into law as of March 2026.
On March 12, 2026 — the same day the CFTC launched its formal rulemaking process — Senators Richard Blumenthal (D-Connecticut) and Andy Kim (D-New Jersey) introduced legislation that would explicitly state that prediction markets are not exempt from state law. The bill would also ban insider trading on prediction markets, restrict users under 21 from trading, and counter the CFTC's claim of exclusive jurisdiction. This is a direct legislative challenge to the CFTC's position.
Representatives Blake Moore (R-Utah) and Salud Carbajal (D-California) have introduced separate legislation that would block Kalshi and Polymarket from offering markets on war, death, and sports.
In Hawaii, lawmakers have introduced a bill (HB 2198) that would redefine gambling to include financial speculation on sports and other events. If enacted by July 2026, it would be the first state-level prediction market ban to pass into law.
Kentucky has legislation (HB 904 / HB 757) that could force DraftKings, FanDuel, and Fanatics to choose between their state gaming licenses and their prediction market partnerships.
Senator Chris Murphy (D-Connecticut) has called for legislation banning wagers on violence and conflict. Representative Ritchie Torres introduced the Public Integrity in Financial Prediction Markets Act, which would ban federal employees and elected officials from trading on political outcomes they could influence.
The legislative picture is fragmented and fast-moving. No bill has passed yet, but the volume of activity signals that Congress is likely to act in some form — the question is when and how.
The Political Dimension
The regulatory battle has an unavoidable political overlay. Donald Trump Jr. has invested in Polymarket through his venture capital firm and serves as a strategic advisor for Kalshi. Any CFTC decisions favorable to prediction markets could financially benefit the president's family — a point that has drawn scrutiny from both parties.
CFTC Chairman Selig was appointed by President Trump. The administration's position has consistently aligned with the industry's arguments that federal regulation should preempt state gambling laws. Critics argue this represents a conflict of interest; supporters argue it reflects a principled view of federal regulatory authority.
What This Means for You as a Trader
The legal complexity can be overwhelming, but the practical implications for individual traders are manageable.
Federal legality is not in question. Trading on CFTC-regulated prediction market platforms is legal under federal law. The platforms are registered, regulated, and subject to federal oversight. No state has successfully prohibited users from accessing prediction markets entirely — the disputes are about whether states can restrict specific contract types (primarily sports) or require platforms to obtain state gambling licenses.
Sports contracts are the contested area. If you're trading political, economic, weather, crypto, or cultural contracts, these are not subject to the state-level challenges focused on sports. The vast majority of the litigation centers specifically on sports event contracts and their similarity to traditional sports betting.
Your state matters. If you live in a state that has taken enforcement action, your access to sports contracts may be restricted depending on the platform. Each platform handles state restrictions differently — some block sports contracts in certain states while keeping all other markets available. Check your platform's availability page for your specific state.
No individual traders have been targeted. All enforcement actions to date have been directed at the platforms, not at individual users. There's no precedent (as of March 2026) for a state prosecuting or penalizing an individual for trading on a CFTC-regulated prediction market.
The situation is temporary. The conflicting court rulings and active litigation will eventually produce a clearer legal framework — whether through appellate court decisions, Supreme Court review, Congressional legislation, or CFTC rulemaking. The CFTC's formal rulemaking process launched on March 12, 2026, and the agency has set a 45-day comment period, suggesting a relatively fast timeline for initial policy development.
In the meantime, the regulatory uncertainty has actually created opportunities for traders. Price discrepancies between platforms — driven partly by different state-level access — have made cross-platform arbitrage a viable strategy. And the growing role of AI-powered trading bots on these platforms is adding another layer of complexity to the regulatory conversation, particularly around market manipulation concerns.
How Are Prediction Market Winnings Taxed?
Tax treatment of prediction market earnings is another area of uncertainty. The IRS has not issued specific guidance creating a formal category for prediction market contracts.
Currently, most prediction market platforms — including Kalshi — report winnings as ordinary income via 1099-MISC forms. This means your net profits are subject to ordinary income tax rates.
There's an open question about whether prediction market earnings could alternatively be classified as capital gains (potentially more favorable treatment) or as gambling income (which has different loss deduction rules). The classification matters because gambling losses can generally only be deducted against gambling winnings, while ordinary income and capital gains have different treatment.
The most conservative approach for 2025 tax returns (filed by April 15, 2026): report prediction market earnings as ordinary income, maintain detailed records of every trade, and consult a tax professional for guidance specific to your situation.
Expect the IRS to issue clearer guidance as prediction markets scale. But for now, the tax treatment remains undefined at the federal level.
The Path Forward
The legal future of prediction markets in the US will be shaped by several converging forces over the next 12-24 months.
Court rulings. The Third Circuit's decision in the New Jersey case will be the most consequential appellate ruling on CFTC preemption. Four federal appeals courts are now weighing conflicting preemption questions. Legal analysts widely expect the Supreme Court to eventually take up the issue, potentially in 2027 or 2028.
CFTC rulemaking. The formal rulemaking process launched on March 12, 2026, will eventually produce dedicated regulations for prediction markets. The process involves a public comment period, a proposed rule, and a final rule — typically taking months to complete. But Chairman Selig's compressed timelines suggest the agency wants to move quickly.
Congressional legislation. Multiple bills are pending, with bipartisan support for at least some restrictions (insider trading bans, age limits) even if the broader preemption question remains contentious. Whether Congress acts before the courts resolve the key questions is uncertain.
Industry growth. Kalshi and Polymarket are both seeking $20 billion valuations. Kalshi's revenue run rate has crossed $1.5 billion annualized. The prediction market industry processed over $44 billion in combined volume in 2025. The economic stakes of this regulatory battle are enormous — and growing every month.
For traders, the most likely outcome is some form of regulated coexistence: federal oversight of prediction markets as financial instruments, with negotiated guardrails around sports contracts that address state concerns about consumer protection, age verification, and gaming integrity. But predicting exactly how the regulatory landscape will settle would be, ironically, the hardest prediction market of all.
Frequently Asked Questions (FAQ)
Are prediction markets legal in the United States?
Yes. Prediction markets are legal at the federal level under CFTC regulation. Platforms like Kalshi, Polymarket, and Robinhood operate as CFTC-registered designated contract markets or through CFTC-licensed exchanges. However, several states have challenged the legality of sports-specific contracts, and the legal landscape is actively evolving.
Are prediction markets the same as gambling?
This is the central legal question. The CFTC and prediction market platforms argue they are financial derivatives, not gambling. State regulators argue that sports prediction contracts are functionally identical to sports betting. Federal courts have reached conflicting conclusions, and the issue may ultimately be decided by the Supreme Court. For a deeper look at how these platforms actually work, see our Polymarket review and Kalshi review.
Can I use prediction markets in my state?
All major prediction market platforms are available nationwide for non-sports contracts (politics, economics, weather, crypto, culture). Platforms like Opinion focus exclusively on macroeconomic markets and are largely unaffected by the sports-related disputes. Sports contracts may be restricted in specific states — including Nevada, Massachusetts, Maryland, New Jersey, Ohio, Michigan, and others — depending on the platform. Check your platform's availability page for your specific state.
Has anyone been arrested or fined for using prediction markets?
No. As of March 2026, all enforcement actions have been directed at the platforms themselves, not at individual users. There is no precedent for a state penalizing an individual for trading on a CFTC-regulated prediction market.
How old do I need to be to trade on prediction markets?
Most prediction market platforms require users to be 18 or older, compared to the 21+ requirement for traditional sportsbooks. Proposed federal legislation (the Blumenthal-Kim bill) would raise the minimum age for prediction markets to 21 if enacted.
How are prediction market winnings taxed?
Most platforms report winnings as ordinary income via 1099-MISC forms. The IRS has not issued specific guidance on prediction market tax treatment. Consult a tax professional for your specific situation and maintain detailed records of all trades.
What's the CFTC?
The Commodity Futures Trading Commission is the federal agency that regulates commodity futures, options, and derivatives markets in the United States. It oversees prediction market platforms the same way it oversees oil futures or agricultural commodity exchanges.
What happens if my state bans prediction markets?
If your state restricts sports contracts, you may lose access to sports-specific markets on affected platforms. Non-sports markets (politics, economics, etc.) are generally unaffected. No state has successfully banned all prediction market activity outright — the disputes are primarily about sports contracts.
Will the Supreme Court decide this?
Possibly. Four federal appeals courts are now weighing conflicting rulings on whether CFTC regulation preempts state gambling laws. This type of circuit split is a common trigger for Supreme Court review. Legal analysts expect the Court could take up the issue in 2027 or 2028.
Should I wait to trade until the legal situation is resolved?
That's a personal decision. From a practical standpoint, federal legality is clear, no individual traders have been targeted by enforcement, and the major platforms continue to operate. The risk is primarily to the platforms themselves (and to the availability of sports contracts in specific states), not to individual users trading on federally regulated exchanges. If you're ready to start, see our guide to the best prediction markets for sports betting or read our in-depth Kalshi review and Polymarket vs Kalshi comparison.
