Are Prediction Markets Legal in the United States? The Complete 2026 State-by-State Guide
✅ Quick Answer
Yes, prediction markets are legal at the federal level in the United States. The Commodity Futures Trading Commission (CFTC) regulates them as licensed financial derivatives exchanges.
However, more than a dozen states have issued cease-and-desist orders or filed lawsuits challenging their legality — particularly for sports and election contracts. At the moment, the legal status is federally authorized despite being actively contested by multiple states.
💡 What You’ll Learn From This Guide
- Whether prediction markets are legal where you live
- Which platforms are federally licensed vs. operating in legal gray areas
- Which states have sued prediction market platforms — and what courts have decided
- How prediction market earnings are taxed (and why the IRS hasn’t issued guidance yet)
- What changes are coming in 2026 that could alter the legal landscape
LEGAL DISCLAIMER: This article is for educational purposes only and does not constitute legal or financial advice. Laws change frequently. Consult a licensed attorney in your state before trading.
⚖️ How Prediction Markets Are Federally Regulated
The federal legal foundation for prediction markets rests on the Commodity Exchange Act (CEA), administered by the CFTC. Read on for a breakdown of the framework.
1️⃣ Event Contracts: What They Are
Prediction markets operate through “event contracts” aka “binary financial instruments” that pay out based on whether a specific outcome occurs. You buy a “yes” contract for $0.62; if the event happens, it pays $1.00, netting $0.38 profit. If it doesn’t, the contract expires worthless. This structure is what distinguishes prediction markets from traditional sports betting in the eyes of federal regulators.
2️⃣ The Designated Contract Market (DCM) License
To legally operate for U.S. users, a platform must register as a DCM with the CFTC. This requires meeting 23 core principles covering market surveillance, financial integrity, recordkeeping, and anti-manipulation rules. Active DCMs in the prediction market space include Kalshi and Crypto.com’s CDNA. Polymarket is relaunching via its 2025 acquisition of QCEX, a CFTC-licensed DCM and clearinghouse.
3️⃣ The Historical Basis From 1992-Present
The CFTC first recognized event contracts in 1992 by permitting the Iowa Electronic Markets, a University of Iowa research exchange for presidential election and corporate earnings contracts. After the 2008 financial crisis, Congress explicitly granted the CFTC comprehensive authority over commodity-based contracts, which courts have interpreted broadly enough to include event contracts.
4️⃣ What the CFTC Prohibits
Not all event contracts are permitted. CEA Section 5c(c)(5)(C) bans contracts involving terrorism, assassination, war, or activity unlawful under federal or state law. The CFTC’s March 2026 proposed rulemaking (Federal Register Doc. 2026-05105, comment period closing April 30, 2026) seeks public input on how these prohibitions should be applied going forward.
5️⃣ The Federal Preemption Argument
The CFTC’s core legal position — stated formally in amicus briefs filed in 2026 — is that it holds exclusive jurisdiction over prediction markets as commodity derivatives, and states cannot overlay gambling laws on top of that federal framework. Courts have not uniformly agreed. See Active Litigation section below.
📜 Major Licensed Platforms in 2026
Check out each of the major licensed prediction market apps in 2026, along with info on any filings against them:
- Federal Status: CFTC Designated Contract Market (DCM; fully licensed).
- Availability: All 50 states under federal law (state-level legal challenges in some states).
- Markets Offered: Sports, politics, economics, weather, science, entertainment, etc.
- Key Developments (2025-26): Active lawsuits in NV, NY, OH, TN, MA, MI, MD; CFTC filed amicus briefs supporting Kalshi’s federal preemption argument; class action lawsuit filed November 2025 alleging deceptive trading practices.
- Bottom Line: Federally legal. Highest state-level legal risk of any platform due to breadth of markets.
- Federal Status: Relaunching via acquisition of CFTC-licensed QCEX (~$112M, 2025).
- Availability: App is fully live for U.S. traders, though the desktop site is still pending
- Markets Offered: Politics, sports, crypto, pop culture, etc.
- Key Developments (2025-26): Intercontinental Exchange (owner of NYSE) announced up to $2 billion investment in October 2025. Insider trading scrutiny following large Iran-related trades in February 2026. Trump administration dropped prior enforcement action without charges.
- Bottom Line: Pursuing federal legality through acquisition; not yet fully operational for U.S. users.
- Federal Status: CFTC Designated Contract Market (DCM; fully licensed).
- Availability: Most states.
- Markets Offered: Sports-focused.
- Key Developments (2025-26): Cease-and-desist orders in AZ, IL, CT, NV. Continuing to operate under federal license.
- Bottom Line: Federally legal; state friction concentrated in gaming-enforcement-active states.
- Federal Status: Offers prediction markets via CFTC-licensed partner.
- Availability: Most states.
- Markets Offered: Politics, sports, economics, entertainment, etc.
- Key Developments (2025-26): Named as co-defendant in California tribal lawsuit (July 2025). Motion to dismiss filed March 2026.
- Bottom Line: Federally legal; limited state exposure so far.
- Federal Status: Operates under prior CFTC no-action letter arrangement (not a full DCM).
- Availability: Most states (with account size limits).
- Markets Offered: Political contracts only; no sports.
- Key Developments (2025-26): n/a
- Bottom Line: Limited regulatory protection compared to full DCMs. Academic exemption model, not commercial-scale registration.
🧑⚖️ State-by-State Legal Status of Prediction Markets
This is the most important section for individual traders. Below is every state with documented regulatory activity, followed by guidance on states with no documented action.
How to read this section:
- C&D ISSUED: State gaming regulator has sent a cease-and-desist letter to one or more platforms.
- ACTIVE LITIGATION: Lawsuit or injunction is being litigated in court.
- INJUNCTION WON (PLATFORM): Court ruled in platform’s favor (may continue operating).
- INJUNCTION WON (STATE): Court ruled in state’s favor (platform faces operating restrictions).
- NO FORMAL ACTION: No documented cease-and-desist or lawsuit.
Important: “No formal action” does not mean prediction markets are legal in that state. It means no public enforcement action has been documented. Always consult a licensed attorney before trading.
- Status: C&D Issued
- Regulatory Body: Arizona Department of Gaming (ADG)
- Summary: The ADG issued cease-and-desist letters to Kalshi and Crypto.com in May 2025. The ADG maintains that prediction market contracts based on politics and sports violate Arizona state law. The ADG has not filed suit or escalated beyond the C&D.
- Current Availability: Kalshi and Crypto.com are restricting certain contract types in AZ.
- Source: gaming.az.gov
- Status: Active Litigation
- Regulatory Body: California Tribal Gaming Interests (private plaintiffs)
- Summary: Multiple California tribes sued Kalshi and Robinhood in July 2025, arguing prediction markets violate tribal gaming exclusivity agreements. A federal judge denied the tribes’ preliminary injunction request in November 2025 — a win for the platforms. Kalshi and Robinhood filed motions to dismiss in March 2026. Case is ongoing.
- Current Availability: Kalshi and Robinhood remain available in California while case proceeds.
- Source: C.D. California Federal Court
- Status: C&D Issued
- Regulatory Body: CT Department of Consumer Protection
- Summary: Cease-and-desist letters sent to Kalshi, Robinhood, and Crypto.com in December 2025.
- Current Availability: Platforms continue to operate under federal license.
- Source: CT DCP Press Release, December 3, 2025 (portal.ct.gov/DCP)
- Status: C&D Issued; Legislation Pending
- Regulatory Body: Illinois Gaming Board
- Summary: C&D to Kalshi and Crypto.com in April 2025; to Polymarket in January 2026. A 2026 bill was introduced that would regulate prediction markets and ban sports-based contracts.
- Current Availability: Platforms continue under federal license; legislative outcome is pending.
- Source: Illinois Gaming Board; Illinois General Assembly 2026
- Status: Litigation; Paused Enforcement
- Regulatory Body: Maryland Lottery and Gaming Control Commission (MLGCC)
- Summary: C&D issued April 2025. Federal court denied Kalshi’s injunction request in August 2025 (a win for Maryland). However, the MLGCC voluntarily agreed to pause enforcement actions while litigation continues.
- Current Availability: Kalshi operating in Maryland while case continues.
- Source: MLGCC; D.Md. Federal Court
- Status: Active Litigation; Injunction Won (State Then Stayed)
- Regulatory Body: Massachusetts Attorney General
- Summary: AG filed lawsuit against Kalshi in September 2025. AG secured a preliminary injunction in January 2026 (a state win). However, the 1st Circuit Court of Appeals subsequently allowed Kalshi to continue operating while the appeal proceeds.
- Current Availability: Kalshi operating in Massachusetts pending appeals court outcome.
- Source: Mass. AG Office; 1st Circuit Court of Appeals
- Status: (Active Litigation; March 2026)
- Regulatory Body: Michigan AG / Michigan Gaming Control Board (MGCB)
- Summary: The Michigan AG filed a lawsuit against Kalshi seeking a permanent injunction in March 2026. The same day, Polymarket filed a federal lawsuit against the MGCB seeking to block enforcement. Both cases are in early stages.
- Current Availability: Both platforms are currently operating while cases proceed.
- Source: Michigan AG Office; E.D. Michigan Federal Court
- Status: (C&D Issued; No Follow-Up)
- Regulatory Body: Montana DOJ Gambling Control Division
- Summary: Cease-and-desist sent to Kalshi in April 2025. No further action from either side since. Kalshi remains fully operational in Montana.
- Current Availability: Available
- Source: Montana DOJ
- Status: Active Litigation; Court Ruling Against Platforms
- Regulatory Body: Nevada Gaming Control Board (NGCB)
- Summary: NGCB issued C&D to Kalshi, Crypto.com, and Polymarket. NGCB filed suit against Kalshi specifically over sports event contracts in February 2026. In March 2026, a federal judge rejected Kalshi’s bid to move the case to federal court — a significant setback that limits Kalshi’s legal options.
- Current Availability: Contested. Nevada is one of the most legally hostile states for prediction market platforms.
- Source: NGCB; D. Nevada Federal Court (March 2026 Ruling).
- Status: C&D Issued; Injunction Won By Kalshi.
- Regulatory Body: NJ Division of Gaming Enforcement (NJDGE)
- Summary: C&D to Kalshi in March 2025. Federal court granted Kalshi a preliminary injunction on April 28, 2025, ruling that CFTC regulation likely preempts New Jersey gaming law. This is the strongest pro-platform federal court ruling to date and is frequently cited in other cases.
- Current Availability: Available. Kalshi operates freely in New Jersey under federal court protection.
- Source: NJDGE; D.N.J. Federal Court (April 28th 2025 Ruling).
- Status: Active Litigation; Legislation Pending.
- Regulatory Body: NY State Gaming Commission; NY Department of Financial Services (DFS).
- Summary: C&D to Kalshi in October 2025. Kalshi filed suit days later; case is ongoing. NY lawmakers have introduced multiple proposals in 2026 to regulate prediction markets. The NY DFS may separately impose licensing requirements on platforms dealing in digital assets.
- Current Availability: Kalshi operating while case proceeds; regulatory landscape fluid.
- Source: NY State Gaming Commission; S.D.N.Y. Federal Court.
- Status: Active Litigation
- Regulatory Body: Ohio Casino Control Commission (OCCC)
- Summary: C&D orders issued to multiple platforms in March 2025. After further enforcement threats, Kalshi filed suit in October 2025. Case is ongoing.
- Current Availability: Platforms operating under federal license while case continues.
- Source: OCCC; S.D. Ohio Federal Court.
- Status: Concerns Raised; No Enforcement Action.
- Regulatory Body: Pennsylvania Gaming Control Board (PGCB)
- Summary: The PGCB sent a formal letter to the CFTC in October 2025 expressing concerns about prediction markets, but has not issued a C&D or filed suit.
- Current Availability: Available with no active restrictions.
- Source: PGCB letter to CFTC, October 2025
- Status: Active Litigation; Injunction Won By Kalshi.
- Regulatory Body: Tennessee Sports Wagering Council
- Summary: C&D to Kalshi in January 2026. Kalshi filed suit and won a preliminary injunction in February 2026, allowing it to continue operating while the case plays out.
- Current Availability: Available. Kalshi operating under court protection in Tennessee.
- Source: TN Sports Wagering Council; M.D. Tennessee Federal Court.
All remaining states not listed above have not issued documented cease-and-desist orders or filed lawsuits against prediction market operators. CFTC-licensed platforms are generally available in these states.
This does not mean prediction markets are explicitly legal in those states. It means no public enforcement action has been documented. Regulators can act at any time.
To stay in the know, be sure to use our continuously updated tracker: lines.com/guides/u-s-prediction-market-legal-status-state-by-state
📌 Active Litigation Tracker
The following cases are the most consequential in shaping whether federal CFTC regulation preempts state gambling laws. Outcomes will set precedent for the entire industry.
- Latest Development: Federal court rejected Kalshi’s bid to move to federal jurisdiction (March 2026).
- Significance: A win for state gaming authority. Narrows Kalshi’s legal options in Nevada. Creates a direct conflict with the New Jersey ruling, raising the likelihood of Supreme Court review.
- Latest Development: Kalshi won preliminary injunction on CFTC preemption grounds (April 28, 2025).
- Significance: The strongest pro-platform federal court ruling to date. Establishes that federal CFTC regulation may preempt state gaming law — the central legal question in all prediction market litigation.
- Latest Development: AG won injunction (January 2026); 1st Circuit allowed Kalshi to continue operating pending appeal.
- Significance: The first appellate-level review of the preemption question. The 1st Circuit’s ultimate ruling will be binding precedent for Massachusetts, Maine, New Hampshire, Rhode Island, and Puerto Rico.
- Latest Development: Preliminary injunction denied (November 2025); motion to dismiss pending (March 2026).
- Significance: So far favorable for platforms. Tribal gaming interests represent a distinct legal theory, meaning not just state gaming law but federally recognized exclusivity agreements. A ruling here could affect tribal gaming states nationwide.
- Latest Development: Filed March 2026 (very early stages).
- Significance: Polymarket’s first proactive federal lawsuit challenging a state gaming regulator since beginning its U.S. relaunch. Signals an aggressive legal posture from the newly relicensed platform.
- Latest Development: Filed March 2026 (alongside Polymarket case).
- Significance: Michigan is the only state where both a platform (Polymarket) and a regulator (AG) filed suit against each other on the same day. This created an unusually complex dual-proceeding in one district.
- Forum: Federal Register and Administrative Law
- Latest Development: Published March 16, 2026; public comment period closes April 30, 2026.
- Significance: If finalized, could define which event contracts are permissible under federal law and clarify CFTC’s preemption authority. The most immediate regulatory catalyst affecting all platforms simultaneously.
Proposed Rule: federalregister.gov/documents/2026/03/16/2026-05105/prediction-markets
📄 Prediction Market Tax Treatment (2026)
WARNING: The IRS has issued no specific formal guidance categorizing prediction market earnings. Tax treatment is contested and unresolved. Consult a licensed CPA or tax attorney before filing.
Are prediction market winnings taxable? Almost certainly yes, but exactly how is unresolved. The IRS has issued no Revenue Ruling, Notice, or other formal guidance specifically classifying prediction market event contracts for tax purposes. This creates competing interpretations:
➡️ Treated As Derivatives (Section 1256 Contracts)
If the IRS classifies event contracts as regulated futures contracts or options on futures, they could qualify for Section 1256 treatment: 60% long-term / 40% short-term capital gains rates, with mark-to-market accounting at year end. This would be favorable for most traders.
➡️ Treated As Ordinary Income
Without specific guidance, the conservative and most common professional advice is to report all prediction market gains as ordinary income, taxed at your marginal federal rate.
➡️ Treated As Gambling
Different rules apply if classified as gambling income, including the new loss deduction cap. To take a safe approach until the IRS issues guidance, report all profits as ordinary income and keep detailed records of every trade.
➡️ State Tax Treatment
State tax treatment of prediction market winnings varies. States that tax gambling income as ordinary income will likely tax prediction market profits the same way. States with no income tax (TX, FL, NV, WA, etc.) have no state-level concern. Until federal and state guidance is issued, assume all winnings are taxable at the state level as ordinary income.
2️⃣ Federal Tax Treatment
Because prediction markets are classified as CFTC-regulated derivatives (not gambling), they may be treated differently than sports betting winnings for federal tax purposes.
However, with no IRS Revenue Ruling or Notice specifically addressing event contracts, most tax practitioners advise treating profits as ordinary income until guidance clarifies otherwise.
3️⃣ The “One Big Beautiful Bill Act” — New Gambling Loss Cap (2026)
The One Big Beautiful Bill Act, signed by President Trump on July 4, 2025, limits gambling loss deductions to 90% of gambling winnings effective for tax year 2026.
For traders classified under gambling rules, this creates a “phantom income” problem: a trader who breaks even ($10,000 win, $10,000 loss) can only deduct $9,000, leaving $1,000 as taxable income despite not actually profiting.
Whether prediction market traders fall under this provision depends on how the IRS ultimately classifies event contracts, which currently remains unresolved.
Source: Tax Foundation (taxfoundation.org)
🤔 Insider Trading Risks On Prediction Markets
Insider trading on prediction markets means placing contracts based on material nonpublic information (MNPI) — information that isn’t publicly available and that a reasonable person would consider important in predicting the outcome.
Examples include a political candidate trading on contracts about their own campaign, a government official trading on geopolitical outcomes they have classified knowledge of, or a company employee trading on contracts tied to their company’s announcements.
📅 Why It Matters In 2026
Several large, suspiciously timed trades drew public scrutiny in late 2025 and early 2026, even causing Israeli authorities later opened investigations into some of these trades.
- A Polymarket user purchased significant contracts predicting a geopolitical event in late December 2025 / early January 2026. After the event occurred on January 3, 2026, the user secured a payout reportedly exceeding $400,000.
- In February 2026, a surge in contracts predicting U.S. military action on Iran occurred shortly before such action was reported. The accounts involved opened and funded within days, netting more than $1.2 million in profits.
➡️ What The CFTC Says
On February 25, 2026, the CFTC issued a formal advisory addressing insider trading on prediction markets.
The advisory cited two enforcement actions by Kalshi — one involving a political candidate trading on contracts about their own candidacy, another involving an employee of a company affiliated with a YouTube channel trading on contracts related to that channel’s content.
In both cases, Kalshi imposed financial penalties and suspended the traders. The CFTC noted both individuals “potentially” violated Rule 180.1.
The CFTC also affirmed that exchanges have an independent duty to maintain audit trails, conduct surveillance, and enforce rules against prohibited trading practices.
➡️ What This Means For Traders
Trading on inside information on a CFTC-regulated prediction market may violate federal law. Specifically, CFTC Rule 180.1, citing that even without the traditional “misappropriation” element required in securities insider trading cases. This is a developing area of law with no settled precedent yet.
Primary source: Congressional Research Service LSB11406 — Prediction Markets and Insider Trading Law (congress.gov/crs-product/LSB11406)
📆 What Happens Next: 2026 Outlook
The conflicting federal court rulings are as follows: New Jersey granting Kalshi an injunction (pro-platform) and Nevada rejecting Kalshi’s federal jurisdiction bid (pro-state). This will create a circuit split, meaning if different circuit courts reach different conclusions, the Supreme Court may grant certiorari to resolve the preemption question once and for all. This could happen as soon as late 2026 or 2027.
Federal legislation could explicitly authorize CFTC-regulated prediction markets, preempting state gaming laws by statute rather than leaving it to courts. Multiple members of Congress have raised prediction markets in hearings in 2025–26, partly due to insider trading concerns and partly due to their growing political and financial footprint.
The March 2026 proposed rulemaking (comment deadline: April 30, 2026) is the most immediate catalyst. A final rule could: clarify which event contracts are permissible; formally assert CFTC preemption authority; or narrow what platforms can offer, particularly around sports and election contracts.
The current regulatory environment is more favorable to prediction markets than the prior administration, evidenced by the following:
- The Trump administration dropped enforcement actions against Polymarket without charges in 2025
- Members of the President’s family have been reported to have advisory involvement in prediction market ventures
- Truth Social has announced plans to launch its own prediction market platform
- Intercontinental Exchange (NYSE’s parent company) announced up to $2 billion investment in Polymarket in October 2025
These factors suggest prediction markets are becoming politically and financially entrenched in ways that may accelerate formal federal legalization.
Prediction markets are legal under federal law, growing fast, and increasingly mainstream — but the state-level legal conflict is real, active, and unresolved. The next 12–18 months will likely bring either Supreme Court review or congressional action that settles the question.
❓Are Prediction Markets Legal in the United States? FAQs
❓ Are prediction markets legal in the US?
Yes, prediction markets are legal under federal law when operated by a CFTC-licensed Designated Contract Market (DCM). However, more than a dozen states have challenged their legality, particularly for sports-based contracts. The federal vs. state legal conflict is currently unresolved.
❓ Is Kalshi legal in the US?
Yes, Kalshi is a CFTC-licensed Designated Contract Market (DCM) and is legal to use under federal law. It operates in all 50 states, though it faces active lawsuits from gaming regulators in Nevada, New York, Massachusetts, Michigan, and other states over sports event contracts.
❓ Is Polymarket legal in the US?
Yes. The Polymarket app has fully relaunched for U.S. users after acquiring a CFTC-licensed exchange (QCEX) for approximately $112 million in 2025. Its acquisition of a federal license may lead to the eventual rollout of the desktops site for U.S. users as well.
❓ Are prediction markets the same as sports betting?
No, sports betting is regulated state-by-state after the 2018 Murphy v. NCAA Supreme Court ruling. Prediction markets are regulated federally by the CFTC as financial derivatives.
❓ Are prediction markets legal in my state?
The answer to that question will naturally depend on your current state of residence (or where you’re currently located if a valid US citizen visiting elsewhere). To stay in the know, be sure to use our continuously updated tracker: lines.com/guides/u-s-prediction-market-legal-status-state-by-state
❓ Do you pay taxes on prediction market winnings?
Likely yes, but the exact treatment is unresolved. To this point, the IRS has issued no formal guidance on prediction market earnings. Most tax professionals advise reporting profits as ordinary income until the IRS clarifies. See the tax section below.
❓ What is the CFTC’s role in prediction markets?
The CFTC (Commodity Futures Trading Commission) is the primary federal regulator of prediction markets. It licenses platforms as Designated Contract Markets (DCMs) and oversees market integrity, clearing, and enforcement. The CFTC argues it holds exclusive federal jurisdiction over prediction markets, preempting state gambling laws.
❓ Which prediction market is legal in all 50 states?
Kalshi and Crypto.com’s CDNA are CFTC-licensed and available in all 50 states under federal law. However, both face state-level legal challenges in certain jurisdictions, particularly around sports event contracts. No platform is currently free of state-level legal risk.