Prediction Markets Regulation: The Crackdown That Is Reshaping iGaming in 2026

The line between prediction markets and sports betting has never been blurrier — and US regulators are racing to redraw it. In the space of a single week in late March 2026, Washington state sued Kalshi, Nevada secured a court order blocking sports-related event contracts, and Congress introduced the sweeping STOP Corrupt Bets Act to ban prediction market wagers on elections, sports, war, and government actions. Meanwhile, Polymarket expanded trading fees across nearly all its market categories, signalling that even the platforms themselves are bracing for a new era of scrutiny.

For iGaming operators, affiliates, and anyone with skin in the online gambling ecosystem, this is not background noise. The prediction markets regulation debate will likely determine how “gambling” is defined in federal law, which regulators hold jurisdiction, and whether an entirely new class of competitor can operate outside traditional licensing frameworks. Here is what is happening, why it matters, and what the iGaming industry should be watching closely.

What Are Prediction Markets and Why Are They Under Fire?

Prediction markets allow users to buy and sell contracts tied to the outcome of real-world events — from presidential elections and interest rate decisions to NBA games and weather patterns. Platforms like Kalshi and Polymarket have positioned themselves as financial exchanges rather than gambling operators, registering with the Commodity Futures Trading Commission (CFTC) as designated contract markets.

This distinction matters enormously. Traditional sports betting is regulated at the state level, requiring licences, compliance frameworks, and tax contributions. Prediction markets, by operating under federal CFTC oversight, have been able to offer sports-adjacent products in all fifty states — including those that have explicitly banned online gambling.

Critics argue this is a regulatory loophole. Senators Adam Schiff and John Curtis, co-sponsors of the bipartisan Prediction Markets Are Gambling Act, have stated plainly that sports prediction contracts are sports bets with a different name. The American Gaming Association (AGA) estimates that states have collectively lost over $600 million in tax revenue to wagers placed on unregulated prediction market platforms.

A Wave of Federal and State Action in March 2026

The regulatory pressure has escalated sharply this month. Here is a summary of the key developments:

On 23 March, Senators Schiff and Curtis introduced the first bipartisan Senate bill targeting prediction markets, seeking to amend the Commodity Exchange Act so that sports and casino-style event contracts cannot be listed on CFTC-regulated platforms. On 26 March, Senator Jeff Merkley and Representative Jamie Raskin introduced the STOP Corrupt Bets Act, a broader bill that would ban prediction market wagers on elections, government actions, military operations, and sports. The bill is co-sponsored by Senators Elizabeth Warren, Richard Blumenthal, Chris Van Hollen, and Sheldon Whitehouse.

At the state level, Nevada secured a temporary restraining order against Kalshi, blocking its sports-related event contracts. Arizona filed criminal charges against the company for illegal gambling. And on 28 March, Washington state became the latest to sue Kalshi, alleging its products violate state gambling laws. Across the country, eleven states have now introduced prediction market legislation, and at least twenty federal lawsuits have been filed by states and gaming regulators.

Polymarket Expands Fees as the Landscape Shifts

While regulators circle, Polymarket is pressing ahead with monetisation. Starting 30 March 2026, the platform expanded taker fees to eight new market categories — including politics, finance, culture, weather, and technology — bringing the total number of fee-bearing categories to ten. Only geopolitical and world events remain fee-free.

The fee structure is dynamic and probability-based. Peak effective rates vary by category: crypto markets carry the highest at 1.80%, economics sits at 1.50%, and sports remains the lowest at 0.75%. Polymarket is projected to generate roughly $800,000 to $1 million per day under the new structure, based on recent trading volumes of approximately $9.55 billion over 30 days.

Alongside the fee expansion, Polymarket introduced a referral programme offering 30% commission on direct referral fees, and updated its market integrity rules to explicitly prohibit insider trading and trading by parties who can influence event outcomes. Kalshi has similarly announced new guardrails, preemptively banning athletes, team employees, and referees from trading on sports-related markets.

What This Means for iGaming Operators and Affiliates

The prediction markets regulation battle has direct implications for the broader iGaming industry. If prediction markets are ultimately classified as gambling under federal or state law, it could level the competitive playing field for licensed operators and sportsbooks that have invested heavily in compliance, responsible gambling frameworks, and state-by-state licensing.

For affiliates, the outcome matters too. Prediction market platforms have been acquiring users at scale — Kalshi reportedly processed nearly $1.9 billion in college basketball wagers in February 2026 alone during March Madness season. If those platforms are forced to obtain state gambling licences or exit certain markets, that traffic and those players will need somewhere to go. Licensed operators and their affiliate partners stand to benefit.

Conversely, if the CFTC retains exclusive jurisdiction and prediction markets continue operating under their current framework, it would signal a permanent new competitor in the gambling ecosystem — one that operates under lighter regulation and lower tax burdens.

The jurisdictional question is therefore existential. CFTC Chairman Mike Selig has repeatedly defended the agency’s sole regulatory authority over prediction markets, but state regulators and a growing bipartisan coalition in Congress disagree. The resolution of this dispute will shape the regulatory architecture of US gambling for years to come.

Insider Trading Concerns Add Fuel to the Fire

Beyond the gambling classification debate, prediction markets face serious questions about market integrity. Reports of suspiciously timed bets — including trades placed shortly before the ouster of Venezuelan President Nicolás Maduro and ahead of military actions — have drawn attention from lawmakers and enforcement bodies.

Senator Merkley has introduced separate legislation to ban members of Congress, the president, and the vice president from using prediction markets. Representative Ritchie Torres has pushed targeted insider trading legislation following a high-profile suspicious trade on Polymarket. The House and Senate ethics committees currently provide no financial disclosure guidance for prediction market positions, a gap that multiple legislators have described as a blind spot in existing rules.

For the iGaming industry, which has spent decades building compliance infrastructure around anti-money laundering, know-your-customer requirements, and responsible gambling, these integrity concerns highlight the regulatory asymmetry that prediction markets currently enjoy.

Frequently Asked Questions

Are prediction markets legal in the United States?

As of March 2026, prediction markets operate in a legal grey area. Platforms like Kalshi are registered with the CFTC as designated contract markets, which gives them federal authorisation to operate. However, multiple states argue that their products constitute gambling and violate state laws. At least twenty lawsuits and eleven state legislative efforts are currently challenging prediction market operations.

How do prediction markets differ from traditional sports betting?

Traditional sports betting is regulated at the state level, requiring operators to hold licences and pay taxes. Prediction markets use futures contracts regulated by the CFTC at the federal level, which allows them to offer sports-adjacent products nationwide without state gambling licences. Critics argue this distinction is purely semantic.

Will prediction markets be banned in the US?

An outright federal ban is unlikely in the short term, given that Republicans control the Senate majority and the current CFTC chair supports prediction market operations. However, state-level bans and restrictions are advancing rapidly, and bipartisan bills targeting specific categories — particularly sports and elections — have real momentum.

What does this mean for online casino and sportsbook operators?

If prediction markets are forced to comply with state gambling laws, it would remove a significant unregulated competitor from the landscape. Licensed operators and their affiliate partners could benefit from redirected player traffic and a more level regulatory playing field.

How much revenue are states losing to prediction markets?

The American Gaming Association estimates that states have lost over $600 million in sports betting tax revenue to wagers placed on prediction market platforms that do not pay state-level gambling taxes.

Looking Ahead

The prediction markets regulation saga is far from resolved, but the direction of travel is clear: more scrutiny, more legislation, and more legal challenges. For iGaming professionals, staying informed on this issue is not optional — it is strategic. Whether prediction markets are ultimately absorbed into the regulated gambling ecosystem or carved out as a distinct asset class, the outcome will reshape competitive dynamics across the entire industry.

Keep an eye on state-level court rulings, the progress of federal bills through committee, and how platforms like Kalshi and Polymarket adapt their product offerings in response. The next few months will be decisive.

Responsible Gambling: Gambling should be enjoyed as entertainment. If you feel your gambling is becoming a problem, please visit BeGambleAware.org for free support and advice.