Prediction markets like Kalshi and Polymarket spent the last year insisting they’re financial exchanges, not bookmakers. The courts, the Senate, and most of the American public aren’t buying it. With a former congressman now under federal investigation over a bet on himself, the question — investment or gambling? — has stopped being academic.
What’s Actually Happening
Prediction markets let you trade “event contracts”: bets, priced like probabilities, on real-world outcomes. Increasingly those outcomes are sports — which is where the trouble starts. Kalshi operates as a federally licensed exchange under the Commodity Futures Trading Commission (CFTC) and argues that federal law lets it offer sports contracts nationwide, even in states that ban sports betting. State gaming regulators say that’s just unlicensed sportsbooks wearing a financial-markets costume. Both sides are now fighting it out in court, in Congress, and in the press.
Why the Courts Can’t Agree
The rulings are pulling in opposite directions. In April 2026, a federal appeals court — the 3rd Circuit — sided with Kalshi against New Jersey, ruling 2-1 that the CFTC has exclusive jurisdiction over Kalshi’s sports event contracts and that federal law likely preempts state gambling rules. It was the first time a federal appeals court weighed in on the central question, and it broke Kalshi’s way.
Weeks earlier, the 9th Circuit went the other direction, declining to block Nevada’s enforcement and clearing the way for the state to hit Kalshi with a restraining order. Two appeals courts, two different answers, in the two states with the biggest commercial gambling industries. Legal experts have said for months that a split like this points one place: the Supreme Court.
The States — and the Senate — Fighting Back
More than a dozen states have moved against prediction markets with cease-and-desist letters or lawsuits, including New Jersey, Nevada, Tennessee, Ohio, Connecticut, New York, Maryland, and Illinois. Arizona went furthest: its attorney general filed criminal charges against Kalshi, alleging it runs an unlicensed gambling operation in the state.
Washington joined in too. On April 30, 2026, the US Senate unanimously banned its own members, officers, and staff from using prediction markets — lawmakers who routinely sit on non-public information betting on real-world events was a bridge too far. The Senate minority leader warned against letting Congress turn into a casino. Several bills are now circulating, including one bluntly titled the “Prediction Markets Are Gambling Act.”
“Investing” or Gambling?
The public has already made up its mind. An AIBM/Ipsos poll of 2,363 adults (late February to early March 2026) found 61% see prediction-market trading as “closer to gambling,” versus just 8% who call it “closer to investing.” Among people who’ve heard of these platforms, 91% consider them financially risky, and only 9% are confident the markets can stop insiders from profiting unfairly.
That last number looks prescient. Former New York Rep. George Santos — expelled from Congress in 2023 and later imprisoned on federal fraud charges — is now under investigation over his Kalshi trades. The allegation: he bet that he would not attend the February 2026 State of the Union while publicly telling his followers he would be there, then skipped the event and allegedly profited tens of thousands as the odds moved. Kalshi says it detected the activity, froze the account, and referred it to regulators. The CFTC’s enforcement division is investigating; reports conflict on the Justice Department, with NPR reporting a DOJ probe but the department telling another outlet it is not investigating. Santos has called the allegations preposterous and says his legal team is in contact with authorities.
He isn’t alone. Federal prosecutors in New York have already charged others in prediction-market insider cases — including a special forces soldier who allegedly bet on the raid that captured Venezuela’s Nicolás Maduro, and a software engineer accused of trading on inside information. Kalshi has since said it will preemptively block athletes and political candidates from trading markets tied to themselves.
What Prediction Markets Mean for US Bettors
Here’s the practical read. Prediction markets quietly became a back door to sports betting in states that never legalized it — through the CFTC route rather than a gaming license. That’s convenient, and it’s exactly what’s being litigated, which makes it unstable: a contract that’s live in your state today could be restricted tomorrow depending on how the next ruling lands.
If your goal is simply to bet on sports, the clearer paths are the familiar ones — a regulated, state-licensed sportsbook where one exists, or an established offshore book — not a financial instrument whose legal status is mid-appeal. If you want to understand which option actually applies where you live, start with our guide to where online gambling is legal in the USA, and if you’re comparing places to bet, our sports betting hub breaks down the real options. Whatever route you take, the Monkey’s standing rule holds: know what you’re playing before you play it.
Published: June 4, 2026. 18+ / 21+ where applicable · Prediction markets carry the same real-money risk as any wager — play responsibly. If gambling stops being fun, 1-800-GAMBLER is free, confidential, and available 24/7.
Frequently Asked Questions
Are prediction markets legal in the US?
It’s contested and unresolved. Kalshi operates as a CFTC-licensed exchange and argues federal law lets it offer event contracts nationwide, but several states say its sports contracts are illegal gambling. Federal courts have split — one appeals court sided with Kalshi over New Jersey, another let Nevada act against it — so legality currently varies by state and may ultimately be settled by the Supreme Court.
Is Kalshi gambling?
Depends who you ask. Kalshi says it’s a regulated financial exchange trading event contracts, not a sportsbook. State regulators, many lawmakers, and 61% of Americans in a 2026 Ipsos poll say that, for sports outcomes, it functions like gambling. The legal answer hasn’t been settled.
Can I use Polymarket in my state?
Availability is limited and changing. Polymarket, Kalshi’s main rival, has drawn particular scrutiny as an offshore-oriented platform, and state actions plus the broader legal fight mean access depends on where you live and is in flux. Check its current status for your state before assuming you can use it.
How are prediction markets different from sportsbooks?
Mechanically, you buy and sell event contracts priced by probability on a federally regulated exchange, rather than placing fixed-odds wagers with a bookmaker. The bigger differences are regulatory — CFTC oversight instead of state gaming licenses — and reach: prediction markets have operated in states where sportsbooks aren’t legal. Critics argue that, for sports, the distinction is cosmetic.