Prediction markets have moved from a niche forecasting tool into a serious strategic issue for the gambling, sports, media and financial services sectors. In the United States, that shift has been driven by federally regulated event-contract venues such as Kalshi and ForecastEx, the re-entry of Polymarket through a CFTC-regulated U.S. vehicle, the distribution power of Robinhood and Interactive Brokers, and the arrival of FanDuel Predicts through a joint venture with CME Group. The result is no longer an abstract debate about academic forecasting markets. It is a live contest over who gets to monetise uncertainty, under which rulebook, with what duty of care, and with which tax consequences.

The central conclusion of this report is that prediction markets are neither wholly different from gambling nor simply identical to it. They are institutionally different, economically overlapping, and behaviourally convergent. Institutionally, U.S.-regulated prediction markets sit inside the Commodity Exchange Act framework and are treated by the CFTC as derivatives or swaps traded on designated contract markets. Behaviourally, however, sports and political event contracts often feel, look and are marketed like wagering. Economically, once a contract is tied to a sports result, the overlap with sportsbooks becomes direct enough that most commercial and state gaming stakeholders view it as substitutive competition, not an adjacent forecasting utility.

That is why legitimacy has become the decisive question. For macroeconomic, weather and similar contracts, the case for legitimacy is relatively strong. The CFTC itself frames prediction markets as tools that can help the public forecast, plan for and hedge future events, and a 2026 Federal Reserve working paper found Kalshi’s macro markets to be a valuable, high-frequency benchmark for expectations, performing as well as or better than some traditional alternatives in several applications. For sports outcome contracts, the legitimacy case is much weaker because the product is functionally close to betting, sports-specific integrity controls are less mature than in state gaming regimes, and the political economy of regulation is harsher.

The sports category is therefore the true battleground. State gaming regulators in Nevada, Illinois, Ohio, Maryland, Massachusetts and New Jersey have all pushed back against sports event contracts on the grounds that they constitute betting or unlicensed sports gaming under state law. Nevada has been especially explicit, stating that sports and certain other event contracts are wagering under Nevada law, whether the contract sits on a CFTC-regulated exchange or elsewhere. Ohio went so far as to allege that Kalshi was operating sports gaming without a licence and failing to comply with the state’s cease-and-desist order. Illinois told the CFTC directly that these platforms were circumventing state oversight, tax collection and consumer protections.

At the same time, federal signals have been mixed but increasingly permissive. In 2023, the CFTC disapproved Kalshi’s congressional control contracts, holding that they involved gaming, unlawful activity under state law and conduct contrary to the public interest. Yet by 2025 and 2026, the agency had moved towards a more innovation-friendly posture. It convened a prediction-markets roundtable, withdrew its 2024 event-contract rule proposal and a 2025 sports-related advisory, issued a new 2026 prediction-markets advisory focused on designated contract market obligations, and filed amicus briefs asserting exclusive federal jurisdiction over U.S. commodity derivatives markets, including event contracts commonly referred to as prediction markets.

Commercially, the threat to sportsbooks is real but uneven. Prediction markets do not yet replace the full sportsbook model. They are less naturally suited to high-margin parlays, bonus-led entertainment, deep in-play menuing, and very casual recreation. They do, however, attack some of the industry’s most strategically sensitive points: pricing transparency, national distribution, availability in states without legal online sports betting, high-information customers, and adjacent user acquisition through brokers and finance apps. Sporttrade, itself a state-regulated exchange sportsbook, argued to the CFTC that federally regulated sports event contracts are “the same exact products” it offers but with a materially advantaged national distribution model. The AGA argued that these products amount to sports betting futures available in all 50 states and undermine state tax revenue, tribal exclusivity and responsible-gambling frameworks.

This matters because distribution is changing faster than doctrine. Robinhood now offers prediction markets directly in-app and reported a record 8.5 billion event contracts traded in 2025. Interactive Brokers now gives eligible clients access to Kalshi, ForecastEx and CME event contracts from one interface. FanDuel Predicts, a joint venture between FanDuel and CME Group, explicitly combines CFTC-regulated event contracts with consumer protection tools and a sports go-to-market strategy that is designed to avoid direct conflict with FanDuel’s online sportsbook footprint by offering sports contracts only in states where online sports betting is not yet legal. These developments show that prediction markets are not merely building their own customer base. They are being inserted into large existing retail ecosystems.

Reputationally, the sector remains fragile. Prediction markets have gained legitimacy from regulated status, professional interfaces and partnerships with mainstream institutions, but they have also accumulated obvious warning signs. CFTC enforcement staff issued a 2026 advisory after two cases involving alleged misuse of non-public information and fraud in Kalshi markets. Nevada’s complaint against Kalshi cited advertising that described the product as “legal sports betting in all 50 states”. Problem-gambling advocates warned the CFTC that sports futures are functionally gambling and were taking place outside the normal responsible-gambling toolset, while the AGA highlighted 18-plus access in contrast with the 21-plus standard in most regulated state sports-betting markets.

The global picture is more cautionary than the U.S. narrative. Great Britain’s Gambling Commission has been explicit that products meeting the definition of gambling must be licensed by the Commission and that current U.S.-style prediction-market products would probably fall within the definition of a betting intermediary, akin to a betting exchange. Australia combines a strict retail binary options ban by ASIC with aggressive ACMA enforcement against illegal gambling services, including warnings connected to Polymarket. Canada bans short-dated retail binary options through securities regulators, while provinces regulate sports and event betting through gaming channels. Brazil is building a federal fixed-odds betting regime that requires authorisation by the Ministry of Finance’s SPA. Across these markets, the dominant outside-U.S. regulatory instinct is not to treat sports prediction markets as a new, lightly regulated forecasting category, but to route sports-like activity towards gambling law or prohibit it if offered through the wrong structure.

The most likely outcome through 2030 is therefore conditional legitimacy, not blanket acceptance. Prediction markets are highly likely to survive and become more legitimate in macro, economic, corporate, weather and selected political markets. Sports contracts are likely to remain contested until one of three things happens: federal rulemaking narrows what can be listed; Congress or the courts clarify pre-emption and the scope of “gaming”; or operators adopt a hybrid compliance model that imports sportsbook-grade integrity, age-gating, geofencing, tax treatment, information-sharing and harm-prevention safeguards. In other words, the destination is not pure financialisation or total prohibition. It is convergence.

For boards, the key judgment is straightforward. Prediction markets should be treated as a strategic category, not a passing legal anomaly. Sportsbooks should prepare for selective substitution and possible convergence. Regulators should prepare for cross-jurisdictional coordination failures unless they create a clearer rulebook. Suppliers, affiliates and sports organisations should assume category growth and position around integrity, data, compliance, geolocation, and distribution rather than waiting for legal certainty. Investors should recognise that the upside is substantial, but so is the path dependency of law, enforcement and reputation.