Until recently, prediction markets were perceived as a niche product serving political enthusiasts, crypto traders, and those interested in forecasting Federal Reserve decisions. Today, those same platforms enable users to trade on the outcomes of NFL and NBA games, World Championships, and other sporting events. In terms of scale, interface, and audience behavior, this market increasingly resembles less of an experiment and more of an alternative sportsbook.
The key difference lies not on the user's screen, but in the legal structure. A bookmaker accepts a wager and operates under a specific state license. A prediction market offers the purchase of a financial contract tied to the occurrence of an event and may operate through infrastructure regulated by the federal Commodity Futures Trading Commission, or CFTC.
It is precisely this distinction that has given the new market its main competitive advantage: potential access to users in states where conventional online betting is prohibited or heavily restricted. Now, U.S. courts will have to determine whether this constitutes a legitimate federal model or a way to remove sports wagering from the oversight of state gaming regulators.
On 3S.INFO, we break down why trading event contracts is essentially close to betting, yet legally may be regulated as a market for financial derivatives under CFTC oversight, rather than as bookmaker activity at the individual state level.
- What are prediction markets? They are exchange-based platforms where users buy and sell contracts on the outcome of future events: for example, a team's victory, an election result, or the release of an economic indicator. Mechanically, they resemble a bet, but under the regulated U.S. model, such products may be structured as financial derivatives and traded on venues under CFTC oversight. For more detail, examples of wagers, the largest payouts, and a key distinction between "prediction markets" and classic betting, read here: Sports Interest in Politics and Climate: A New Kind of Exchange Game.
What Is an Event Contract? When a Bet Becomes a Financial Contract
The basic mechanics of an event contract are remarkably simple. A user buys a Yes or No contract on a specific outcome. For example, whether a team will win a match, whether a candidate will advance to the next round, or whether an economic indicator will exceed a set threshold.
The contract price ranges from $0.01 to $0.99 and effectively reflects the market's assessment of the probability of an event. If a Yes contract on a team's victory trades at $0.60, the market estimates its chances at roughly 60%. If the event occurs, the contract settles at $1; if not, it settles at zero. The position can also be sold before the event concludes, locking in a profit or loss based on changes in the market price.
From a trading perspective, this is a financial instrument with market-based pricing. From the average customer's point of view, the logic is nearly indistinguishable from a bet: they risk money predicting the outcome of a match and receive a payout if they are right.
Even the odds are easy to reconstruct. Buying a contract at $0.60 with a potential $1 payout roughly corresponds to decimal odds of 1.67. The names and infrastructure differ, but the user's economic behavior remains virtually the same.
There are, however, genuine product differences as well. A bookmaker forms the line independently and factors a margin into the odds, whereas on an exchange platform the price emerges from supply, demand, and liquidity. A contract can be resold before settlement, so the client is trading not only the final outcome but also shifts in probability. The transaction structure may involve separate exchanges, clearing organizations, brokers, and market makers.
Behind this technical complexity lies an extremely straightforward mass-market product: pick Yes or No and profit from a correct prediction.
Regulatory Specifics of the "Prediction Market": Two Identical Events, Two Different Regimes
After the federal PASPA ban was repealed in 2018, sports betting regulation in the U.S. remained at the state level. Each state independently decides whether to permit online betting, how many licenses to issue, what taxes to levy, and what requirements to impose on operators.
For a bookmaker, entering a new state means obtaining a separate license, securing a local partnership where mandatory, certifying the product, and complying with rules on advertising, geolocation, KYC, player protection, and responsible gambling. In addition, the operator pays a state-mandated tax on gaming revenue.
Prediction markets stake out a different legal position. If the event serves as the underlying condition of a financial derivative and the contract is traded on a registered exchange, oversight falls under the CFTC's purview. Instead of dozens of gaming licenses, a single federal framework emerges.
This creates a regulatory asymmetry. A bookmaker and a prediction market may both allow users to forecast the winner of the same match, yet the former bears the costs and restrictions of the gambling industry, while the latter positions its product as derivatives trading.
This does not mean that event contracts are automatically available in every state. Robinhood, for instance, explicitly warns that sports contracts are unavailable to residents of Maryland, and users in Nevada cannot open new positions. Additional restrictions are also possible. Even so, the potential geographic reach of the federal model is considerably broader than that of an operator that must open each state one by one.
The debate, therefore, is no longer about correct terminology. Its outcome will determine whether a national sports prediction market can exist in the U.S. outside the traditional betting-license system.
Prediction Markets: Key Players and the History of the Conflict
The prediction market landscape is shaped not only by specialized exchanges but also by major fintech and crypto platforms: Kalshi, Robinhood, Polymarket, Crypto.com, and OG.com. However, its rapid growth has been accompanied by a fundamental regulatory dispute: are sports event contracts financial derivatives under federal CFTC oversight, or are they effectively unlicensed bets that should fall under state control? Kalshi's conflict with New Jersey has become a key test for the entire industry and could determine the future model for distributing sports predictions in the U.S.
Kalshi vs. the States
The central player in the conflict is Kalshi, a CFTC-registered event contracts exchange. The platform argues that sports contracts qualify as derivatives and therefore fall under exclusive federal jurisdiction. State gaming regulators counter that the product is, in effect, unlicensed sports betting.
In March 2025, New Jersey authorities demanded that Kalshi stop offering sports contracts to residents of the state. The company turned to a federal court and secured an injunction blocking the enforcement of that order. The dispute then moved up to the appellate courts.
The challenge for the market lies in the fact that judicial precedent has been inconsistent. In one case, courts upheld the argument for federal preemption and CFTC authority. In another, they concluded that an exchange's registration does not necessarily strip a state of its ability to apply its own gambling laws.
In September 2026, New Jersey petitioned the U.S. Supreme Court to review the question of jurisdictional boundaries. The state contends that federal regulation of commodity derivatives should not automatically block the application of local laws to a product that is essentially sports betting. Kalshi, by contrast, insists that parallel oversight by dozens of states would fragment a single federal market.
The submission of a petition does not guarantee that the Supreme Court will accept the case for review. Nevertheless, the fact that the dispute has reached this level speaks to its broader significance. What is at stake is no longer a single platform or a single state, but the dividing line between two major regulated industries.
Robinhood Turns an Experiment Into a Mass-Market Product
While courts debate the legal nature of event contracts, the market keeps growing. Robinhood launched its own Prediction Markets Hub in 2025, and the segment has since become one of the company's fastest-growing product lines.
According to Robinhood, by September 2026 more than 45 billion event contracts had been traded through the platform. In the second quarter alone, volume reached 13.6 billion contracts, and during the World Championship users executed trades involving more than 5 billion contracts. For comparison, the company reported a record 8.8 billion contracts in the first quarter.
These figures cannot be equated with betting handle. A single contract trades within a range of $0.01 to $0.99 and settles at $1 if the outcome is successful. Moreover, Robinhood's metric reflects the number of contracts bought or sold, not the total amount of wagers placed or the platform's revenue. Therefore, 45 billion contracts does not mean $45 billion in turnover, let alone $45 billion in income.
Nevertheless, the momentum reveals the scale of user demand. In the first quarter of 2026, Robinhood generated $147 million in other transaction revenue, the bulk of which came specifically from event contracts. The figure rose 320% year over year. Prediction markets have become not a marketing add-on for the company, but a distinct revenue stream.
The new deal with Crypto.com and OG.com confirms this strategy. Robinhood will route a portion of football contracts to the CFTC-regulated exchange OG.com, while simultaneously acquiring minority stakes in both OG.com and Crypto.com. The company had previously worked with Kalshi, ForecastEx, and Rothera.
In effect, Robinhood is building far more than a storefront with a handful of predictions. It is combining a mass retail audience, a brokerage interface, multiple liquidity sources, and equity stakes in exchange infrastructure. This is already the architecture of a full-fledged market.
Kalshi, Robinhood, and Polymarket Play Distinct Roles
Prediction markets are often discussed as a single category, even though the business models of the major players differ considerably.
Kalshi is primarily a regulated exchange and the leading advocate of the federal model for sports event contracts. Robinhood acts as a broker and distribution channel. Its core advantage lies in access to tens of millions of users already accustomed to trading stocks, options, cryptocurrencies, and other financial instruments.
Polymarket grew out of a crypto-native environment. Its technological and regulatory history differs from that of a U.S. CFTC exchange, yet it is largely responsible for proving that prediction markets can attract mass attention to elections, sports, and other events.
OG.com and its affiliated Crypto.com structures add yet another infrastructure layer: a regulated venue, clearing, and the ability to expand the catalog of contracts. The more such combinations emerge, the less the market depends on the fate of a single brand.
As a result, a new chain is taking shape: an exchange creates the contract, market makers provide liquidity, a broker or fintech app gives the user access, and media and affiliates bring in the audience. Structurally, it resembles a financial market, yet in terms of content and user demand, it increasingly overlaps with betting.
What This Means for Bookmakers
The main threat to traditional operators is not that prediction markets will completely replace sportsbooks tomorrow. For now, exchange-based products lag behind bookmakers in line depth, live functionality, parlay betting, bonus mechanics, personalization, and CRM.
But competition is already underway, and it is unfolding under unequal regulatory conditions. A prediction market can attract audiences through a financial app, sell sports contracts alongside stocks and cryptocurrencies, and potentially operate in jurisdictions where a sportsbook is unavailable.
Particularly important is the shift in user context. A Robinhood client may not consider themselves a bettor. They are not opening a casino or a bookmaker app. They are simply executing another trade in their investment account. For the industry, this means access to an audience that classic gambling marketing might never have reached.
At the same time, bookmakers themselves now have reason to rethink their product. Exchange trading demonstrates that users may be interested in the ability to exit a position before a match concludes, track market probability, and trade shifts in expectations. Cash out partially serves this function, but a full-fledged two-sided market offers more transparent mechanics.
If the federal model holds, bookmakers will have to compete not just on odds and bonuses. They will need an answer to the combination of liquidity, a trading interface, and national distribution.
Using Prediction Markets in Affiliate Marketing: A New Channel With New Risks
For affiliates, prediction markets create a category at the intersection of betting, fintech, and crypto. Sports content, match analytics, and forecasts are already well-suited to attracting this kind of audience, but the advertising language can differ significantly.
If a product is classified as a financial instrument, it cannot automatically be promoted using the same methods as bookmaker bets. Questions arise around risk warnings, permissible return claims, the use of terms like "bet" and "odds," age restrictions, and liability for geo-targeting.
On the other hand, the financial packaging can broaden the funnel. It brings in traders, crypto users, and brokerage app clients who may not necessarily be interested in a traditional sportsbook. For affiliates, this represents a new audience and potentially new monetization models.
However, building a long-term strategy on the current regulatory advantage is risky. If courts determine that sports event contracts constitute gambling, or allow parallel state oversight, platforms will have to adjust their geography, advertising, onboarding, and affiliate programs. An offer available almost nationwide could quickly turn into a patchwork of local campaigns with separate restrictions.
The Outlook for the "Prediction Market" in 2027: Three Possible Scenarios
- If the Supreme Court upholds the primacy of federal regulation, prediction markets will gain the ability to scale sports products through CFTC-regulated infrastructure. This will not eliminate all restrictions, but it will affirm a model of national distribution without requiring a full betting license in every state.
- If the states prevail, platforms will have to limit sports contracts, negotiate with local regulators, or enter the traditional gambling licensing framework. The prediction market will not disappear: economic, weather, and political contracts will remain. However, its direct advantage over bookmakers will be significantly diminished.
- The most likely practical outcome may be an intermediate model. Federal jurisdiction will be preserved, but sports contracts will face additional requirements concerning age verification, advertising, user protection, limits, and availability in certain states. As the market grows, the distinctions between financial and gambling compliance will begin to narrow.
Regulatory Advantage Matters More Than the Product's Name
Prediction markets do not need to displace bookmakers in order to reshape sports betting. It is enough to capture part of the audience, drive up the cost of traffic, and force operators to compete with a product running through a different regulatory system.
However, this is also where the new model's vulnerability lies. Its value is determined not only by technology, liquidity, or user interface. A significant part of its advantage stems from the ability to classify a sports wager as a financial transaction and scale it at the federal level.
Should that advantage erode, event contracts will nonetheless remain a compelling product. They enable users to trade probabilities, exit a position before the outcome is settled, and merge sports with other event categories. Yet without regulatory asymmetry, they will be compelled to compete with bookmakers on markedly more equal terms.
That is why the key question for the industry is broader than "will Kalshi win?" If a user risks money on the outcome of a football match, should regulation depend on whether their action is called a bet or the purchase of a financial contract?
And if the answer is no, American authorities will have to define not only the boundary between the CFTC and gaming regulators, but also common rules for a market where an exchange and a bookmaker are effectively selling different versions of the same prediction.
