Are Prediction Markets Gambling? The Legal Fight Explained

Are prediction markets gambling? It depends who you ask, and in the US the answer is being decided in court right now. Platforms say their contracts are federally regulated financial products; many states say sports contracts in particular are just bets. This guide explains the legal argument on both sides and where the courts and regulators stand, as of October 27, 2026.

The two sides

	“It’s a regulated financial market”	“It’s gambling”
Who argues it	Kalshi, other exchanges, the CFTC	Many states, tribes, the gaming industry
Legal basis	Event contracts on a CFTC-designated exchange are swaps under the Commodity Exchange Act, which gives the CFTC exclusive jurisdiction and overrides state law	Sports contracts aren’t swaps; they’re wagers on games, so state gambling laws apply
Practical point	Traders bet against each other on an exchange, not against a bookmaker	For the user, it looks and works like a sports bet

What the federal rules say

Under the Commodity Exchange Act, the CFTC can block event contracts that involve “gaming”, along with terrorism, assassination, war and unlawful activity, if it finds them contrary to the public interest. Its Rule 40.11 bars exchanges from listing such contracts. For years that rule was rarely tested. In 2026 the CFTC moved to define it:

March 2026: an advance notice of proposed rulemaking on prediction markets, plus a staff advisory flagging sports contracts that settle on injuries, misconduct or individual players’ or officials’ actions.
June 2026: a proposed rule defining “gaming” and setting up a contract-by-contract public-interest review.
2026: the CFTC sued a number of states, including New York and, on October 26, Utah, arguing that federal law gives it exclusive authority over these markets.

What the courts say

Likely federal (preempted): the Third Circuit (New Jersey, April 2026) sided with the exchanges.
Likely gambling (state law applies): the Ninth Circuit (Nevada, August 2026) found sports contracts are likely bets, not swaps, and that Rule 40.11 still bars gaming contracts; the Sixth Circuit (Ohio and Tennessee, September 2026) agreed they aren’t swaps.
Tribal gaming: the Ninth Circuit also found contracts traded on California reservations likely count as Class III gaming under federal Indian gaming law.

With appeals courts split, New Jersey has asked the Supreme Court to decide. See Is Kalshi legal? for the case list.

Outside the US

Many countries treat prediction markets as gambling, which is why Polymarket and Kalshi block or restrict users in places such as the UK and France. See Is Polymarket legal?

Does it matter to you?

Availability: where a court treats sports contracts as gambling, platforms may switch them off in that state.
Age: Kalshi admits 18-year-olds as a regulated exchange; sportsbooks usually require 21.
Taxes: the IRS hadn’t issued specific guidance on prediction market winnings when we checked; ask a tax professional.

FAQ

Is Kalshi gambling?

Legally, Kalshi says no: it’s a CFTC-regulated exchange. Some courts have agreed for sports contracts and others haven’t. In practice, trading on outcomes carries the same risk of losing your stake.

Is Polymarket gambling?

Polymarket’s main exchange is treated as gambling in several countries that block it. In the US, Polymarket US operates as a CFTC-regulated exchange.

Why does the label matter?

It decides who regulates the market (the CFTC or each state), who can use it, at what age, and whether states can shut it down.