The Real Winner of the Super Bowl? Prediction Markets

Introduction

The Seahawks raised the Lombardi Trophy and Bad Bunny dominated Sunday’s halftime stage, but the real winner from Super Bowl LX may be prediction markets. Kalshi, the leading prediction market, reported over $1 billion in trading volume on Super Bowl Sunday, which accounts for a 2700% year-over-year increase. Meanwhile, the American Gaming Association (AGA) predicted $1.7 billion placed in legal sportsbooks, which constitutes a 27% year-over-year increase.   

The recent explosion in the popularity of prediction markets, such as Kalshi and Polymarket, has set up a multi-front legal and business battle: between newcomers and existing players, between federal, state, and tribal sovereignty. Kalshi, Polymarket, and other prediction markets are currently involved in upwards of a dozen lawsuits over whether their event contract business models amount to illegal gambling. 

On the side of prediction markets, there are three distinct categories of players. First, the exclusive prediction markets, which include Kalshi and Polymarket. After being excluded from the US market for event contracts at last year’s Super Bowl, Polymarket has relaunched its US presence at this year’s game. The second group of players includes many crypto trading platforms, which include Crypto.com, Coinbase, and Robinhood. The third group is constituted of “traditional” online sportsbooks that now embrace event contracts in states where sports betting is not yet legal. They include DraftKings, FanDuel, and Fanatics. 

On the side of regulators, federal regulators, mainly the Commodity Futures Trading Commission (CFTC), wrangle with state governments and Native American tribes over jurisdiction to regulate this lucrative new market, teeing up the main legal contention with prediction markets: federal preemption. 

Event Contracts

From a distance, event contracts and traditional sportsbetting look similar, such that they allow people to put money on the possibility of a certain event. However, the difference in their mechanism is the legal grey area in which prediction markets have thrived. 

An event contract is a type of financial exchange that allows people to speculate on the outcome of a specific event. The contract settles on a binary outcome of “yes” or “no”, or $1 or $0 per contract, given the occurrence or non-occurrence of a specific event. Normally, events include economic indicators, the financial market, or an individual company’s performance. The transaction is peer-to-peer, while the prediction market platforms themselves make a profit by taking a slice from each transaction. Therefore, the platform always makes a profit regardless of the outcome. Most prediction markets allow continuous trading until the expiration of the event, so the price is dynamic. For example, a 66¢ contract on the Seahawks winning the Super Bowl on Kalshi at the moment reflects the most current market prediction of the Seahawk’s 66% of winning the game. 

Sportsbetting, on the other hand, operates under a “house” model. The bookmaker sets fixed odds with a built-in margin (“vig”) to ensure profit. Because a bookmaker can offer bets on both sides with a margin, if the house loses on one side, it profits more on the other side and makes an aggregate profit. 

State Regulation and Federal Preemption.

The central issue of the legal status of sports-related event contracts is which set of laws it follows and to which authority it is subject. Section 5 of the Commodity Exchange Act (CEA) empowers the Commodity Futures Trading Commission to regulate Designated Contract Markets (DCM). DCMs may list for trading to retail traders different types of futures or options contracts based on any underlying commodity, index, or instrument. The CFTC may prohibit contracts that fall under an enumerated category, which includes “gaming,” if they are against the public interest. Therefore, of all the potential underlying events to event contracts, contracts with political and sports-based outcomes have faced the greatest scrutiny. 

Under the Biden administration, the CFTC took a more skeptical stance towards the legality of prediction markets under federal law. In 2024, the CFTC prohibited Kalshi from listing politics-related event contracts on its CFTC-regulated DCM. Kalshi then took the regulator to court and won because congressional elections are not “games” within the meaning of CEA. In response to its failure in the court, the CFTC initiated rulemaking that seeks to generally prohibit event contracts involving politics and sports. 

The Trump administration has adopted a more relaxed attitude towards such “financial innovation.” The President’s son, Donald Trump Jr., is an advisor to both Kalshi and Polymarket, and he will oversee the family’s new prediction market, Truth Predict. The administration has also brought in a much friendlier face in Michael Selig as the Chairman of CFTC. On January 29, 2026, at a joint event between CFTC and SEC on harmonization of regulatory framework, CFTC chairman Michael Selig clarified CFTC’s stance towards the prediction market.

First, he directed CFTC to withdraw a 2024 proposed rule that would prohibit political and sports-related event contracts and a 2025 advisory that cautioned prediction markets against sports-related event contracts. Instead, Selig promised that the agency would initiate new rulemaking on event contracts with clear standards to provide certainty to market participants. Regarding ongoing litigation, CFTC would adjust its stance. Instead of sitting on its hands in the first year of the Trump administration, while prediction markets with sports contracts allegedly violated the CFTC’s own rules, Selig directed the agency to retain its exclusive jurisdiction over  “swaps” offered by prediction markets, but relax on substantive rules. 

While Kalshi and others maintain that their business models do not constitute gambling, many states disagree. Kalshi alone is party to at least nineteen lawsuits as of January 2026, as both a plaintiff and defendant. The other prediction market businesses have been involved in their fair share of litigation as well. For example, a Nevada court recently granted the state Gaming Control Board’s motion for a temporary restraining order, prohibiting Polymarket from offering sports-related event contracts in the state, and a Massachusetts court granted a similar motion against Kalshi. Both courts indicated that these event contracts likely amounted to unlicensed gambling operations in violation of state law. According to the Judge’s ruling in Massachusetts, sports-related event contracts accounted for roughly seventy percent of trading volume, and Kalshi “profited more from its sports-related event contracts than licensed sports wagering platforms Draftkings and Fanduel” during the relevant timeframe. 

In their attempt to prevent a fifty-state patchwork of regulation for their businesses, Kalshi and its fellow competitors argue that state regulation is preempted by federal law. Kalshi, Polymarket, and Coinbase have all argued that the CFTC has exclusive jurisdiction to regulate event contracts. Given the CFTC’s congressional mandate, federal law preempts state laws seeking to regulate contracts offered by Designated Contract Markets. As the federal agency granted exclusive jurisdiction over DCMs, all rule-making authority must rest with the CFTC. Coinbase, in their suit against the Nevada Gaming Control Board, described states seeking to enforce their gambling laws as encroaching on the CFTC’s jurisdiction, and argued that “[f]ederal law leaves no room for concurrent state regulation in this field.” 

Why Native Tribes are Intervening

As the legal battle intensifies, a third group of stakeholders has entered the fray, Federally Recognized Tribes, who view the rise of sports-related event contracts as a direct assault on their sovereign authority. For tribal nations, the proliferation of prediction markets is not just a regulatory debate; it is a threat to the economic framework established by the Indian Gaming Regulatory Act (IGRA) of 1988. 

The central argument for tribal interventions rests on the principle of territorial exclusivity. Under IGRA, tribes have spent decades negotiating compacts with state governments that grant them the exclusive right to operate gaming activities within their borders. These compacts are the lifeblood of tribal economies, funding essential services like healthcare, education, and infrastructure. Tribes contend that because platforms like Kalshi and Polymarket are accessible via smartphone to anyone physically located on tribal lands, these companies are effectively operating unlicensed gaming facilities within tribal jurisdiction. This digital encroachment bypasses tribal geofencing requirements and violates the sovereign right of tribes to regulate commerce and gaming on their own territory. 

Beyond the jurisdictional dispute, tribes argue that the “event contract” label is a legal fiction designed to circumvent the financial obligations inherent in the gaming industry. Unlike licensed tribal operators, prediction markets do not pay the same regulatory fees or adhere to the same revenue-sharing agreements that support local communities. The Indian Gaming Association (IGA) has voiced concerns that if Kalshi and its competitors are allowed to operate statewide, offering what many tribes consider to be “Class III gaming” under the guise of financial derivatives, it undermines the very financial stability the IGRA was intended to protect. By siphoning off sports-related volume, which remains a primary driver of consumer engagement, these platforms threaten to hollow out the “exclusivity” that tribes have traded for in high-stakes negotiations with state governments. For these tribal nations, if state-regulated gambling laws are preempted by federal commodities law, the decades-old legal architecture of tribal self-sufficiency could face a permanent and devastating collapse. 

Online betting: friend or foe

The recent rise of prediction markets poses a formidable challenge to “traditional” sportsbetting. According to one estimate by Citizens Bank, this year legal sports betting will lose around 5% of its business, or approximately $8 billion, to prediction markets. However, prediction markets also manifest an evolution of sportsbetting’s own success in the last decade. There is nothing traditional about the current legal sportsbetting industry.

In 2018, the Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in Murphy v. NCAA. PASPA prohibited states from legalizing sports betting. The Supreme Court reasoned that the federal statute violated the anticommandeering principle of the Tenth Amendment. As a result, Murphy v. NCAA returned the power to regulate sports betting to individual states under their general police power. In the following years, states rushed to legalize sports betting. So far, sports betting remains illegal in only 11 states, including California.

Initially, online sportsbooks followed the gradual footsteps of legalization on the state level to expand their businesses. However, in the past year, three online sportsbooks launched their own prediction markets to cover additional markets in states where sportsbetting is yet legal. For the sportsbetting industry, prediction markets offer more of an opportunity than a challenge. First, sportsbooks are free to enter the prediction markets themselves, as several online sportsbooks have done so to capture the upside reward. Second, a large proportion of sports-related event contracts are transacted in states where sportsbetting is illegal, so event contracts are more of a complement, rather than a direct substitute to sportsbetting. On the other side of the table, although prediction markets are growing rapidly, they face greater risk. Their existence hinges on the federal regulator’s lenient stance under the current administration. A change of politics at the federal level and persistent state-level resistance create a legal risk that’s hard to ignore. Currently, sports-related event contracts constitute a large proportion of prediction markets’ trading volumes. Thus, losing their sports-related event contracts would be devastating to prediction markets. 

An Uncertain Future

While various states and tribes make it clear that they want to establish their own regulatory schemes for prediction markets, it appears as though the federal government is preparing to throw its weight around. With the downfall of Chevron deference, it is not clear how courts around the country will come down on the issue, and it could ultimately require the intervention of Congress or lead to a showdown in the Supreme Court over whether Congress truly intended to preempt state regulatory powers. Given the current legal landscape, the best strategy remains playing both sides: pursue the upside of emerging prediction markets while preserving access to state-regulated sports betting—an arena the industry already knows how to play. In the end, the house always wins.

*The views expressed in this article do not represent the views of Santa Clara University.