How Prediction Markets Are Reshaping Sports and Gambling Regulation

By: Ben Rafal

April 7, 2026

Photo Credit: ESPN

Prediction markets were first pitched as a new way to aggregate information and population-wide sentiment about everything from elections to inflation to weather. In practice, however, the overwhelming bulk of its activity comes from sports-related events and activity. As this segment has become the engine of growth for companies like Kalshi, the debate around them has changed too. The issue is no longer whether these platforms are useful forecasting tools, but if they are becoming a new kind of sports gambling business that is built outside of the traditional economic and regulatory framework that governs traditional sportsbooks.

Sports accounts for roughly 90% of Kalshi’s trading volume and fees, a level of concentration that makes it difficult to view these platforms as broad forecasting utilities rather than a sports product. This level of concentration also changes the types of conflicts of interest that these companies subsequently invite. In February, Milwaukee Bucks superstar Giannis Antetokounmpo became a Kalshi shareholder and marketing partner, making him the first basketball star to acquire an ownership stake in the platform.

The partnership came immediately after a huge market was built around Giannis’ own NBA future. The market predicting his “next team” attracted about $23 million in volume, and the likelihood of different destinations including Miami, Golden State, and New York shifted sharply throughout the days leading up to the trade deadline. There is no evidence that Giannis manipulated the market, but the subsequent partnership illustrates the deeper issue that once sports becomes the growth engine for these markets, they monetize non-game related activities such as rumors, player movement, and the attention economy around the world’s most influential athletes.

If athletes or other insiders can hold equity in platforms that profit from decisions about their own future, it can make the trade deadline information ecosystem appear less legitimate. ESPN’s Dan Wetzel argued it “does [the] NBA no favors” because the league is already dealing with issues of load management, tanking, and gambling scandals.

Days later, Super Bowl LX exposed another weakness of prediction markets. Similar to the large swings around where Giannis would end up, information around which celebrities would attend the Super Bowl generated more than $39 million in trading volumes. More than $23.7 million was tied to whether Mark Wahlberg would attend the game, fueled by a rumor spreading through college fraternities and social media that pushed the “Yes” price as high as 89%. Ultimately, Wahlberg did not attend, and traders who followed the rumor-driven surge were left with losses.

Separately, the Wall Street Journal reported that individuals at the University of Miami may have traded using inside information about Jeff Bezos’s plans to attend the game, and Kalshi told the Journal it was investigating both cases for insider trading. Together, the incidents show how genuine inside information or a simple rumor can move a prediction market’s prices far from reality and invite potentially misguided wagers on a specific outcome. Super Bowl controversies underscore the regulatory risks gathering around prediction markets, which have been illuminated by the NCAA and even state governments.

College athletics sit at the intersection of immense gambling demand and shifting NIL policies, and student-athletes are younger and more exposed to harassment and pressure than professionals. Meanwhile, prediction markets have continued to push into college basketball as March Madness trading increases. In January, the NCAA formally asked the Commodity Futures Trading Commission (CFTC) to suspend college sports event contracts until stronger institutional safeguards are in place, arguing that the current system does not provide protections comparable to state-regulated sportsbooks. They specifically called for age and advertising restrictions, anti-harassment measures, and enhanced monitoring of suspicious betting activity.

In response, Kalshi instituted deposit limits and an integrity partnership with IC360, a gaming compliance and technology firm. However, this response also raises the question of what differentiates prediction markets from sportsbooks if these platforms require sportsbook-style safeguards to operate in college sports. Certain states have escalated the debate, arguing that prediction markets are illegally operating as sportsbooks under a different label.

On March 17, Arizona Attorney General Kris Mayes filed criminal misdemeanor charges against Kalshi, accusing it of operating an illegal gambling business and unlawfully accepting wagers on elections, college sporting events, and individual player performances. Kalshi argues that its event contracts fall under the specific authority of the CFTC, not state gaming regulations. Arizona simply argues that despite the label Kalshi uses, it is taking bets that would require state-level authorization if offered by a traditional sportsbook.

Importantly, this case is not just about one company or one state, but instead whether prediction markets can capture the economics of sports betting without the associated legal framework. Massachusetts, New Jersey, Maryland, and other states have also been associated with this conflict, and a Nevada judge recently barred Kalshi from operating without a license and stated that event contracts fit the state’s legal definition of a “sports pool.” On March 23, two senators introduced a bipartisan bill seeking to prevent CFTC-regulated prediction markets from listing sports contracts on their platforms, arguing that the “backdoor” violates state consumer protections. This marks a clear federal escalation from earlier state-level cases and a potential turning point in the restrictions placed on these platforms.

As sports become the core offering of prediction markets, the distinction between them and sportsbooks may begin to blur. The legal battles around Kalshi now center around the regulation and profitability frameworks that will govern the future of gambling.