Prediction markets are encroaching on the sportsbook's turf

A parallel market for betting on outcomes has grown up alongside the licensed US sportsbook — and it does not hold a gambling licence. Prediction-market platforms, which offer “event contracts” regulated as financial derivatives under the Commodity Futures Trading Commission rather than by state gaming regulators, have moved from political-outcome betting into sports. For operators that spent years and billions securing state-by-state sports-betting licences, that is an awkward development.

How the back door opened

The mechanism is regulatory arbitrage. A sportsbook must be licensed in each state it operates in, pay state taxes and market access fees, and comply with state advertising and responsible- gambling rules. A prediction market structured as a designated contract market answers to a single federal regulator and offers contracts nationwide. When those contracts reference sporting outcomes, the practical experience for a user — stake money on whether an event happens, cash out if it does — is close enough to a bet that the distinction is mostly legal.

That has triggered a live jurisdictional fight. Several state gaming regulators argue the products are unlicensed sports betting; the platforms argue they are federally regulated derivatives outside state authority. The question of where the line sits is unresolved, and the outcome will shape how large the channel can become.

The operators are buying in

The most telling response has come from the incumbents themselves. Rather than lobby the channel out of existence, DraftKings acquired the CFTC-licensed exchange Railbird Technologies in late 2025 and used it to launch a prediction-markets product of its own. The logic is defensive and offensive at once: if event contracts can reach customers in states where a sportsbook licence is hard to obtain, an operator that owns a federally regulated exchange can follow its audience there without waiting for state-by-state approval.

For the largest operators, that reframes prediction markets from threat to distribution channel. It also puts pressure on rivals: a national event-contract product is a way to be present in markets a competitor cannot enter, which is exactly the kind of asymmetry that drives acquisitions.

What it means for suppliers

The encroachment matters beyond the operators. A prediction market still needs pricing, risk management and real-time data — the same sports-data and trading capability that data and odds suppliers sell to sportsbooks. Firms such as Sportradar and Genius Sports, whose feeds power licensed books, are natural inputs to event-contract platforms too. The channel does not remove demand for the supplier stack; it redirects it.

There is a responsible-gambling dimension as well. Sports-betting licences come with harm-prevention obligations — deposit limits, self-exclusion, affordability checks — that the derivatives framework does not replicate in the same form. If a meaningful share of sports wagering migrates to a channel with a lighter consumer-protection regime, regulators and legislators are likely to respond, either by extending gambling rules to event contracts or by clarifying that they fall outside sports betting altogether.

The unresolved question

For now, prediction markets occupy an ambiguous middle ground: too sports-like for state regulators to ignore, too federally chartered for them to easily stop. The commercial incentive to exploit that ambiguity is strong, and the fact that a tier-one operator has already bought its way in suggests the channel is being treated as durable rather than a passing loophole.

Whether it ends up as a genuine third vertical alongside casino and sportsbook, or gets folded back under gambling regulation, will be one of the defining US market questions of the next two years. The status of the fight across jurisdictions is tracked in our regulatory tracker.

The read-across for other markets

The dynamic is, for now, distinctly American — a product of the gap between a single federal derivatives regulator and fifty separate state gaming regimes. Few other jurisdictions run that exact split, so a wholesale export of event-contract sports betting is unlikely in the near term. But the underlying pattern — a product engineered to sit just outside the gambling perimeter while delivering a gambling-like experience — is one regulators everywhere recognise. How US authorities resolve the status of event contracts will therefore be studied well beyond the United States, as a test case for whether financial-market framing can durably reclassify what is functionally a bet.

FAQ