As results come in on election night next month, viewers watching CNN or CNBC may see a prediction market’s odds next to the vote count. Both networks now carry data from Kalshi, a federally regulated exchange where people trade contracts on real-world events. These markets have moved into the mainstream, and federal courts are now divided over whether they are financial markets overseen by Washington or gambling regulated by each state. The Supreme Court has been asked to decide.
Prediction markets trade event contracts, which pay $1 if a specified event happens and pay out nothing if it doesn’t. A contract trading at 62 cents reflects the market’s estimate of a 62 percent chance. Because traders have money riding on their predictions, their collective forecast is often accurate. The University of Iowa has run election markets since 1988. A comparison against 964 polls across five presidential elections found its market beat the polls about 74 percent of the time.
Pew Research Center found that monthly volume on the two largest prediction-market platforms grew more than fivefold between September 2025 and April 2026, and the debate over how these markets should be regulated, and by whom, has grown with them.
Congress gave the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over swaps traded on federally designated exchanges such as Kalshi, a category that covers contracts on events “associated with a potential financial, economic, or commercial consequence.” For years, though, the CFTC used that authority to block election contracts. It changed course only after a federal court ruled for Kalshi in 2024 and the agency dropped its appeal the following year. The CFTC has since defended these markets against state enforcement.
States have nonetheless claimed the authority to regulate and tax prediction markets as gambling. In April, the Third Circuit ruled that New Jersey cannot apply its gambling laws to Kalshi’s sports-event contracts. In August, the Ninth Circuit ruled that Nevada can, finding the contracts likely are not “swaps” under federal commodities law. Last month, the Sixth Circuit ruled the same way for Ohio and Tennessee. A week later, a federal court in Chicago blocked Illinois from applying its sports-wagering licensing rules to the same contracts. A trader in Newark and one in Columbus now face different rules for the same contract on the same exchange. New Jersey has asked the Supreme Court to settle the question.
Prediction markets serve commercial functions that sportsbooks do not, which is why the two belong under different regulatory regimes. A sportsbook sets the odds and takes the other side of every bet. An exchange takes no side of any trade: participants buy and sell with one another on a public order book, and the exchange earns a fee whatever the outcome. Fairer prices attract new traders, whose information makes the prices more accurate still. Prediction markets benefit when customers make accurate predictions. A sportsbook benefits only when its customers are wrong.
U.S. District Judge Martha Pacold reached the same conclusion in the Illinois case, saying “people may view these contracts as gambling, but little in the statutory definition turns on what people think. Instead, most of the definition turns on commercial function.”
CFTC-registered exchanges carry substantial compliance obligations. They must monitor trading for manipulation and discipline those who break their rules, and federal regulations require them to post those actions publicly. Kalshi opened more than 150 insider-trading investigations in the first quarter of this year alone. It has fined and suspended congressional candidates who traded on their own races and permanently banned former Rep. George Santos after he traded on whether he would attend the State of the Union. When federal rules need improvement, the CFTC and Congress can update them for the whole market at once.
These protections work best under one rulebook. When each state sets its own licensing terms and list of permitted contracts, exchanges must wall off users state by state, and the smaller pools produce forecasts that are less reliable and easier to manipulate. If California barred its residents from a presidential election market, the forecast would lose the knowledge of Californians. Illinois’s licensing rules would have created exactly that problem, and Judge Pacold found they would force Kalshi “to build a market solely for Illinoisans.”
When the Supreme Court takes up this question, it should apply the statute Congress wrote. Event contracts on federally supervised exchanges produce some of the most accurate public forecasts available, and the rules that govern them should be the same in Newark as in Columbus.
Image via Unsplash.