Prediction markets dominated discussion at an online gaming conference in New York this week as analysts, regulators and executives debated what the fast-growing sector will mean for the regulated sportsbook industry.
Speakers across several panels at the NEXT.io Summit pointed to surging trading activity on platforms such as Kalshi, legal battles in more than a dozen states, and growing concerns from tribal and commercial sports betting operators.
Prediction markets rise as betting cools
Exchange activity has climbed sharply in recent months, with platforms such as Kalshi posting weekly trading volumes above $2 billion and monthly trading surpassing $10 billion earlier this year.
Sports-related contracts account for more than 75% of trading even after the Super Bowl, Bank of America analyst Shaun Kelley noted.
At the same time, the U.S. sportsbook market has cooled. Monthly sports betting handle declined late last year and early this year, marking the first stretch of negative growth since the regulated market expanded nationwide, according to Julie Hoover, another Bank of America analyst.
“It’s really begging the question: What impact are Kalshi and other prediction markets having on the regulated online sports betting space?” Hoover said.
Sportsbooks gamble on tax advantage
More than a dozen states have filed lawsuits arguing sports event contracts function as unlicensed sports betting, challenging prediction market operators that say their platforms fall under federal derivatives oversight through the Commodity Futures Trading Commission. The legal fight over those contracts is expected to remain unresolved for years.
Even with that uncertainty, major sportsbook operators have begun entering the space. DraftKings and FanDuel launched their own event-contract platforms in recent months, seeking to operate nationwide under federal framework and avoid state gaming taxes.
“If you’re going to offer a sports betting product and you don’t have to pay your largest cost of goods, which is gaming taxes, it is a massive advantage,” Kelley said.
Shawn Fluharty, chief of government affairs at Play’n GO, estimated prediction markets may already have diverted about $600 million in potential tax revenue from states. He warned that sportsbooks launching prediction market platforms risk creating tension with state regulators if courts eventually determine the products violate state gaming laws.
“It’s a short-term bet, but it’s a long-term problem that’s not going to play well long-term,” Fluharty said.
Prediction markets as a legal catalyst
Some industry stakeholders framed that dynamic as a potential catalyst for further legalization.
Sports Betting Alliance President Jeremy Kudon said the growth of prediction markets could push more states to authorize sports betting and online casinos in order to capture wagering activity that currently falls outside state oversight.
Lawmakers have heard warnings about offshore gambling for years, Kudon said, but prediction markets present a different challenge because they operate openly and advertise around major sporting events.
“What I think is amazing is we’ve talked about the illegal market for eight years until we’re blue in the face educating [lawmakers], and we’ve never seen members actually really understand the risk like they do right now, with something that’s federally regulated in the prediction markets.”
Tribal leaders warn of revenue impact
Tribal gaming leaders said the shift is already affecting casino revenue in states without legal online sportsbooks.
“These prediction markets are the biggest threat to gaming in this country we have seen,” said James Siva, chairman of the California Nations Indian Gaming Association.
Matthew Morgan, chairman of the Oklahoma Indian Gaming Association, believes the longer prediction markets operate nationwide, the harder it will become for regulated operators to win those customers back.
“Once you give the consumer a product, it’s very hard to take it away from them,” Morgan said.
