Overcoming Regulatory Hurdles in the U.S. Prediction Markets in 2025
Prediction markets — platforms where participants place wagers (or trades) on outcomes of events such as elections, economic indicators, sports, or entertainment — are increasingly seen by operators as a novel growth area. At the same time, this sector remains entangled in regulatory uncertainty. For gaming operators exploring this space, navigating the interplay between federal oversight and state-level regulation is critical.
Federal and State Regulatory Tensions
Federal Oversight
At the federal level, the Commodity Futures Trading Commission (CFTC) plays a central role in determining whether event-based contracts are treated as derivatives rather than classic bets. In several recent rulings, the CFTC has recognized that certain “event contracts” can qualify as financial products rather than gambling and thus fall under its commodities jurisdiction.
One major operator, Polymarket, recently secured the infrastructure to re-enter the U.S. market by acquiring a CFTC-licensed derivatives exchange and clearinghouse.
State-Level Regulation
Meanwhile, states continue to assert their power under gambling statutes. Many state gaming commissions argue that prediction markets are essentially unlicensed sportsbooks or wagers, especially when the underlying event is a sports outcome. In New York, the New York State Gaming Commission issued a cease-and-desist to Kalshi, and in response the company filed suit claiming that the state lacked jurisdiction because the contracts were federally regulated.
Divergent Regulatory Landscape
Recent research from the American Gaming Association shows strong public sentiment for treating sports-event contracts under state gaming regulation: 80 % of voters believe these contracts should be regulated like online sports betting, and 65 % think states — not only the CFTC — should oversee them.
This split between federal derivatives regulation and state gambling oversight creates a patchwork environment. Some states are more accepting of prediction-market models, while others treat them as prohibited gambling operations. Operators must assess both the federal framework and each state’s statutory and regulatory position.
Strategies for Overcoming Regulatory Hurdles
Jurisdiction-Specific Compliance & Due Diligence
Operators should evaluate state laws in depth: Are event contracts considered “wagers” under that state’s gaming statute? Do they require a sports-betting licence? How are they taxed? Early legal review is essential.
Modular Platform Design
To scale across states while staying compliant, building a modular platform that supports state-specific customisation is wise. For example, user interfaces or disclosures may vary by jurisdiction, or responsible-gaming features may be tailored to state law.
Regulatory Tech & Real-Time Monitoring
Given the evolving legal landscape, deploying regulatory-tech systems that monitor changing laws, track geolocation restrictions, and enforce age/AML/know-your-customer rules can reduce enforcement risk.
Engagement with Regulators & Legal Strategy
Proactively engaging with state gaming commissions and the CFTC can help. For instance, filing for a no-action relief or cross-border licence can buy legal clarity. The Kalshi–New York litigation is a prime example of legal strategy in motion.
Public-Relations and Stakeholder Communication
Given public concern around gambling, operators should emphasise consumer protection, educational outreach, age limits, transparency of odds, and clear fee disclosures. Public-sentiment data supports the need for state-level oversight.
Ensuring Compliance While Scaling Operations
Scaling a prediction-market business across multiple jurisdictions means balancing innovation with regulatory fidelity.
- Platform architecture – Employ a state-by-state rollout plan with geolocation controls and adjustable contract types (e.g., politics, sports, or economics).
- Audit & training programme – Conduct regular internal audits and training on regulatory obligations across states and federal regimes.
- Responsible gaming and AML/KYC – Integrate age verification, account limits, self-exclusion options, and AML monitoring to satisfy both gaming and financial-markets regulators.
- Tailored marketing and product disclosure – Ensure advertising, disclaimers, and contract terms conform to the most restrictive jurisdiction where business is offered.
- Exit strategies and contingency planning – Maintain contingency plans, including geographic carve-outs, contract suspension, and escrowed funds, to handle legal reversals or cease-and-desist orders.
The Future of Prediction Markets in 2025
Market Momentum & Institutional Entrants
The prediction-market sector is gaining momentum. Polymarket’s approval to re-enter the U.S. market signals institutional acceptance. Similarly, the trading app Robinhood recently launched a prediction-markets hub, powered by Kalshi, focusing on sports and policy outcomes.
Regulatory Clarification Ahead
Several major cases and legislative efforts are in play that could define the future regulatory regime:
- Court decisions such as the Kalshi-NY case could clarify state vs federal jurisdiction.
- Pending legislation around digital assets and derivatives may indirectly affect prediction markets through broader financial-innovation laws.
Opportunity & Risk for Operators
Prediction markets hold the potential to serve as both entertainment-driven wagering engines and serious analytic tools, such as sentiment forecasting. Operators that adopt compliance-centric strategies can lock in first-mover advantages in more permissive states. Conversely, regulatory reversals, state-level crackdowns, or litigation could impose significant cost and risk.
Key Takeaway
For operators, compliance cannot be treated as an afterthought. In 2025, taking a strategic, informed approach—viewing regulatory obligations as a business enabler rather than a burden—is vital. Firms that align product innovation with legal clarity and consumer protections are best positioned to capitalize on the prediction-market opportunity.
If you follow SCCG content and have inquiries about your gaming business, connect with Lazarus Crystal Law Firm—formed by SCCG Management and Lazarus Legal to unite top-tier gaming law with commercialization and market-entry strategy.
Our Areas of Expertise Include:
• Nevada and multi-state gaming licensing
• Regulatory compliance and audit services
• International market entry and cross-border advisory
• Gaming M&A legal due diligence
• Tribal gaming legal and strategic support
• iGaming and sports betting regulatory guidance
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Visit our website: www.lazaruscrystal.com
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Prediction markets are real growth, but operators need federal-state clarity before scaling—regulatory risk is still the deal killer.
We're watching prediction markets become a serious revenue stream, but the federal-state tug of war—CFTC versus state gambling regulators—creates real friction for operators. Getting this wrong means blocked launches or costly pivots. Right now, the regulatory map is uneven, and that's opportunity for operators who move deliberately.
- CFTC treats certain event contracts as derivatives, not gambling—major shift in how feds see prediction markets
- State regulators haven't caught up; their gambling definitions conflict with federal commodities jurisdiction
- Operators need dual-track compliance strategy: federal licensing AND state-by-state navigation
SCCG angle: We've got 30+ years and 150+ partners across every regulated market—we know where the landmines are and which regulators you need to talk to first. Our network can map the federal-state playbook for your specific predictions business before you commit capital.
Gaming, betting and prediction markets — the desk’s read, every weekday.
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