Prediction Markets After the Blue Wave

Andrew Zarnett

By Andrew Zarnett

Priced right. Nobody at Kalshi or Polymarket should have been surprised by Tuesday's results. Going into the vote, both platforms had Democrats at roughly 75 percent to win both chambers and about 94 percent to take the House, so the markets got the big call right. What matters now is what Democrats do with their new majorities, because they have been the ones disproportionately introducing bills to rein in the industry.

More noise than danger. On the Hill, the next two years should be more of a nuisance than a threat. Democrats now control both chambers, but Trump has said he will veto legislation he opposes, and nobody is near the two-thirds majority needed to override him. The main federal regulator, the Commodity Futures Trading Commission (CFTC), isn't going anywhere either. Chairman Michael Selig has been openly friendly to the industry, a sharp turn from the Biden-era regulators who wanted sports and political contracts kept off these platforms, and his agency has sued at least nine states that tried to treat sports contracts as gambling. A change in Senate control is unlikely to cost him his job.

Subpoena power. Where Democrats do have leverage is scrutiny. Committee chairs get subpoenas and hearing rooms, and the obvious line of inquiry is Donald Trump Jr., an investor in Polymarket and an adviser to Kalshi. Critics in both parties have wondered whether those ties helped the companies with the administration. Analysts expect Elizabeth Warren, who is no fan of the industry, to take over the Senate Banking Committee. Expect inquiry letters and hearings early next year.

Narrow bills, broad bills. The bills with the best odds are the narrow ones. The bipartisan Public Integrity in Financial Prediction Markets Act would bar the president, members of Congress and federal officials from trading on nonpublic information they get through their jobs. The broader proposals are a different story. A bipartisan bill, the Prediction Markets Are Gambling Act, would bar registered exchanges from listing sports and casino-style contracts. The Prediction Markets Security and Integrity Act, introduced in March 2026 by Sen. Richard Blumenthal, would require state licenses and hand oversight back to the states, undoing the industry's legal position.

Sports pay the bills. That is where the money is, and the numbers are striking. Trackers put October volume at $120 billion to $123 billion, the first month above $100 billion, with Kalshi at about $98 billion and parlays and other combos at least two thirds of its contract volume. Sports were 95 percent of Kalshi's 2025 revenue, according to the Ninth Circuit's August opinion. So the politics that matter here are about sports betting, not betting on elections.

The gaming lobby. Election contracts made the platforms famous, but sports contracts pay for them, and sports are what traditional gaming interests want banned. In June a coalition that includes the American Gaming Association, the Indian Gaming Association and the Association of Gaming Equipment Manufacturers asked the Senate to add a ban on sports and casino-style contracts to the CLARITY Act, the crypto market structure bill. That bill failed a procedural vote in the Senate in September, but any revival in 2027 would run through a Democratic Senate, which gives the ban a possible, however unlikely, way in.

A thin edge. The price edge is thinner than the volume suggests. Tater Labs, an independent price tracker, found in an October study that owning both sides of an NFL game cost 3.94 cents per dollar on Kalshi and 3.33 on Polymarket's U.S. exchange, against 4.36 at the typical sportsbook. Against FanDuel, the cheapest of the big books, Kalshi's edge was about a tenth of a cent. A cushion that thin would leave little room to absorb state licensing fees and taxes, which is why the court fight matters so much.

Courts, not Congress. The courts are the bigger worry, and the last few months went badly. In April the Third Circuit sided with Kalshi, 2–1, in a preliminary ruling that its sports contracts are federally regulated swaps that states can't touch. The Ninth Circuit went the other way in August, and the Sixth Circuit followed in September, unanimously, ruling that states can apply their gambling laws to Kalshi's sports contracts. That is a circuit split, the kind of disagreement the Supreme Court often steps in to resolve, and in July, attorneys general from 44 states told the CFTC it has no authority over sports contracts.

If the states prevail, the same contract could be legal in some states and banned in others, which would hurt far more than a Senate hearing. The alternative is for Congress to settle the question by law, spelling out which rules apply to sports contracts, election contracts and state-regulated gambling. Democrats can put that on the table, but a bill would need Republican votes in the Senate and Trump's signature, so a deal is possible but unlikely soon.

What to watch. Four things will say more than any forecast: (1) who gets the committee gavels in January, (2) whether a hearing notice names Kalshi or Polymarket, (3) whether an insider trading bill gets a bipartisan markup and (4) whether the Supreme Court takes up the circuit split. The last one is the one to watch.

Prediction Markets After the Blue Wave

Sources

Related