Prediction market platform Kalshi is surging so much in Trump's second term, that it's prompted something of an arms race: Robinhood, Coinbase, FanDuel and DraftKings have all announced rival services in a bid to tap into prediction market mania, as traders put up hundreds of thousands of dollars speculating about future events.
But the long-term outlook for this nascent industry could hinge on how a series of legal battles define a single word: Gaming.
Kalshi allows people to place wagers on sports, news events and all manner of cultural happenings, processing billions of dollars in weekly bets and inking partnerships with major news organizations.
While the high-dollar gambles on current events grabs headlines, about 90% of activity on Kalshi is sports-related. Yet Kalshi is not considered a sports gambling site, like FanDuel and DraftKings.
Instead, they are overseen by the Commodity Futures Trading Commission, an agency that regulates "futures contracts," which Kalshi says it offers.
Under federal law, "gaming" is a prohibited type of futures contract — something that is now being litigated in numerous federal courts.
The future of Kalshi, and perhaps the entire prediction market industry, could depend on convincing courts that placing monetary wagers on sports events is not a type of game.
There are nineteen federal lawsuits pending at various stages grappling with the app's legality against the backdrop of state gambling laws that have traditionally had oversight over the activity of bettors, according to a review by NPR.
Kalshi has enlisted a cadre of high-profile lawyers to press their case that sports betting on the site is not a "game" and that state laws don't apply to them, since they are federally regulated.
"Mountains of authority confirm that the [federal law] preempts application of state law," wrote Kalshi lawyer Neal Katyal in a brief this week in a case pending before the 4th U.S. Circuit Court of Appeals. "Letting each state regulate [prediction markets] differently would plainly frustrate Congress's aim of bringing futures markets 'under a uniform set of regulations.'"
Daniel Wallach, a gaming attorney who has become an outspoken critic of prediction markets, said Kalshi's linguistic maneuvering to skirt state laws conceals the true nature of the company.
"They're engaging in gambling, no matter what they're trying to call it," Wallach said. "If you look at their offerings, including parlays, prop bets, on sports, that's the epitome of sports gambling."
As lawsuits drag on, Supreme Court, or Congress, could have the last word
Kalshi has faced a barrage of lawsuits, just as the company has mounted their own legal attacks in federal courts around the country.
Eight of the lawsuits are from state gambling commissions and Indian tribes accusing Kalshi of operating an unlicensed sports gambling platform; six of the suits are Kalshi on the offensive, suing state regulators contending they are outside the purview state gambling rules.The other five complaints were filed by individuals who argue Kalshi is an illegal service that is worsening gambling addiction. Four of those cases are seeking class-action status.
The feud between states and the federal government over Kalshi will set the pace for the whole prediction market industry, said Koleman Strumpf, an economics professor at Wake Forest University who studies prediction markets.
"It's going to be something the Supreme Court, and maybe even Congress, will have to weigh in on," Strumpf said. "The fundamental thing it comes down to is what degree there is still technical skill involved [in the betting] and what the definition of 'gaming,' is," he said.
Kalshi had been confronting regulators for years before it introduced sports betting. In January 2025, it announced the introduction of sporting events, and it quickly rocketed in popularity. It gave people access to live, second-by-second sports wagers in states where sports gambling is illegal, like California and Texas.
"What changed?" said lawyer Wallach. "The election of Donald J. Trump,"
Kalshi was under pressure, then Trump was elected
Donald Trump Jr., the president's son, is now an advisor to Kalshi and Polymarket, which was forced out of the U.S. under Biden but is now staging a U.S. comeback. The president's social network, TruthSocial, is also planning to launch its own prediction market service.
With the political support of the Trump administration, Kalshi's lawyers have argued across the nearly 20 suits that federal law overrides state gaming rules.
Under Trump, the CFTC has cleared the way for Kalshi to host betting on sports, elections and the outcome of various other future events, from how many migrants the U.S. will deport to what song will open musician Bad Bunny's NFL half-time show.
For Kalshi, being regulated as a futures contract subjects the company to far fewer rules than it would if it fell under the oversight of state gambling commission, or was treated as a security, like the stock market, according to financial experts.
Still, there are guardrails. For instance, under the 1936 Commodity Exchange Act, which was updated after the 2008 financial crisis, five types of future contracts are banned: Betting on illegal activity, assassinations, terrorism, war and games.
In a proposed rule during the Biden administration, the CFTC sought to rein in the industry by blacklisting sports and election betting, arguing they were "contrary to the public interest," but the rule was not finalized before the Trump administration regained control in Washington.
While the Trump administration has taken a hands-off approach to the industry, courts have been split.
A D.C. federal court ruled in 2024 that election betting does not constitute "gaming" in the same way as poker or slot machines, whereas courts in Maryland and Massachusetts have decided that Kalshi wagers are effectively games.
When the law was updated in the 2010 Dodd-Frank Act, nobody foresaw the emergence of prediction market apps, former CFTC officials told NPR, with one describing the D.C. ruling as the industry's "rocket-booster."
Kalshi says it is confident federal courts will ultimately rule in its favor, but gaming attorney Wallach predicts the company has long odds.
"They're throwing as many darts against the wall as possible and hoping there is disagreement in the courts to give them more runway," he said. "But the Supreme Court, or Congress, can end this all very quickly for them."
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